Understanding Food Costs: Knowing What to Charge
Managing costs can be one of the most difficult aspects of starting a new restaurant. On one hand, you want to ensure that you do not overcharge for menu items and scare away potential customers. On the other hand, it is important that you make enough of a profit to expand and build upon your business. In order to do this properly, you must take all of your expenses into account.
Establishing the Proper Markup
Making a profit is an essential part of running any business, and as the saying goes, you have to spend money to make money. There are the initial costs such as the liquor license, health inspection costs, rent, utilities, and the upkeep of equipment into account, as well as other incidentals that customers are often unaware of. Consider, for example, all the things involved in serving a steak:
- The cost of the steak itself
- The cost of spices
- The cost of any sides included in the menu price
- The cost of the cook while he prepares the steak
- The cost to pay the server
- The cost of any added extras like napkins, sugar packets, lemons, etc.
Though the material cost to the restaurant might only be $8-$10, the actual cost usually ends up closer to twice that amount.
When figuring out your profit margin, it is important to remember that certain items are going to be more valuable than others. For example, you may determine that the restaurant only makes $0.10 off its steak, but it might make $1.00 off the cheesecake. Oftentimes, a Boston restaurant attorney can offer valuable assistance in this regard, as they have experience dealing with other restaurant owners who have asked the same questions.
Naturally, the easiest way to make sure your restaurant’s food prices are competitive is to find out what the competition is charging. Unfortunately, you may find that you cannot beat their prices, especially if you have high overhead costs. When this is the case, it is important that you find other ways to distinguish your restaurant. For example, if your steak is more expensive, create a marketing campaign that explains why (i.e., better quality, etc.). That way, you will still be able to capture your target audience.
Ultimately, the most important part of planning your menu is ensuring that you take all expenses into account. Don’t fall into the trap of including only the costs of raw materials and labor; instead, make sure you really understand what the dish is costing you before deciding what it will cost your customers. If you have questions about food costs for your new business, contact Boston restaurant attorney Lewis Sassoon of Sassoon & Cymrot for individual guidance and consultation.