What Goes Into Restaurant Menu Pricing?

When we price an item, we're generally quite unimaginative. We have a standard percentage of food costs to overall price and apply that.
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How is the menu price of a food item decided? Also, Why is the price of same menu item different in different restaurants? originally appeared on Quora, the best answer to any question. Ask a question, get a great answer. Learn from experts and access insider knowledge. You can follow Quora on Twitter, Facebook and Google Plus.

Answer by Jonas Mikka Luster, blogger, former cook, 20-plus years in kitchens and counting:

What's in a dish's cost? Well, shall we break it down?

  • Raw ingredients
  • Transport and storage of those ingredients
  • Cost of turning ingredients into a dish
  • Personnel in the back of the house
  • Personnel in the front of the house
  • Administrative personnel
  • Rent, electricity — that stuff
  • Depreciation and wear and tear
  • "Hospitality" items, such as laundered table cloths, vacuumed floors, etc.

On top of all that comes what little profit one makes per dish.

All the above can fluctuate heavily. Depending on your purveyors and their history with you (and your liquidity — purveyors who sell on credit are few and far between and usually charge premiums), you might pay double sometimes. If you're buying from a more remote place, transport adds up. If you have better trained staff, same happens.

Usually, we try to balance things. We try to eliminate loss and spoilage to reduce cost — for example, add better insulation to reduce cooling and heating costs, upgrade kitchens to lower energy needs, etc. But we can only go so far; sometimes we just pay more than someone else to produce the ostensibly same dish.

When we price an item, we're generally quite unimaginative. We have a standard percentage of food costs to overall price and apply that. We then add or subtract small amounts based on if this is a dish that's prone to cost us more (for example, in spoilage or in work hours needed). Our competitors do the same — they just might have different baseline costs.

Finally, and this is something I should definitely mention as a stand-alone: Fluctuations in licensing and rent are insane in some cases. Some cities apply protectionist rulings to actively dissuade new restaurants from competing. Some landlords raise rents because they know they can. If your restaurant does something for a much higher price than the competition, ask the staff why. Sometimes they're more than happy to share the tale of licensing or rent woes.

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