Northern Ireland Tourist Board

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Effective menu costing

It is important to plan not only what is on your menu but the real cost of delivering this menu to your customers. If you don’t know how much it actually costs to create your menu dishes, how do you know if your menu prices are providing a healthy profit margin for the business? Let’s simplify it:

1. What does ‘gross profit’ mean?
Gross profit is your sales price less the cost of ingredients needed to make the dish, before labour and any other overheads. It is also known as ‘margin’ and is a good indicator of business health. It is nearly always shown as a percentage.  – See below example for calculating.

2. What’s the normal percentage for gross profit?
This is usually between 60-70%, but don’t get overly focused on this figure, as there are lots of variables according to the size and style of operation, food types offered and so on.

3. There are two key pieces of information required to establish the selling price:-

  • Gross profit target
  • Cost price of dish

So for example:

  • If my gross profit target is 60% then my cost price percentage is 40% or
  • If my gross profit target is 70% then my cost price percentage is 30%

4. Next step is to cost every ingredient in your recipe – here’s a basic Ulster Fry as an example:

5. Make sure all your information is standardised and that you are consistent in using metric or imperial measurements. Your producer invoices will be invaluable in finding this information.

6. You will also need to consider any shrinkage you might get in a recipe, for example joints of meat lose some weight in cooking, vegetable trimmings don’t reach the pot and there will be a bit of evaporation of liquid in soup and sauces. Build in a few more pence to allow for this, depending on your recipe.

7. Make sure you include absolutely everything in the dish costing – from salt and pepper to herb garnish. Don’t forget packaging if it’s a takeaway option – if you’re costing a cup of coffee remember to include the cup, the sleeve, milk, sugar sachets and stirrer. They all add up as costs to your business!

8. And the selling price calculation?
If your target GP is 65%, here’s how it looks for that breakfast we’re costing:

9. But what if you’re selling best butcher’s sausages, Gracehill black pudding and free range eggs from the farm along the road? Remember, your guests will be prepared to pay a premium for food ‘with a story’. If you tell them about these things on your menu, you can command a premium price, which could look more like this:

10. Food costs are variable at the moment, so it’s worth updating your food costings every quarter or so – your producers can help with the latest price lists and advice on seasonal buying, specials and best buys.