One of the hardest parts of menu design is pricing. Unfortunately, there is no single method that works for every menu. Here are a four methods for you to consider when pricing your menu.

Multiplier

Multiplier is a very simple method that involves totaling the cost of the plate, and all ancillary items, and then multiplying that by 2.5, 3, 3.5 or 4. The problem with this method is it will be very inconsistent to the real dollar profit needed to be successful.

For example, a ¼ chicken plus ancillary cost is equal to $1. Multiply $1 x 3 = $3. With a $3.00 selling price you only make $2.00 over cost on that seat. You may have a $3.00 fixed cost so you lose $1.00 on that customer.
Some people use a multiplier and then add one or two dollars to the item for good measure.

Food Cost Percentage
Food cost percentage is nothing more than wanting a fixed food cost for all items. It uses the multiplier to determine what overall food cost will be

• 20% Food Cost – Multiplier is 5
• 25% Food Cost – Multiplier is 4
• 33% Food Cost – Multiplier is 3
• 50% Food Cost – Multiplier is 2

As with the multiplier system, the same problems exist. One other problem is using the same example of chicken with a multiplier of 3.

For steak with a cost of $5 x 3 = $15 selling price. Consistency in pricing is very important. Your menu should be balanced and a $12 range for entrees would not be considered well balanced.

When considering this method, remember, you take DOLLARS to the bank NOT percentages. Think through the dollar amount you charge and the volume it will generate. For example, Steaks may carry a higher food cost but typically they will deliver more gross profit dollars to the bottom line.

Competition
Gathering menus from competitors is a very popular way to price a menu. In comparison, the prices on the menu may vary greatly. The problem with this method is comparing

• Portion Size
• Quality of product
• Décor
• Service
• Overall points of difference
• Location
• Marketing
• Reputation

What the Market will Bare
What the market will bare has more to do with raising prices. Every market has a perceived idea of what each restaurant should be. We all know examples of restaurants that charge considerably more for basically the same food.
A good example is going to a baseball game and paying two or three times the normal price, because a captive audience will pay for it. The important feature to remember is to be careful and do not try to be something you’re not.

To sum up pricing, it is very important that you do not use only one of the pricing methods listed but use common sense and combine all of the pricing methods. Food cost is more directly affected by product mix than any other factor. All items must be adequately priced in order to ensure profitability.

I’m a restaurant systems expert. I help literally hundreds of independent restaurant operators every year make more money in their operations then they ever have before. For some restaurant owners it’s the first time they have ever made ANY money in this competitive business.

It’s not uncommon for me to work with a large number of restaurant owners who say, “I don’t understand why I’m not making any money. I’m doing record sales!”

Let me start off with explaining a lesson I learned early on in my career and is still true today, “It’s doesn’t matter how much money you bring in at the register. It’s what you do with those sales.”

With this lesson as our theme, let’s proceed to bust the most deadly marketing myth that I believe is the number two restaurant killer, right behind extremely high debt service. This myth is often referred to as the cocaine of restaurant marketing … couponing!

It’s called the cocaine of advertising because it feels good when you increase your sales at the register and often dramatically. But when you stop couponing and sales drop, you look for a quick fix and run another coupon promotion. And as time goes by, you start running more and more aggressive discount promotions just to feel the rush at the register.

The similarity to cocaine is that this practice is addictive, and while it makes you feel euphoric, it literally can and will kill your restaurant.

Before I dispel this popular practice, let me make sure I let you know that all couponing is not bad. It has its place and needs to be done wisely and strategically.

OK, the theory behind couponing is that if you send out an aggressive coupon promotion it will bring in customers (translation = sales) that you would not have had otherwise. Many marketing experts will quote the National Restaurant Association and say that this increase in sales will not require you to schedule more labor to handle the extra volume. So the assumption is that you will make a lot more money because you ran the coupon promotion. While this is not totally incorrect, it more often than not does just the opposite and robs your bank account.

The rub lies in the execution and overuse  h2

The rub lies in the execution and overuse  h3

The rub lies in the execution and overuse  h4

Let’s break the numbers down. First understand there are two types of expenses: variable and fixed. Variable expenses are expenses that go up and down with sales, such as labor and food cost. Fixed expenses are expenses that stay the same, whether you bring in $1 or $1 million in sales. The key is to keep these expenses in the correct balance, which means your restaurant is operating at or above a breakeven point before you run your discount promotion.
The key numbers

To have any chance of making any money in this business, your prime cost (total cost of goods sold plus total labor cost) should not exceed 65 percent of sales for a full-service restaurant and 60 percent of sales for a quick service restaurant (and I advise full-service restaurants to strive for a 60 percent prime cost goal to ensure success). Couple your prime cost with the assumption that every other line expense on your profit and loss statement is in line, the average restaurant only makes a nickel (5 percent) of every dollar it brings in.
For a moment let’s assume your restaurant is at the breakeven point today. In fact, you bring in $100,000 in sales a month and when all of your bills are paid you owe nothing more and nothing is left over for you to take home. Basically for every dollar you bring in, it goes out dollar for dollar.
If this was your restaurant and you chose to run a coupon promotion with a 25 percent discount to bring in more business, this is what your increased sales and profits might look like:

1. Increased sales by 20 percent for an additional $20,000 in sales.
2. For each new dollar that came in we deduct a minimum $0.65 to cover our cost of goods sold and labor (prime cost of 65 percent).
3. Take an additional $0.25 away for each new dollar because of the 25 percent off coupon (Assuming that no more and no less than the increased sales came were from this promotion).
4. Assuming you’re at breakeven and all of your fixed expenses have been covered and that there are no additional variable expenses in your operation, you pocket $2,000 you wouldn’t have made otherwise or about a 2 percent profit margin on $120,000 in sales.

Plus you had to run your butt off to keep up with the new rush of business. So if you were already making a profit, you could assume a 2 percent increase is what you get to keep. But if you ran a BOGO (buy one, get one free promotion) and were only at breakeven, you would actually lose money bringing in an extra $20,000 in sales.
For many of you the 25 percent discount example has you thinking, “Hey, I was making nothing before. At least now I have something.”
The problem with this thought process
If your restaurant is losing money on $100,000 a month in sales, and that loss was only $5,000 because your prime cost was running at 70 percent, only 5 percent above the recommended level, this increase in discounted business actually doesn’t help much at all! Take a look:

1. Increased sales by 20 percent for an additional $20,000 in sales.
2. For each new dollar that came in we deduct a minimum $0.70 to cover our prime cost.
3. Take an additional $0.25 away for each new dollar because of the 25 percent off coupon.
4. Your $5,000 loss is now only a $4,000 loss.
5. So for every $20,000 in increased sales, you keep (or in this case decrease your losses by) $1,000.
6. To turn your $5,000 loss into a breakeven scenario using a 25 percent off coupon promotion you would have to increase your sales from $100,000 to $200,000 to just breakeven using this approach!

Change this to a BOGO offer and you’re creating a recipe for disaster.
And it gets worse
Now that you understand the pure economics of couponing, you need to understand the whole story. Have you ever noticed that you wait to go to the dry cleaners until you get their coupon in the mail inside your Money Mailer or Super Coups mailer? The dry cleaning industry has trained their customers to wait for the coupon, to never pay full price.
The last thing you want to do is train your customers to wait for a coupon to actually make the decision to come into your restaurant and spend money. If you over coupon, this is exactly what you do. And when this happens you don’t get increases in sales because of the coupon. Instead, your existing (not new) customers wait for the discount, too! And your sales and profits actually start to plummet!
When discounting is a good thing
There are certain times when I think you should absolutely run a discount promotion and even give away a FREE meal. It’s when you’re marketing to bring in a new customer, i.e., targeting new movers vs. your own customer database. This is because if your restaurant is running well and providing your guests with a fantastic dining experience, the money they will bring to your register over their lifetime far outweighs the small initial loss.
The solution
Instead of discounting, follow the wise advice of a good friend of mine and marketing guru, Kamron Karington, start to bundle your promotions. Keep your register ring high. Give up your discount in food cost and WOW your guests.
But most of all, follow the advice of former First Lady of the United States of America Nancy Regan: “Just say no to drugs!” Stay far away from making couponing your preferred and only choice for marketing your restaurant.

Every weekday…100,000 pharmaceutical reps take out or deliver $4 million in food from restaurants just like yours.

The average catering budget for a pharmaceutical rep is between $800 and $2500 per month! That means within your take-out or delivery area alone, pharmaceutical reps are spending between 1 and 3 million dollars a month.
How much of this are you getting?

Having a well planned marketing strategy to target pharmaceutical reps can bring BIG sales during lunch and dinner. That money has to be spent somewhere. It might as well be YOUR restaurant.

To help you get your piece of the pie, here are some things to consider when catering to pharmaceutical reps.We’ve categorized these considerations between Lunch and Dinner. What your about to read is feedback received from actual pharmaceutical reps. This is what THEY look for in a restaurant and what drives their buying decisions.

Lunch:

1. Offer all major credit cards including American Express. Different Pharmaceutical companies provide their reps with different credit card brands. The most common is Visa but some do use American Express.
2. Offer delivery and set up. The key to marketing to pharmaceutical reps is to make their life easier.
3. Provide quality packaging to offer great presentation. When a rep provides a lunch it is a reflection of them and their company. Presentation appeals to both the office staff and physician.
4. Offer drinks and dessert for off-site catering
5. Be On Time!
6. Always provide an itemized receipt or invoice of what was ordered. Pharma reps use this for their expense reports and having this available with every order will make their life easier and motivate them to use your restaurant more frequently.
7. Provide flatware, plates and serving utensils FREE OF CHARGE. It is a major irritant when restaurants choose to charge for this service.
8. Have one person in your restaurant dedicated to handling pharmaceutical rep lunches. They prefer one point of contact and the ability to establish a relationship.
9. Offer them a Rewards Program. Pharma reps are spending their company’s money and a rewards program provides them a way to personally benefit from the money they spend on lunches and dinners.

Dinner:

1. Provide privacy with a private room. Dinners usually involve a speaker which requires the proper environment.
2. Have a screen and projection equipment.
3. If you are going to require a minimum, make it reasonable. An acceptable amount.
4. A pre-set menu is acceptable as long as you offer 2-3 choices for the main entree.
5. Have one person in your restaurant dedicated to handling pharmaceutical rep dinners. They prefer one point of contact and the ability to establish a relationship.
6. Offer them a Rewards Program. Pharma reps are spending their company’s money and a rewards program provides them a way to personally benefit from the money they spend on dinners.

How Do I Get Started?

After you have considered the above needs, you will need to start targeting reps AND their offices. Usually a rep will order from the restaurants their offices request. So the fastest way to get into this market is to target the doctor’s offices.

Restaurantpartner.com offers a variety of pre-designed postcards that target Doctors Offices. You can also purchase a mailing list for all the doctor’s offices in your area. This will get the word out. You should also follow up the mailings with a personal visit to the offices.

Once you receive an order from a pharma rep, pull out all the stops and OVER SERVICE THEM. Again, it is all about making their life easy and giving them a personal reason to come back and tell their offices about your restaurant.

Once they come in, DON’T LET THEM LEAVE WITHOUT CAPTURING THEIR CONTACT INFORMATION. Ideally, you will get them enrolled in your customer rewards program right away and give them an incentive to spread the word among their associates.

Usually, marketing to pharmaceutical reps is a grass roots effort and grows through positive word of mouth and attention to detail. Listen to them, reward them and don’t let a bad experience go unrepaired. The reputation of your restaurant among the pharmaceutical rep community can spread awfully fast, both positive and negatively.

I’ve gotten countless calls from worried clients – petrified because a big competitor was sauntering in to town. Maybe Domino’s, Pizza Hut, whatever. They’re all freaked out and want to get some “inside secret” on beating back the threat.

Indeed, a new competitor is rarely good news. But, there may quite possibly be – a silver lining to this ominous dark cloud. Here’s why… big players come to town with a loaded bank account. They have a years worth of marketing cash – set aside. And they love to spend it.

Occasionally the big guys falter – but not very often. But, what if you could use their ocean of cash to help increase your sales? Say what? Continue Reading