Every restaurateur knows that what’s on a menu need to be enticing and, when dishes arrive at the table, they should taste just as good as they sound. If you’ve managed to hit on the right formula, a winning dish (or dishes) will have customers returning to your restaurant time and again. However, if you haven’t taken the time to cost your menu correctly it may not matter how delicious your food is. It might seem like a particularly tedious exercise, but menu costing is an essential tool for restaurateurs and could be the deciding factor when it comes to making a profit or not. Correctly costing your menu determines if a dish is profitable, and every menu item will have its own food cost percentage. The lower that number, the less you spend creating it. The higher the number, the more expensive it is to create it. It sounds like a no-brainer, but not all restaurants take the time to properly cost their menu.
“A lot of people don’t bother doing these costings at all but I would absolutely recommend it. How can you fix the selling price of a dish if you don’t know what it’s costing you? Sometimes people make educated guesses; they take the most expensive ingredient on the dish, add surround costs to it, multiply that figure by three or four, add VAT and hope for the best. But anyone who really wants to take it seriously needs to do their costing in a more scientific manner,” says Blathnaid Bergin, Director and Owner of The Business of Food. A graduate of Shannon College of Hotel Management, Blathnaid has been setting up and streamlining food service businesses for decades. Her ‘Business of Food’ courses are specifically designed to give entrants to the industry the tools, skills and knowledge to do it right first time.
For a restaurant costing a menu from scratch, the first thing they need is a recipe. “You can’t cost without a written recipe. Accurate prices for the ingredients required for that recipe are also needed. The most up-to-date invoice should be used for this,” says Blathnaid. Once these direct costs have been calculated, the next step is to figure out how much you need to sell the dish for. This is where gross profit percentage comes into play, i.e. the gross profit measured as a percentage of the selling price of a dish. To be financially successful, a restaurant should be making a gross profit percentage of about 65-70 per cent, with food costs of 30-35 per cent.
Although would-be restaurant owners at Blathnaid’s courses are instructed to complete menu costings using a pen and paper, she advises clients to invest in a computerised costing programme or complete it in Microsoft Excel. “It takes too long by hand. I use a particular one called Resource Software which I’ve had for decades,” she says. “I regularly advise clients to invest in it as it’s extremely effective and not expensive. I gain nothing financially by recommending it but if people do go ahead and buy it, they’ll get a 20 per cent discount if they mention my name.”
To be financially successful, a restaurant should be making a gross profit percentage of about 65-70 per cent, with food costs of 30-35 per cent.
Food costing also needs to be regularly updated as food prices rise or fall. A food costing toolkit is available from Fáilte Ireland and is, says Blathnaid, particularly useful for restaurants with a small menu. Restaurants with seasonal menus will also have to adjust their prices according to the time of year.
“These menus are usually smaller, which is a good thing, as it’s easier to control the quality of the food,” she notes. “Also, the skills just aren’t out there to prepare big menus anymore. Restaurants with seasonal menus are changing their offering in line with what’s in season, meaning their food is cheaper and of a higher quality.”
Indirect costs such as rent or mortgage payments, lighting and heating, staff, equipment, maintenance and VAT must also be taken into consideration. It’s essential that all costs are tightly controlled so that the net profit ends up as close as possible to the target gross profit. Every restaurant’s cost base is different, says Blathnaid. “The labour content of one menu might be much higher than it is in another restaurant or one business may have high overheads while another might actually own their own building. There are so many factors involved in costing and that’s why it’s important for restaurants to take the time and do their own menu costing.” One of the most important factors is VAT. “You must remember to add VAT,” she adds. “If you forget to add VAT to the selling price of your food it’s an absolute catastrophe, as Revenue will need it from you anyway.”
Developing a menu should be a creative and fun part of running a restaurant. There’s nothing to say that financial success can’t go hand in hand with a chef ’s creativity and a desire to use tasty ingredients. Correctly costing a menu doesn’t just make sound financial sense; it could save you from some serious stress down the road.
“There’s really no excuse for people not doing this properly, particularly when menus are increasingly getting smaller,” says Blathnaid. “Costing a menu will ensure you’re building your business on good, strong foundations.”