If you’re passionate about food, the most exciting part of opening a new restaurant is developing the menu. Creating the dishes that will go on your restaurant’s menu is probably one of the most creatively fulfilling aspects of the job. However, developing dishes is only a part of the fun. Once you design dishes for your menu, you’ll have to put a price tag on those items, but how do you go about doing that in the most profitable and constructive way possible?
It takes brains, creativity, and strategy to engineer a successful menu. In a restaurant, menu engineering and pricing, similar to conceptualizing dishes, is a necessary art. As artist Ann Rea says, “A plan to sell your art without a plan, is a plan to sell no art.”
According to the most seasoned restaurant consultants, a well-executed menu engineering plan takes about two weeks to complete and can increase a restaurant’s profits by 10-15% on an ongoing basis. Menu engineering has a huge impact on your restaurant business, therefore figuring out how to accurately cost your menu is crucial.
Read on to learn about what steps you need to take to build your menu, formulas that you need to know to cost your menu accurately and effectively, and how to design your menu to increase sales.
1. Catalog Your Products
The first step to costing your menu, is knowing what your essential ingredients are and how much they cost. How do you define an essential ingredient? Essential ingredients are those ingredients that are used in most of your dishes and/or the ones that are the cost your business the most money.
To catalog your food purchases, begin by creating a list of all of your food products and their costs. This gives you a clear picture of what your suppliers are charging for every product. Once you have your ingredients and costs down, you can move on to the next step.
2. Cost Your Dishes
There are essentially two ways you can cost your dishes:
- By measuring: Amount of ingredients used in dish/total cost of that ingredient
- By finding your costs of goods sold
When you’re just opening a restaurant and developing a menu for the first time, you have no sales yet, therefore you won’t be able to measure your costs of goods sold. Once you open your restaurant, a couple of months into your operations, you can measure your food costs to get a more accurate understanding in order to price your menu more effectively. Your cost of goods sold (or COGS) = (beginning inventory) + (purchases during the period) – (ending inventory).
3. Portion your dishes
Once you match each item in your catalog with the appropriate dish on your menu, you can begin measuring the portion of that ingredient that goes into the dish.
If you were going to cost a hamburger on your menu, you would do so by listing all the ingredients in that dish: beef, bun, tomato, onion, ketchup.
Make inventory management smarter, not harder. Download our Inventory Management Guide now.
Portion out how much of those ingredients you use for one dish:
- 1/3 pound of beef
- 1 bun
- .5 ounce tomato
- .5 ounce onion
- 1 tablespoon of ketchup
Let’s hypothetically create costs for each item based on the portion used for the example:
1LB of beef = $4.00? LB : $4/3
Food can account for 35% of expenses.
Find out if you're spending too much with our Food Cost Calculator.
- Beef: $1.33
- Tomato: $0.15
- Bun: $0.80
- Onion: $0.10
- Ketchup: $0.30
It costs your restaurant $2.69 to make a hamburger in ingredients.
Then you’ll determine what other costs go into making the dish: labor, utilities, packaging etc. and add a percentage to that amount. Let’s say you decide to add 30% to that cost. That will add a $0.53 markup which totals your cost to $3.49.
4. Calculate food cost percentage
Cost / Sale Price = Food Cost Percentage
To find the percentage of your price of a dish that is spent on food cost, you will divide the food cost by the menu price of that item. This will give you a clear understanding of whether you are pricing the dish fairly and for what you can sell the dish if it’s worth the time, labor and cost it takes to make it.
Let’s say you decide to charge $10 for your hamburger. $3.49 /$10 = .349, which means your food cost percent is about 35%.
5. Calculate contribution margin, or profit
Your contribution margin takes the food cost and sales price to determine your profit.
Menu Price – Food Cost = Profit
For your hamburger, the profit would be $6.51.
Understanding the percentage of food cost and the profit amount will provide the exact data you need to engineer your menu.
6. Divide Menu Dishes Into Categories
Once you begin making sales, you’ll want to check your sales report on a daily basis. Your sales will tell you which category your dishes should be in. When it comes to recipe costing, traditionally menu dishes go into four distinct categories:
- Most profitable & most popular
- Least profitable & most popular
- Most profitable & least popular
- Least profitable & least popular
At Upserve, we use a tool called the Menu Magic Quadrant to assess which dishes bring guests back, which are one-hit-wonders, and which over or underperform compared to the rest of the menu.
7. Engineer Your Menu
Once you know what dishes make you the most money and are the most popular, you can strategically place them on your menu so that they get ordered more often. Use menu engineering tactics to make your menu work for you.
Wondering how you are going to collect all the data to find your food cost and to understand your sales trends? Purchasing a restaurant POS system that unifies both your kitchen operations (tracks your restaurant inventory) and a front of house operations (tracks your sales), you’ll have all the knowledge you need to create and optimize your menu like a pro!
Use our food cost calculator to get a personalized recommendation!