Menu Costing: How to Calculate Profitable Selling Prices

Your menu is the most important lever for your earnings. Even small mistakes in costing add up to a noticeable loss across thousands of dishes sold. Anyone who simply matches competitors' prices or guesses risks having popular dishes contribute too little towards covering staff, rent and energy.

Sound costing reveals which dish actually makes money and which only generates revenue but barely any profit. This connects business thinking with your menu – and lays the foundation for fine-tuning later with menu engineering.

Before you start calculating, the central terms should be clear. They form the shared vocabulary of every calculation and feed directly into one another.

• The food cost is the sum of all ingredient costs for a dish, calculated precisely down to the portion actually used.
• The markup factor is the number by which you multiply the food cost to arrive at the net selling price.
• The food cost percentage describes the share of food cost in the net selling price and roughly ranges between 25 and 35 percent in many businesses.
• The net selling price is the price excluding value added tax and serves as the basis for your margin calculation.
• The gross selling price is the price including value added tax that your guests see on the menu.
• The contribution margin is the difference between net selling price and food cost and shows what remains to cover fixed costs.

The selling price emerges from the food cost in clear, traceable steps. The crucial point is to always calculate with net figures and add value added tax only at the very end.

From food cost to gross price in five steps

• First determine the food cost per portion, for example by dividing the cost of all ingredients by the number of portions.
• Define your target food cost percentage, for instance 30 percent for a classic main course.
• Calculate the markup factor by dividing 100 by the food cost percentage; at 30 percent this gives a factor of 3.33.
• Multiply the food cost by the markup factor to obtain the net selling price.
• Add the applicable value added tax rate to the net selling price to obtain the gross selling price.
• Round the gross price in a psychologically sensible way, for example to an amount just below the next whole unit.

Which value added tax rate applies to food and drink depends on the country and the type of consumption and changes from time to time. Clarify the rates that apply to you with your tax advisor before you set the final prices.

A fully costed menu does not appear overnight but follows a clear sequence. Work through the following steps carefully once and you will have a reliable basis for all future adjustments.

1. 1Record all ingredients for each dish with purchase price and the quantity actually processed in a recipe sheet.
2. 2Account for trimming, cooking and cleaning losses so that the food cost reflects reality and is not set too low.
3. 3Calculate the food cost per portion for each dish and from it derive the net selling price using your target percentage.
4. 4Add the value added tax rate, round sensibly and check whether the price is plausible in the market and for your guests.
5. 5Compare contribution margins and popularity of all dishes to identify stars and loss-makers following the principle of menu engineering.
6. 6Store all prices and recipes digitally and review them at fixed intervals, for example with each new round of purchase prices.

Costing once is not enough, because purchase prices fluctuate and margins come under pressure unnoticed. Anyone who maintains their menu digitally sees changes immediately in all places and does not have to correct every printed menu and every notice individually. This saves time and prevents outdated prices from leading to losses.

With gastronomx you maintain your digital, multilingual menu including allergen information in one central place. Updated prices appear everywhere at once without reprinting – on your own website and in the reservation and ordering process. This keeps your costing up to date and your margin in view at all times.