Restaurant Financial Red Flags

publication date: May 28, 2007

 | 

author/source: John Nessel

The most common method of menu item pricing that I have observed over the years is what I will call the comparative approach. Simply check a few other restaurants that you compete with, find a similar item on their menu, and then price your item accordingly. Now its one thing to document and cost out all your menu items and then to determine what your selling price will be by taking into account that of your competitors, but its quite another to price solely off of them. The truth is that it takes a lot of discipline and time to carefully and accurately document and cost (and re-cost periodically as your vendor prices change) your menu items. Moreover, you need to be well organized, and have some reasonable math aptitude to deal with detail required to convert product prices from the way you purchase them to recipe units for costing purposes. But how can you possibly manage your restaurants food costs if you do not even know what each and every item is costing you? All you are left with is the “Let’s raise the price” mentality. And while that may work in the short run, there are unquestionably better ways to proactively manage your food costs than that!

There are a variety of recipe costing software products on the market, but they are of no value if you are not committed to first learning how to use them and then to continue to maintain them day in and out. A simple Excel spreadsheet is often the best solution.

John Nessel is the President of Restaurant Resource Group, a Boston-based consultancy providing financial tools and support services to independent restaurants and the hospitality industry.