The Price is Right: Behind the Scenes of a Restaurant
Financial Considerations

The Price is Right: Behind the Scenes of a Restaurant

Behind the scenes of a restaurant or pub, there is a lot of work which goes into making sure the prices are right. The art of perfectly pricing menu and bar items is the key to having a financially stable restaurant. There is an essential balance between a profitable menu, and making sure that customers are pleased with the way that your food is priced, as there is a significant competitive advantage in having a well-priced menu. Here are some of the considerations behind the scenes in making a restaurant perfectly priced:

  • Food Costing; determining the cost of each dish on a menu is essential for accounting and financial management of a restaurant, and helps owners and managers manage their budgets, cash flow and overall economic well-being. Calculating food costs includes separating costs into direct (the actual price tag on the ingredients), indirect (overheads, etc.), recipe cost (how much per dish), sale price and finally ideal and actual costs which differ. One is the money that would be made on a given recipe in a perfect world, and then the actual cost, backing out any inventory lost.
  • Food and Drink pricing: the price of a salad and a burger in a restaurant can be very different, but why? Every dish served in a restaurant is priced using strategy and, you guessed it, maths! To determine what to charge for a given dish, it is essential first to understand what that dish costs to make (as noted above). Once the cost is determined, marking the dish up by a certain percentage is the next step. What this percentage is, depends on factors such as your overheads and other costs, and the markup will be more if these costs are higher, as the goal is to make money from each dish. There are useful tools online which can help you price your dishes, but you will need to have a good grasp on your target profits and current financial state, etc.
  • Pour Costs; when it comes to drink, determining pour costs are crucial. Often alcoholic beverages are where restaurants and pubs make the most money. The pour cost can be calculated by dividing sales by the inventory usage (i.e. how much was used or is missing). Low pour costs are one of the easiest ways, (in theory and on paper), to boost profits. A 10% difference in pour costs can amount to a difference of upwards of $100 000 in just one year. The critical factors in balancing your pour cost are drink costs, drink prices and product loss. Drink prices should increase as the cost of the ingredients increase, and product loss can be related to staff drinking on shift or dropped bottles, etc.