how do restaurants calculate the prices of each dish? Do they accurately do it or just a rough estimate?
In: Economics
The price of food is difficult because so much of it is based on what people *think* something is worth, rather than the actual cost involved. What people think something is worth is based on how much it costs in similar places in similar locations, as well as their own biases regarding their willingness to pay for something. People are more willing to pay for something, for instance, when they are on vacation or on a business trip, than when they are 5 minutes from home. Few things are more “perception” based than the food we eat. This is why most restaurants go out of business within 2-3 years. So, for instance, the costs of a plate of spaghetti include the a portion of the rent of the building, a portion of the labor of all the staff, a portion of the utilities (gas, electricity, water), a portion of the initial setup costs of the business amortized over a certain period of time (pots, pans, dishes, tables, chairs, paint, flowers, legal costs, insurance, etc.), the interest of any loans you might have taken out, and the principle of those loans you have to pay back, the cost of the materials used in the making of the spaghetti, and finally, profit. You *could* break that down, and price each individual dish on your menu accordingly, but your best bet is to figure a per dish fixed cost (all the little setup and utility costs), and a specific dish variable cost (actual ingredients and time spend making it). The problem is, will people actually pay that? Suppose you figure everything out, and a plate of spaghetti ends up costing you $7.46, and people think it should be $5.99? This is the kind of thing you should be figuring out in your business plan before you even start looking for money to set up your shop. It’s called market research. Looking at your whole menu, some things might make you more profit, some might cost you more than you make. The idea is that the overall operation of your shop makes you enough profit to make the business a success.
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