The only way money comes into your bar is when patrons purchase your menu items at the price you choose. So you must price your menus correctly to cover your overhead expenses (including things like rent, insurance, and salaries), your costs (like the ice, liquor, and garnish) and incidentals like napkins, stir sticks, and tiny plastic garnish swords.
Your food cost percentage (often shortened to simply food cost) is the cost of all the ingredients used to make the dish divided by the menu price. This percentage is a guide to help you control your costs and assess your profitability.
How to figure out the cost of a dish
Here’s how you figure out how much a dish costs to make. Cheese fries will be used as an example.
Figure the cost of the fries you use.
An 8-ounce portion of French fries costs about 30 cents.
Add the cost of the cheddar cheese you melt on top.
The cost of 3 ounces of cheddar cheese sauce is about 15 cents. So now you’re up to 45 cents.
Add the cost of the side of ranch and the side of ketchup you serve with the dish.
Assume you’re giving your patron 2 ounces of each, at around 7 cents for ranch dressing and 2 cents for ketchup. You’re looking at about 54 cents in food cost so far.
Add 5 to 10 percent for napkins, foil, plastic wrap, and any paper goods associated with the item.
To simplify the math, 5 cents is added here, not quite 10 percent of our subtotal, to bring the total food cost for this item to 59 cents.
You also need to figure out the cost of your shortening (or oil), seasonings, and other service items associated with the dish to get the most accurate food costing.
If you serve any complimentary items, such as nuts or popcorn, to guests, make sure you figure in a cost for those items when you’re pricing your menu items.
How to price items based on food cost
Most bars run an overall food cost percentage in the mid-30s. So you should price your food no less than three times as much as it costs you to make.
Here’s how you use food cost to set your menu prices:
Find the food cost of the item.
See the cheese fries example in the preceding section to figure this out. The portion costs was 59 cents.
Divide the cost by your food cost percentage goal.
If you want to run a 35 percent food cost, take the 59 cents the fries cost you and divide it by 35 percent (.59 ÷ .35 = $1.69).
Adjust the price to make sense when patrons read it on the menu.
Basically, $1.69 would be a strange price to see on a menu. Round it up to the next dollar amount ($2.00) or near-dollar amount ($1.99). Your goal is to help the patron be able to add the prices in his head. Also, for some reason pricing at the near-dollar amount subconsciously feels like a better value to patrons.
Most would rather pay $1.99 than $2.00. It’s recommended hitting ending prices with a 9 rather than a 5. If patrons are willing to pay $1.95, they’ll pay $1.99. If you charge them $1.95, you’re leaving $.04 on the table.
Here’s an example of how you could price cheese fries at different food cost percentages.
| Cost of Cheese Fries | Food Cost Percentage | Price at Exact Food Cost | Menu Price |
|---|---|---|---|
| $.59 | 20 | $2.95 | $2.99 |
| $.59 | 25 | $2.36 | $2.49 |
| $.59 | 30 | $1.97 | $1.99 |
| $.59 | 35 | $1.69 | $1.99 |
| $.59 | 40 | $1.48 | $1.49 |
This formula is a guideline, not an absolute rule. If your market will bear cheese fries priced at $3.99 or $4.99, charge it. Your food cost on these items will be lower (meaning they’ll be highly profitable), which could allow you to charge a lower percentage for more expensive products and still hit your numbers.