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In the industry there’s really only two ways to set prices on your menu and most restaurants are doing it wrong. Watch the video as I explain what these pricing models are and choosing which one is the best and tips on how to implement it.
To learn more please either watch the video above, read the transcript or listen to the podcast below.
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Hey everybody today I’m going to teach you how to set prices on your restaurant menu using Market Minus pricing instead of the usual Cost Plus pricing method.
There’s only two ways to set prices on your menu which are Cost Plus Pricing and Market Minus Pricing. Unfortunately most people are using cost plus pricing models but I suggest you use market minus pricing models.
Cost Plus Pricing – is what most restaurant owners are doing. It’s basically figuring out what it costs to produce the product that they want to sell and then multiplying that by three or four to get them within that 25% to 33% cost of goods sold on that item.
Market Minus Pricing – is to figure out what will the market pay for this product, what are my competitors charging, what can I charge for this product while still delivering value to the customer. Then, figure out how much you can spend on product to keep you in the 25% – 33% range. Lastly, go out and find the best product possible with the amount you can spend.
I’ve worked in 5-star hotels that charge $29 for a really big 10-ounce burger using a homemade bun and the highest quality of meat possible. We know that that customer can afford to spend that much and then we back into giving them an amazing hamburger at that price.
It’s important that you figure out what is your customer going to pay for this product and then we divide that number by somewhere between three and four which gives you the amount of money that you can spend to create a quality product at the best price range.
However, if you’re in the zone of three dollars or so well then you have to ask yourself the questions: “Do I need to balance size and quality?”. You may want to give a quarter pound burger of a slightly lower quality meat and cheese or you may prefer to give a five ounce burger that’s a little more quality. Those are decisions that you’re going to have to weigh.
In my opinion, coming up with your product figuring out how much it cost and attaching a price to it is a wrong and totally random way to set prices on your restaurant menu. It creates really uncomfortable situations sometimes because you’re putting out food that you’re not charging enough for.
I prefer market – pricing where you figure out what the market can pay for your product divide it by three or four to give you the cost the amount of money you can spend to put together that product and give your customer the absolute best quality product possible to fit that price.
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