Can higher food-cost drive higher profits? Yes!18 Jun 2018, by Kamron Karington in Restaurant Marketing
Restaurant owners are constantly schooled on "food cost." Has to be 30%... 33%... whatever. But is it true?
Many even price menu items based on food cost and advertise items with the highest profit margin.
Example: Food cost is $3. Sell for $10. That makes food cost 30%.
And certainly, the natural inclination is to promote products with high-profit margins. I’m not going to argue that, but there is another side to this coin.
What about a menu item with a 50% food cost?
Would it make any sense at all to promote that dish?
Say you have three dinner items on your menu:
- Steak - 50% food cost
- Salmon - 40% food cost
- Chicken - 30% food cost
So, looking at it that way your profit margin is:
- 50% on steak dinners
- 60% on salmon
- 70% on the chicken
You have exactly 100 guests tonight, and they'll order whatever you want them to. Which dinner will you sell them? Steak sells for $30, salmon $20, and chicken is $15.
Turns out one-hundred steak dinners gets you $1,500 in gross profit. Salmon drops $1,200 to the bottom line. And chicken dinners will give you $1,050.
So, oddly enough… the highest "profit-margin" dinner actually has the lowest overall profit.
Don’t fixate on profit-margin. Be aware though, of "contribution-margin" and sell people what they want to buy, at a price that moves plenty of it.
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