how do restaurants calculate the prices of each dish? Do they accurately do it or just a rough estimate?
In: Economics
its not too hard, you know the exact amount of each ingredient that goes into the dish, and how much you buy each ingredient for. From there its just middle school math. You probably also want to factor in how much chef time it takes.
Now, this calculated price has very little to do with the menu price. The menu price is “How much will people be willing to pay for this dish?”
Rough estimate based on ingredient costs, time to prepare. I’ve heard about 3x is the average mark-up. Also, some items subsidize others — eg. a steak might cost restaurant $25 and they sell it for $50 (2x mark-up) while the baked potato that sells for $7 costs them 50 cents (14x markup). Starches, sides is often teh category where you’ll pay higher margins. Alcohol is another one… a $20 bottle of booze becomes 20 $15 cocktails.
A rough estimate of the cost of materials would be good enough, as it doesn’t take a lot into account and isn’t a great way of determining pricing anyway.
They’re buying the ingredients for everything they make, they’re using recipes that tell you how much of each ingredients should be used, and they know how much they’re paying someone to prepare it.
It’s trivial to figure out what each dish is costing them and what they need to price the dish at to make whatever margin they’re looking for on the dish plus cover the overhead of running the establishment.
It’s just a lot of simple math
There’s nothing “accurate” about the prices on the menu. Restaurants charge whatever they want.
They have a good idea of what it costs them to make each dish, both on a per-unit basis and the overall overhead of running the restaurant (which is a big part of their expenses – it costs a lot to run a restaurant even if everybody orders plain toast). And they’ll tend to put higher prices on the dishes that are more expensive for them to make, so that they don’t get caught out selling a lot of dishes at prices that will make them a loss. But there’s no obligation for them to present individual dishes at prices that correlate with their costs.
I assume you aren’t talking about fast food restaurants, but they in particular tend to adjust their prices (if they’re franchised) based on employee wages. Obviously everything at a fast food place costs pennies on the dollar, but even with the mark up and ‘promotions’ meant to lure in people who wouldn’t otherwise spend, they tend to have to raise their prices based on employee wages and the town/city out of which they operate, and what those customers are willing to pay.
For example, I work at one of the most expensive franchised BKs in New England. This is due to the fact that we operate out of a fairly well-paid town and have the highest minimum wage in our franchised states.
Sorry your whopper meal costs $13+, but the state has decided my employees (good and bad) deserve a raise.
You rule!
According to Robert Irvine you cost how much it takes for the ingredients of each dish then triple it. One pays for cost, one for labor and overhead and the last third is profit.
Restaurants track costs to make sure the dishes don’t cost them money, but that’s not the price.
The price of restaurant food and -every other thing you buy- isn’t based on the COST. It’s based on what the thing is WORTH. It’s that happy middle ground of “this makes us enough money to keep selling it” and “I’d rather spend money on this than go somewhere else.”
My mother ran a local non-chain fast food restaurant for years. She used the rough estimate approach. She later sold the restaurant to friends of mine. They broke out the Excel and did a bunch of math to really get an accurate handle on the ingredients-cost of all the stuff and found some things she had been making bank on and other items we were surprised to learn were being sold barely at cost or even at a loss (just in terms of ingredients). They then used that knowledge to adjust prices to something that works for them.
We used to have a show on Food Network Canada called Restaurant Makeover. Basically Kitchen Nightmares but with a designer and less drama and screaming. One time, the chef expert showed the cook how to make a basic dish, but then he went through pricing it. They estimated how much cost in ingredients went into the dish and multiplied it by a factor of four to help cover everything from the bread on the table to the guy in the back washing dishes.
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