how do restaurants calculate the prices of each dish? Do they accurately do it or just a rough estimate?
In: Economics
I do this on the regular. Let me explain my process.
Produce, seafood, meat etc usually always require some form of processing, so I need to “yield”
everything to cost it accurately. Meaning, I purchase 4540g (10lbs) of potatoes for $1lb, but I peel them and my waste is let’s say 454g (1lb) which is 10%. My yield is 4086g (9lbs), so it actually cost me $10 for 9lbs of usable potatoes which is ends up really costing me $1.11lb. Same steps apply for processing a whole tenderloin, sirloin, fish etc.
Now that I have my usable yield of potatoes I can use that in my recipe/menu item. I go through and do this for every item that I’m using in the dish/recipe (if it will have any waste whatsoever so I can cover my loss on the waste)
I plate my dish for myself to taste it and to weigh out each ingredient. 2g kosher salt, 20ml olive oil, 50g cleaned sirloin etc etc. lets say the total cost
Of my dish is $5.46. Generally speaking, restaurants aim to run no higher than 30% food cost on a dish. However that isn’t always the case as perception of value, expensive ingredients and other things can skew this. As long as the menu as a whole is coming in under 30% usually it’s fine.
At $5.46 my selling price would be:
5.46 divided by 30% = $18.20
Make sense OP?
You can only get an exact price in retrospect because you have some prices tied to sales (the actual ingredients) and some fixed (rent, utilities, labor).
Our very basic rule of thumb was 25% of the cost is ingredients, so $5 worth of food in the dish, $20 roughly would be the menu price.
Obviously this doesn’t fit all situations, and was more of an average target overall, but for most main dishes it gave us a good starting point. Starters and small plates and labour intensive dishes might be more like 15-20%. Specials of course was just trying to clear out whatever crap we had too much of, so that would be like 33%.
You don’t want to price yourself out of the market, and you also don’t want customers to undervalue your food by making it too cheap, so you’d have to take this with a dose of common sense.
I worked in a big fast food company. Generally we aimed for 30%food cost. Sometime would charge more if we thought people would pay it, or sometimes less if we wanted to use it to get people into store.
You estimate the costs, you do some market research to see what sells and what prices people buy at, you see how profitable it would be at each price and decide if you want to go for quality of quantity, and thats it; Sometimes you “normalize” prices. makign some things cheaper, even at a a lost, because they are covered by others that have a lower cost. Ice cream shops do this a lot (it allows you to have more flavors)
Well-run F&B operations definitely have formulas that consider the fixed and variable costs that go into each plate. This isn’t just about chain restaurants, also (and especially) independently-owned places need to find a version.
If you come up with a dish that calls for four nice big scampi and it keeps leaving the kitchen with five you will quickly kill your margins. Obviously you can adjust some so that the overall experience makes sense for a diner, but pricing is a business decision, not a gut feeling.
[Ingredient cost/number of grams of usable product per unit] * grams per final portion.
Repeat with all ingredients. Add 1-3% to cover for waste.
Cross reference this with the daily break even number, check average per person, and cover count to project business stability.
OP question and comments are actually why 1/3 of restaurants fail within the first year. Running a business and pricing things correctly vs knowing how to cook something people like to eat are usually 2 very different skills. Very few people possess both.
A friend just to have a fast food (not chain) restaurant and he would do it by estimation: I buy 1lb of meat and I can make X dishes. Then knowing the price by dish, he’d add a margin. I imagine larger restaurants get it a bit more complicated, but I’d be surprised if no stocking/ordering software handle this (knowing price per pound, inputting how much of ingredient is in a plate, use that ratio to find cost). Even maybe some spreadsheets in excel would be enough
I can calculate the exact ingredient cost of every dish that is put out by the kitchen. We take that cost and bump up the price by x percentage to hopefully cover overhead but be competitive with everyone else in the area (if we have to. Say my place just got written up as a “best date night”, we can charge a bit more for date night items, but that takes more dedicated analysis than just calculating cost), and the difference is generally made up by the bar.
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