Why a 3-Time Markup Doesn't Work: The Truth About Menu Pricing

How to Solve Your Restaurant's Cost and Management Challenges: https://dsp.coach/transformation-opt-in.
Why a 3-Time Markup Doesn't Work: The Truth About Menu Pricing -- Have you seen the reality TV shows that promote a BS restaurant pricing strategy that has been setting our industry up for failure? Shows like “The Profit” with Marcus Lemonis? I used to like that show a lot. I watched several episodes where he told restaurant owners they needed to mark their food up by three times, and he's not the only expert on TV that's done that. I’ve seen too many restaurant owners follow this outdated profit-killing practice, and I want to explain why a 3-time markup doesn’t work and the truth about menu pricing.

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Welcome to my YouTube Channel. I am David Scott Peters, a restaurant coach and speaker who teaches restaurant operators how to cut costs and increase profits with my trademark Restaurant Prosperity Formula. Known as THE expert in the restaurant industry, I apply my no-BS style to teach and motivate restaurant owners to take control of their businesses and finally realize their full potential. Thousands of restaurants have used my formula to transform their businesses. To learn more about me and my coaching program, visit http://www.davidscottpeters.com.

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Here are five steps you need to take to price your menu properly and put yourself in a place where you can make money.

1. Start with a budget. Budgeting is critical to your success. How will you know where your food cost should be if you don't have a budget? You have to understand a calculation called prime cost, which is total cost of goods sold plus total labor costs including taxes, benefits and insurance. Your prime cost target needs to be based on your restaurant. I teach restaurant owners to aim for 55% or lower if you do at least $850,000 a year in sales. How you get there can be very different from another restaurant. You could run a higher cost of good sold and a lower labor cost or vice versa or dead on the same. But without a budget, without seeing your numbers, you don't know where you need to be so setting your food cost target.
2. Use accurate, up-to-date recipe costing cards. This is critical. I often tell people the two most important systems any restaurant should have are budgets and recipe costing cards. You'll never guess what the two systems are most restaurants never have… a budget and recipe costing cards. Why? The excuse I get all the time is they because they're too hard. Are you freaking kidding me? You're in the toughest business I know and as the leader of your business you must know this data. You must have a plan for success. You must know what you're selling and what it costs you in order to charge properly for it. If you're looking for recipe costing card software to handle much more ordering and inventory and even bill pay, visit www.marginedge.com/DSP. I don’t get a kickback, but if you visit that link you're going to get my guy Bruce, and he is a real restaurant pro.
3. Calculate your ideal food cost. Using your product mix – what your customers actually purchased – combined with your recipe costing cards, you can find your ideal food cost, which is what your food cost should be if there was no waste, no theft, no spoilage, if you ran a perfect restaurant, which does not exist. Put that into a spreadsheet I've created called Menu Profitability Monitor and it gives you your ideal cost.
4. Decide where you’re going to price your menu in the marketplace. Are you going to undercut your competition and be the dive bar, which I do not recommend, or are you going to price like every one of your competitors? Or are your service and product that much better than the competition so you can charge more?
5. Re-engineer your menu. Sort the data in your Menu Profitability Monitor in descending order from the items you sell the most of to the least and then you can decide if you’re going raise the price on your top one to three items in each one of the menu’s sections, if you’re going to drop losers, or add new items. You can look at ways to decrease costs such as buying smarter or decreasing portion sizes.

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