Recipe Cost & Menu Marketing

to Profit Successfully

by Jim Lopolito

Food Fair Business Editor

& President Lopolito Consultants

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Formulating accurate recipe ingredient costs is essential in establishing a ROI marketing plan and this must be an ongoing method for managing your hospitality business. Additionally, while there are elasticity issues, competition, and your clientele to consider in menu pricing, having a price on your menu you know is correct can help bring in more profits especially when everyone on your team knows the results and how to use them.

If your competitor has lower prices and you or your managers react to reduce your pricing accordingly the results can be devastating, especially if your food and beverage costs are higher. Alternatively, the raising of your prices along with your competition can equally hurt your business when public opinion differs upon each establishment and you become overpriced as a result. All too often foodservice businesses use local menu prices around them to price their own menus, and this is such a bad idea. If you have no idea what your product is worth in cost, value, and perceptually, you cannot price your food and beverage just to keep in line with the location down the block. Prices placed on menus that are random make no sense at all and not having knowledge of your costs can restrict business growth and reduce profits.

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Many restaurateurs now perform their own marketing strategies using Instagram and Facebook to lure in new customers with pretty pictures of their food without considering proper planning. Randomly loading picture after picture of your food on social media has become saturated by every establishment, and this form of marketing without forward thinking and in-house preparations only means be prepared for disappointment.

 

Without calculating the costs of menu items or the items you promote only means you are selling food and beverage without knowing their true value to your bottom line. Selling the most popular item on the menu, or promoting the one that looks best in a picture, or creating a special for the evening and telling your staff to sell this does not mean you are making money on these items. This just means you are selling blind, and it is time to establish a sensible method of cost and pricing behavior. Additionally, when your managers do not understand the most profitable items on the menu and this information is not available to the FOH employees, your team is misguided and not selling to make you a profit.

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Misdirected marketing strategies along with poor pricing programs all too often can gain short term customers but can end in a loss of profits on items sold. Because of menu mix and other factors Management has no ROI strategy to understand if their efforts are delivering. Very often new customers see the pictures and visit the location one time never to return because the service orientation was not supportive of the marketing efforts. End of month reports indicate a rise in customers and higher check averages only to result in lower profits because the specials sold or the popular menu items recommended by staff were lower profit producers.

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Higher check averages do not mean higher profits unless the items sold are higher contribution margin contributors from their alternative menu items, which is a menu mix strategy.

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Menu mix analysis is necessary knowledge to control the selling of higher profit menu items. Owners that I encounter do not even know what items on their menus produce the highest contribution to profits; therefore, selling of the items they place on social media fails them when the items are low profit producers. Owners are asking management to explain this, only to devise excuses that have nothing to do with the real truth. If you do not know the reasons why you have low profits and possibly losing your business you can start by knowing your costs.

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Pricing out ingredient costs is one essential method to having reports that can be understood and evaluated. After you have established all your costs and menu prices you need to place the higher contributors on your menu where they will sell more often. Then you have to train your team on selling the higher contributors whenever possible. If you follow these basic steps you will receive higher profits and have an upper hand with your social media and marketing efforts.

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As a training tool, here is a basic example of the work necessary to price a recipe.

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Basic Menu Engineering Sample:

10 oz Prime Rib Dinner with String Beans and Mashed Potato and Small house salad with a roll will be included with the meal costs.

Price of ingredients

String Beans case price $28 for 25 lbs

Yield 24 lbs after tips cut off

3 oz portion of beans ($28 / 24 lbs / 16 oz x 3 oz = 22 cents per 3 oz portion

 

Potatoes case price $24 for 100 ct

Yield 100 portions after peeling for mashed potato

100 portion ($24 / 100 = 24 cents per portion

Cream, butter, Cream Cheese, S&P = 10 cents per 1 potato portion

 

Prime Rib $12.95 per lb. (Calculations are for a 10 oz portion)

20 lbs Rib Roast = $259

2 lbs trim fat from back with 18 lbs usable meat (In some situations fat is cut off and placed back on the meat for cooking, however, this is unusable product and must be accounted for as a loss)

 

After cooking yield loss of 15% on the 18 lbs = 15.3 lb usable meat

$259 / 15.3 lbs = recalculated now $16.92 per lb

10 oz portion $16.92 / 16 x 10 oz = $10.57 per 10 oz portion

 

Salad with greens, tomato, carrots, onions, and dressing = 50 cents per salad portion

 

Roll = Purchased at 25 cents per roll portion

 

Recipe Costs = String Beans $.22 + Potato $.34 + Prime Rib $10.57 + Salad $.50 + Roll $.25 = $11.88 cost per Prime Rib Dinner

 

$11.88 / 40 percent food cost calculation = $29.70 menu price at 40% food cost

 

Contribution Margin = $29.70 - $11.88 = $17.82 Contribution Margin

(The $17.82 is the amount of profit this item generates before expenses, known as the Contribution Margin).

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A full itemize report of your entire menu is necessary to know how much each recipe generates in profits.  Each day will have a different menu sales mix resulting is different profits based on the items sold that day. This is important to know because you want to know what items need to sell more often to improve profits, and this must be clearly delivered to your service team. A chicken meal may have a lower 32% food cost but only generate a $6 contribution to profits; whereas, the Prime Rib has a higher 40% food cost and generated $17.82 to profits. All too often food cost is the measurement management uses to discuss profits with the chef; however it is the contribution margin amount that is more essential in the management toolbox.

Notes:

You may want to consider placing higher contribution items in an area of the menu that generates more sales.

Having a full understanding of costs and how to price menus is critical to staying afloat in your business. 

About Jim Lopolito:

Jim is a veteran of the restaurant, country club, catering & concert industries offering expert assistance with club management consulting, restaurant consulting, as well as, other foodservice industry development. Jim is a Consulting Member of Cayuga Hospitality Consultants.

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Reach Jim here:

Lopolito Hospitality Consultants

www.LopolitoHospitalityConsultants.com

(845) 238-8131 – jim@lopolitohospitalityconsultants.com

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