It has become clear before this article that having a profitable menu is the first step for the profitability of a business, although logically we need other variables to make the overall profitability of the establishment possible, such as, for example, controlled overheads, correct optimization of the personnel, and all this seasoned with a high turnover.
But now we shall concentrate on the profitability of the food that we are offering to our customers. What do we mean by a profitable offer? An offer which gives us a high margin. What is high? It is the optimum desired difference. What is the margin? The difference between the retail price and the cost of the dish (pricing), therefore the key to creating a menu, is to design these variables correctly: the retail price and the cost of the dish.
The first question which comes to mind is where do I begin? By setting the retail price or by preparing and pricing the dish, because what is clear is that to plan the margin, these two variables must be coherent with one another. We cannot work out the price of the dish on one side and do the pricing on the other and then link them, because then we cannot establish the desired margin.
Let us look at the two possible theories, that is, option A, first doing the pricing and then applying the desired margin to it to obtain the selling price of the article; and option B, which we shall see in the next article, but I can tell you in advance that it is to define the desired sales price and deduct the margin envisaged from it, so that the difference gives us the maximum cost allowed for designing each dish.
Which theory do you prefer? Are they both correct? Which is the most effective? We will take a dish as an example to explain it more clearly. For example, Entrecote with Wild Mushrooms and Fried Peppers
Option A. Good theory, above all in theory (the repeat is on purpose). Let us see…
The idea is as follows. We will do the pricing for the dish, taking into account the quality, weight and cost price of the ingredients. What standard do I apply to choose a quality, set a weight and a specific supplier? Now, having reached this point, it is true that each of us would take a different decision, in my case I go for very good quality meat, seasonal wild mushrooms and fresh organic peppers. In terms of weight I decide on an entrecote of 300 g, 100 g of wild mushrooms and 1 pepper of 50 g approximately for each serving. I look for suppliers of fresh products who offer me products of the desired quality and I accept the price offered after selecting the most appropriate supplier among them. From there, I do the pricing (example below) and obtain the cost of the dish.
Dish: Entrecote with wild mushrooms and fresh pepper
Ingredients Unit Gross weight Net weight Unit Price in € Cost in €
Young beef (Entrecote) Kg 1.200 1.200 18.50 22.20
Wild mushrooms Kg 0.400 0.400 15.50 6.20
Green pepper Kg 0.200 0.200 4.75 0.95
Oil Kg 0.010 0.010 3.15 0.03
Salt Kg 0.001 0.001 0.04 0.00
Servings calculated: 4.00 Total Cost: €29.38 Cost per serving: €7.35
Margin envisaged: 68% Final Retail Price: €22.95 % Food Cost: 32%
The cost of each serving is €7.35. To the cost of the dish I apply the desired % margin or % food cost. In this case we establish a % margin for food cost (raw material cost) acceptable to the market, such as 32%, and the final price of the dish comes out at €22.95 euro, as we can see from the table.
Cost of the dish = €7.35
Calculation of retail price = Cost of Dish / envisaged % Food Cost = €7.35 / 0.32 = €22.95
However, is the sales price (retail price) obtained in line with the pricing policy of the establishment or the type of customer desired? Is €22.95 euro an optimum price for an entrecote with wild mushrooms? Is the customer prepared to pay it? Isn’t it rather a high price for this dish?
In the next article we shall see which is the most efficient option in designing the menu for your restaurant and/or bar.
Article written by
Eduard Bellés, Specialist in Restaurants and Hotels