It’s difficult to say exactly when you should have a menu price increase, but as the price you pay for food continues to rise, you must eventually offset those higher costs.
Let’s say that over a three-month period, your food cost percentage has risen from 31.5% to 32.5%. Is it time for a menu price increase? Maybe not. You must look at all the variables.
Are produce prices temporarily skyrocketing? That happens every few years, but these prices will eventually come down, so most experienced restaurant owners do not become alarmed by this type of temporary situation. This would not be a justifiable reason for a menu price increase since the situation is only a temporary problem.
Here are four other areas to look if there is no obvious reason why your food cost percentage has increased. These are all areas you can control if you investigate them.
1. Look closely at the price you’ve paid for food over the past three months. If there was an increase in the price you are paying for food, maybe the increase was an oversight on the part of your salesperson. If so, he owes you credit for the overpriced items.
2. Spend a few days watching your waste. Is this area completely under control? Do you have new employees who tend to waste more food than you seasoned employees?
3. How is your portion control? Are your employees paying attention in this area? Are you?
4. Look at your inventory. Have you unknowingly let your inventory rise?
With these problems, a menu price increase is not the answer. More often than not, you can merely tighten your controls over one or more of these areas to avoid raising your prices.
However, if you find that all of your controls are in place, and that the price increase you are paying for food is real and permanent, you must take action. When profits are down and every area of your food cost is under control, except the price you are paying for food, it’s time for that menu price increase.
How Much To Increase Your Menu Prices?
If your food cost is normally 31.5%, but over the past three months your food cost has risen to 33.7%, then your food cost is out of line by 2.2%. If your net sales are $50,000, multiply this by 2.2% and you’ll find that you need to recapture $1100 in food costs per month. In order to accomplish this, divide 100 by 31.5 (your food cost percentage) and you’ll get 3.17. Now, multiply 3.17 by $1100 to get 3487. Your price increase must add $3487 to your net sales each month to lower your food cost by 2.2%.
Independents many times are afraid to have a menu price increase. They are afraid of losing good customers, but customers understand that you must increase your menu prices from time to time. Believe it or not, there is also a smart method to accomplish this, a way that your customers will appreciate.
Instead of having a sizable increase on several main menu items, one that everyone will notice, have a small across the board increase. In order to know how much to increase each menu item, you must know how much of each item you sell each month. How many orders of fries, how many medium drinks and so on? If you just don’t know, track every item on your menu for a month, and after a month you will know.
Add all of these totals together. Let’s say that you sold 30,000 food items during the month. If you need to increase your sales by $3487 through a price increase, then divide 3487 by 30,000 and you will get .1162. So, if you increase the price of every food item on your menu by about 11 and-a-half cents you would recapture $3487 per month, which would lower your food cost by $1100. Since you can’t charge a half-cent, you may consider rounding down to 11 cents per item. While you will not recapture all of the money you need, you will recover more than 95% of it.
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