Tax included in menu price (example done at a 20% rate)
| Margin | Multiple |
| 40% | X2 |
| 60% | X3 |
| 70% | X4 |
| 80% | X6 |
All you do is take your cost and multiply by the figure next to your target margin. The simpler the number the better and there are two ways to do this. Either make the multiple simple or make the margin simple. The purpose of this exercise is to take the numbers away from the spreadsheet and allow for a quick but accurate price to be calculated. This would be the kind of thing you could do for working out how much to charge for specials or for getting a finger in the air feeling for a new dish. With that in mind, make the multiple simple.
| Multiple | Margin at 0% inc tax | Margin at 20% inc tax |
| 2 | 50% | 42% |
| 3 | 67% | 56% |
| 4 | 75% | 63% |
| 5 | 80% | 67% |
| 6 | 83% | 69% |
Before we look at the formula for each, there Is a quick term, food cost percentage or FCP, that needs introducing. The FCP is the part of margin that would add back to 100%, but expressed as a decimal. Eg at 70% margin, FCP is 0.3. Tax is done in a similar way by expressing by example 20% as 1 plus the decimal, 1.2
To calculate multiplier from margin
1
FCP x Tax
To calculate margin from multiplier
1 - 1/FCP
Tax
These are available as a download.
Pricing – other considerations
By now you have put together costs for each item on your menu. You have probably got a feel for what margins you want from your menu overall. So it’s time to start thinking about how you want to price each dish. There are no hard and fast rules here, pricing is an art. There are three considerations that you need to make.
1 Are the prices balanced?
If you charge 2.95 for a soup and 150 for wagyu beef and lobster, then the prices seem out of line. A risk is that you have taken your margins too literally.
Think cash margins and percentage margins. The soup can safely be hiked for a higher percentage whilst the surf and turf can be reduced at the same time preserving a decent cash margin.
2 Do the price reflect your place?
How do you peg the level of your restaurant? Prices matches the dish on offer and that should match what you do. Running a fine dining establishment will dictate a completely different menu range than a fast food restaurant.
3 The most important question of all?
What does your competition charge? If you are have not got your own specific hold in the local market there will be at least one venue that you consider to be competition. Don’t think they are not going to do this to you.
Most competitors will play fair but they should be checking you out. Unless you have a clearly differentiated dish, see what is being charged elsewhere for comparison. One of the best tools you can own is a set of everyone elses’ current menus. It is very difficult to live in isolation in the hospitality industry especially when your customers will know what is acceptable in the market.
Stock
Stock turnover.
Poor or absent inventory management can make the difference between a profit or a loss before the plates come out of the kitchen door. Stock turnover measures the efficiency of your inventory. This was missed out of the ratio section as it needs it’s own discussion. To gauge stock turnover you should be breaking your produce into as many sensible categories as you can, but as few as you can get away with. For example; food, wine, beers, spirits, soft drinks. If you know you have certain areas of your stock that could slew your figures, break it down further, premium goods tend to shift slower than others, especially on a wine list.
Stock turnover days
(average stock / cost of sales for the year) x365
This shows how many days your stock is kept on average. Unless your food is frozen, you want to see your turnover days less than the expected shelf life. A slow turnover on drinks maybe shows you have a large wine list or you are overstocked. If you have stock turnover days longer than the credit given by your supplier, you are literally paying to hold the stock.
Should you do a lot of business with your wine merchant and he approves your storage methods, you could cut a deal on imprest stock. By this, the wine merchant owns the stock and you pay for replenishment. If you want a stock of wine but don’t want to hold it on site, there are various businesses that will let you own wine on their list, but they store it for you until needed. This has a couple of very important advantages, you don’t pay the tax on the list if it is stored under bond and you have paid for this in advance which could save you a fortune on appreciating values. The downside is that you have cash sat on someone else’s shelf.
Next come beers which should be turning over within a fortnight. Spirits and wines would be ideally moved within a month.
If you are able to work out stock turnover it also means you understand what you have purchased and what your inventory levels are already. Just understanding that means you have data far in excess of what many restaurants have available.
Stock rotation
The ideal way to deal with stock is to use the oldest ingredients first. This method of stock control is called first in first out or FIFO for short. The other end is LIFO, last in first out, which is not a great practise for a restaurant to follow. In reality LIFO is often the default position.
Ask yourself a question. How often have you seen a hurried staff member fill up the beer fridge or the walk in larder from the front? All the stock at the back is at a more advanced stage
