Another difficult challenge in developing a restaurant and bar business plan is creating menu pricing based on required profitability. The following article is an excerpt from the Restaurant and Bar Business Plan strategy section, in which we provide a guideline for developing profitable menu pricing.

Menu Pricing

The example restaurant's value proposition is positioned as a high-quality, full-service restaurant and bar with mid-range pricing. Because the restaurant has limited geographic or comparable service competition, the menu will carry a slightly elevated pricing strategy. The financial forecasts are based on revenue of 77% from food sales and 22% from beverage sales, based statistics from the National Restaurant Association. The owners are estimating the cost of food at 36% and the cost beverages at 25%.

Pricing follows a full-cost strategy that reflects the establishment’s actual costs. The following formula will determine menu pricing:

Menu Price = Cost of Food divided by Food Cost Percentage

Food: 

$11.72 (menu price)  =  $4.22 (cost of food) / .36 (food cost percentage)

Beverage:  

$6.00 (menu price)  =  $1.50 (cost of beverage) / .25 (beverage cost   percentage)

Average Check

The restaurant owners are projecting an average lunch ticket of $17.00 per person per visit and an average dinner ticket of $25.00 per person per visit.

Using the formula of Dollar Sales = Number of Units Sold x Price, the owners are projecting annual lunch sales of $633,352 and annual dinner sales of $1,006,175 in the first year.

Annual Lunch Sales:  $633,352 = 37,256 x $17.00

Annual Dinner Sales:  $1,006,175 = 40,247 x $25.00

Dividing the average annual lunch units by 365 operating days, the restaurant is anticipating 181 lunch units and 196 dinner units served per day.

Average Table Turn

Lunch:  The owners anticipate an average party of 2.75 people per table for lunch. To accommodate the projected 181 lunch units per day and an average table party of 2.75, the owners expect to seat 66 tables (181/2.75). The owners assume two table turns per lunch seating. The restaurant requires 32 tables to accommodate lunch customers (66/2).

Dinner:  The owners anticipate an average party of 3.0 people per table. To accommodate the projected 196 dinner units per day and an average table party of 3.0, the owners expect to seat 66 tables (196/3). The owners assume two table turns per dinner seating. The restaurant requires 32 tables to accommodate dinner customers (66/2).