Restaurant Menu & Recipe Pricing Model
Originally published: 27/10/2020 16:31
Publication number: ELQ-90919-1
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Restaurant Menu & Recipe Pricing Model

A Fully Automated Model To Calculate Menu Recipe Cost & Pricing

This model has been designed to enable current and future restaurant owner(s) to correctly and economically price their menu items to turn a profit by effectively gauging direct cost of their menu items (Cost of Goods Sold, or COGs for short) and indirect cost of production (e.g., direct labor cost, machine hours, etc.).

User(s) must input each menu item with detailed information (e.g., ingredients, cooking time, cooking instructions, etc.) that make-up the recipe for that particular menu item. This model uses “Cost Plus” pricing approach to price each item by applying a user-selected margin over the total cost of a menu item.

User(s) should carefully take into account current market dynamics, competition, and any other relevant factors that might affect the sales volume when selecting a margin for a particular menu item to ensure that they keep their competitive advantage in the marketplace while maximizing profit and at the same time.

The core concept of the model has been designed around three major variables as follow:
1) Direct Cost of Goods/Materials,
2) Indirect Cost of Goods (portion of fixed-cost that related to production)/Materials, and
3) Target Profit Margin.

I. Model Structure
The model is composed of four major sections as follow:
a) Ingredients Price Table (Where, ingredients prices must be updated periodically when there is a major shift in prices. When updated, the model will automatically re-calculate and update total costs, related profit margins, and all other variables for each menu item);

b) Recipe Creation Form (Where, the user is able to view, edit, save and delete recipes, or create new ones from series of dropdowns already populated with all the ingredients used by the restaurant);

c) Menu Pricing Form (Where, all pertinent data required are entered and recipes total Cost and profit margins are automatically calculated); and

d) Recipes Database (Where, created recipes are stored for future reference).

II. Model Use Procedures
The model is built with the main goal of being as user-friendly as possible given the relative complexity of the model. Consequently, the model is fully a menu-driven model, where critical segments can be easily accessed by selecting from the menu. This is done to mitigate user intervention with the model to ensure integrity of the model structure.

This Best Practice includes
1 Excel 2019 File

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Further information

Profitable & Economical Pricing of Restaurant Menu Items

This model works best for those new or on-going restaurant owners who would like to methodically and analytically price their menu items to not only be profitable, but remain competitive in their market.

This model does not generate Standard Financial Statements but rather an analytical platform for restaurants.

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