We all go out to eat, some more than others. But did you ever consider what goes into deciding on restaurant menu prices? There are two different factors that primarily influence pricing of various restaurant items. One of these is very objective in that the markup in prices is quite obvious. The other factor has some objective pricing, but much of it is determined by very subjective decisions. Read on to find out how your favorite restaurant decides on their menu prices.
Direct Costs or Ingredients
You probably aren’t surprised that this is one of the main factors in restaurant menu prices. Of course the ingredients that are used to make a dish play a direct role in the final price of that dish. When pricing a menu item a restaurant owner will typically multiply the cost of ingredients by 2-3 times as a starting point, but they also factor in other aspects of the ingredients such as:
Portion size: It’s very important to restaurants to keep portion sizes consistent, otherwise they have no real idea how much they are spending on an individual dish. That’s why they use recipes and often weigh ingredients.
Seasonal Ingredients: Because seasonal ingredients have different costs at different times of the year they may be difficult to factor in to a menu price. For example, most fresh fruits are cheaper in the summer when they can be sourced locally. Restaurant owners may choose to use the higher non-seasonal price for their normal menu, and then simply run specials on items that are considered in-season.
Indirect Costs or Pretty much Everything Else
In addition to the ingredients there are a lot of other things that go into making a restaurant dish. These are all considered indirect costs and include the following:
Labor: It takes a number of cooks, servers, busboys, dishwashers and managers to run a restaurant effectively. All of this labor costs money and this needs to be factored into the cost of the dishes served at the restaurant.
Utilities and Rent: Unless the restaurant owner owns the building the restaurant is in outright he is paying either a mortgage or rent. Additionally he will be paying for electricity, water, sanitation, and other maintenance related charges.
Level of Service: This ties in with the labor costs. A fine dining restaurant will often have more staff than a fast food restaurant, but more importantly the staff at a fine dining restaurant is typically paid a higher wage as skilled labor.
Competition: Good restaurant owners take the time to scout their competition and see what they are charging. They may choose to price under their competition to position themselves as a value choice, or they might choose to price their menu items higher to give the impression that they have better quality.
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