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It sounds simple … and it is! People do complicate it however, and admittedly there are many ways to analyze the food cost or look at it, depending on what you are trying to achieve. But lets just look at “food cost”.

Food cost is the cost of edible product sold in a foodservice establishment.
If you can’t eat it, then it should not be included in your food cost!

Once you know your food cost you can go on to using it to ensure you are making a profit and not just busy being busy.

The food cost on a batch recipe for example, coleslaw, includes everything edible that went into it. The cabbage, mayonnaise, mustard, raisins, salt, pepper and carrots are measured and costed according to the purchase price of the ingredients. Add them all together and the cost of making that batch is your food cost! It is important to know the costs of your recipes made in large batches in order to streamline costing of individual menu items. For example if you know your 100 oz. batch of coleslaw cost you $5.00 to make, then 1 ounce costs you 5 cents. When you are calculating your menu items or “plate recipes” and included in that item is 3 ounces of coleslaw then you would add 15 cents for that ingredient. Preparing the costs of your batch recipes is an important step in knowing your true costs and also makes it easier down the line.

In my experience, getting the batch recipes is the biggest hurdle for operators to overcome. Next is getting staff to adhere to the recipe portioning., but we’ll get to that later. It is essential to have batch recipes written down with accurate measurements in order to understand your true costs. I hear things like “I make it different every time” or “ the recipe is in her head” or “I just throw some of this in and some of that” or “I don’t know how much flour goes in it, I just keep adding until it feels right”. Being a chef I can understand this and have probably said something close to these statements from time to time. Being a businessman, I know none of these responses are acceptable. Recipes that are “close to” or “ a version of” what you are preparing and selling will not give you accurate costs. The difference in pennies, nickels, dimes, quarters and dollars adds up quickly and impact your bottom line. Operators often tell me they can’t get their chefs to write it down, they are too busy. Trust me, take the time, pay them overtime, do whatever it is you need to do to get at the very least the ingredients and the measurements on paper.

Another important aspect of recipe costing, is knowing the true yield of a batch or ingredient. What I mean by this is how much of the product purchased is edible. After you’ve peeled 10 lbs. of potatoes how much is left? 8 pounds? 7.5 pounds? Where are you accounting for the thrown away peels? If you purchase your chicken breast as a 6 oz. breast but after you thaw it and it becomes a 5 oz. breast after water loss, where are you accounting for that missing ounce? You paid for it by the ounce! You paid for 6 ounces! There are many variables that effect the yield of a product, cooking method, storing method, really any handling and preparatory procedure can alter the yield. These need to be considered and allowed for when pricing your batch and plate recipes. Again, pennies add up quickly. The Menu Maestro has a best yield tool to help you with this along with a built in waste factor, (in the plate recipe tool) which incidentally most people forget to include when calculating food cost.

Once you know the cost of your products and have your batch recipes costed you can move on to costing your plate recipes. By plate recipe I mean the actual items on your menu, hamburger platter, soup of the day, turkey dinner, etc. By costing I mean determining what you are actually serving the customer in edible product. “Pricing” your menu items comes after “costing” the items. The food cost on say a hamburger platter includes anything and everything edible used in preparing the meal. You would have already prepared batch recipe costs for some of the items. Coleslaw, fries, the hamburger itself should have all been costed as batch recipes. Now you take the serving size of the batches and apply to you plate recipe. For example you would use 3 ounces of your 100 oz. batch recipe. Then 6 oz. of fries from your 20 ounce batch recipe, and 1 burger from your 10 burger batch. Important here is not to forget the condiments. Relish, mustard, catsup, salt, pepper, cream, sugar, jams, sauces etc. are commonly neglected when costing menu items and this little oversight can be costly when determining your profit margin on menu items.

I worked with a customer who forgot to include creamers in their cost calculations for coffee. The food cost error amounted to $450.00 per month. Over a year, the cost turned into $5,450.00. This cost of product sold at a 30% food cost is a lost retail of $18,000.00 for the year. Another customer over looked the roll & butter in the entrée food cost calculation. The cost was 23 cents per order at 3000 orders a month. The cost was $690.00 per month at $8,280.00 for the year. The lost retail sales at a 30% food cost is $27,600.00 for the year.

* reminder Do not include disposable paper liners or disposable cutlery or take out packaging, this is not part of your food cost. Remember, if you can’t eat it, it should not be included in food cost.

So now you know your food cost on an item and you should know it overall as well. “How much do I spend on food in a month”, and “how much do I spend on this one batch or this one menu item” are questions, which, once you can answer are the solid beginnings to maximizing your profits.

It is important to note here that food costing is not about cutting back or compromising quality. This is a misunderstanding that many of my friends have and also many of my clients. I remember dining in a pub style restaurant with friends. We had eaten there many times before but the portioning had become skimpier. My friends commented that I must have gotten them worried about food cost and that’s why we had less on our plates. Quite the contrary, I encourage all establishments to never compromise what they do best, serve quality food in the portion size that YOUR customers expect and enjoy. Knowing the cost of your food and making a fair profit is what food costing is all about. Customers will tolerate a change in price over a change in portion and/or quality every time.

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It is no sense just knowing your food cost if you are just going to look at it and do nothing. Oddly people do. You can determine your food costs, I can determine your food costs, your staff can work tirelessly writing down recipes and measuring and all of the wonderful things you have asked them to do to come up with accurate costs. Now you must use these costs to your advantage. Use your food cost knowledge to price your menu items, buffets, specials, banquets EVERTHING, so that you are making a profit, and not just a profit on paper, a profit that shows up in your cash drawer! We can all put exorbitant prices on menu items and in theory make a huge profit, but if it doesn’t sell then it is all moot. Quality, consistency and value will sell your product. This is a guiding principal in menu pricing.

If your menu is new then you will use your food costs to determine the pricing.
If you are looking at your existing menu, it is time to use your food costs and determine how much each item is putting in your cash drawer. This is time to analyze your menu and adjust both your pricing and perhaps your offerings. It’s time to determine your top ten. Your top ten sellers, AND your top ten money makers (they may be different, really!)

Your food cost percentage is the percentage of the selling price that is your cost. The difference between price and your food costs is your profit or “contribution”
For example:
Menu Item price $10.00
Menu item food cost $2.50
Percentage food cost = 25%
Therefore, Contribution = $7.50 or 75%

Each type of menu item has a percentage food cost range that is industry standard and puts you in a range to remain competitive with other like operations. For example:

Fountain pop, coffee, tea        8 – 20% food cost allowance
Soups and Salads20 – 30% food cost allowance
Meat and potato entrées25 – 35% food cost allowance
Shrimp and lobster45 – 50% food cost allowance

The pricing tool inside the plate recipe area in the Menu Maestro provides the food cost allowance range and price points for you once you have completed your calculations. There is a “what if” area that shows you your different contribution levels adjusted varying prices. “What if” I charged $10.95, what would my contribution be?

Operators often make the mistake of following their competitors for pricing their menu. Don’t make this mistake. You should certainly be aware of the competition, but consumers aren’t fooled by price alone. You know this yourself. When you are purchasing products, price alone is not the decision maker. What good is a cheaper steak when the quality is not consistent with your standards. Consumers think the same way. You are a consumer! You know this. You expect to pay a fair price for the quality of product you desire. Determine a fair price for your product and you will be in a profitable business with longevity.

I recall with great frustration a boss of mine who would rightly, hold me accountable as executive chef, for food costs, yet he would announce a special he would like to see and tell me the quantity , quality and price, right off the top of his head. “We’ll have an 8oz. steak special with rolls, potato, soup and salad for $10.95”. This is a perfect example of a man who wanted to “know” his food costs at the end of the day, but wasn’t willing to use the costs to ensure profits. I was responsible for the food costs but had no control over them. Knowing the food cost was not enough. Managing them and using them to our advantage was necessary.

Knowing your food cost is the first important step in better managing your profits. Knowledge is power. Using that knowledge to make appropriate adjustments to your business will show dividends almost immediately.

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No! Once you have priced your menu items (based on the cost of food and the contribution level recommended for the menu category), it is time to look at your menu overall. You want to achieve an “average” food cost of 33%! The entire menu will blend together to provide a cost mix between the lower and higher food costs to reach a menu mix cost average. Some items you sell more of, but they contribute less, dollar wise. Pop for example has a high contribution percentage but lower dollar value, so sell more of that item generally. Steak has a lower contribution percentage but a higher dollar value and you would sell fewer of them but make more cash. It’s a fine balance and important to look at.

In the Menu Maestro we refer to this process as Menu Sales Mix. This is an overall look at your menu for food cost and contribution levels. This is a place to analyze your hard work and modify your menu with different items and/or pricing scenarios before you print your menu.

For existing operators, looking at your menu and comparing actual month ends sales to it, will show you your actual food cost and contribution levels. If you are a new restaurant, use “what if” sales to project menu mix.

For example
     

Analyzing your Menu Mix is also a time to identify not only your top sellers but your top money makers. If your top sellers are not contributing much dollar wise then it’s time to adjust your prices. Obviously your customers like that item, don’t reduce value to increase your profits, increase your price! If however it’s a top seller and contributing well, leave it alone and move on to the next item.

Look at your poor sellers and make decisions. Can these be re-priced? Can they be re-worked or modified to make them more appealing or should you drop them? Keeping duds on your menu costs you money!

To me the Menu Mix area is the fun part of menu costing. All of your information comes together and you see that you have options and “control”. Input from your staff can also be very valuable here. Making your staff part of the decision making process can be very valuable and their creativity often will surprise you.

For more details on Menu Mix contact us at wayne@menutools.com

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I like to set up the side order choices in the batch recipe area of the Menu Maestro. Taking an average of what this will cost you to serve “choice” items allows you to neatly calculate them in your plate recipes in one easy step.

If you are offering a choice of soup or salad instead of a potato, it is a good idea to look at the average of how customers order and calculate the cost. 10 customers is a good number to work with. For example here is how you would calculate the average cost:

  Cost   # Customers     Total Cost
Potato .55  X  2 1.10
Soup .30  X  2 .60
Garden salad .85  X  6 5.10
6.80  total divided by 10 = average of .68 cents.

Therefore, the cost calculation to allow for each menu item offering an alternative is .68 cents per plate cost. Therefore, every plate recipe that has a choice of potato, soup or salad has this amount entered. If you have created it as a batch you could name it for example “choice 1”

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When you price a menu for long term use, the cost increases must also be allowed for to cover the cost variations for the year. An average yearly price is a good way to start. If you are seasonal take an average price for the period you are using the product.

Where possible, negotiate where and how long you can secure product price quotes. Be aware, your supplier must and will do the same calculations given their buying power and market variations.

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Check it, count it and weigh it! It is AMAZING how much money can be potentially lost right at your back door.
Product shorted, damaged or over invoiced happens innocently and often!

During a cost awareness workshop with a customer and their staff, a cook learned the importance of weighing product. He discovered that 2 of the cases of tomatoes delivered were short by 12.5 pounds and 13.5 in the second case. The cases were invoiced as 25-pound cases. The cost was 57.50 per case. Now you would think this would be rather obvious but it was being accepted none-the –less. They purchased this product three times a week at two locations. The problem was not isolated. The cost for one location represented a cost of $172.50 for one week. In terms of sales necessary to recovery the loss at the back door, they would need to sell $3,450.00 in gross sales to net back $172.50 at a 5% net profit.

Another customer experienced large over charges of bakery product at the back door because they didn’t receive the invoice with the delivery. The delivery person was billing extra product up to 25% extra on each bill. It wasn’t noticed because the invoice didn’t come with the delivery.

Distributors are not out to get you and generally are honest business people but mistakes are made and it is important to receive properly to ensure no one is losing money and integrity is kept.

During my time as Executive chef at the World Trade Centre, Halifax, the reverse situation occurred and my distributor delivered over $500.00 worth of Fresh wheel of Cheese one day and 8 x 5 lb boxes of button mushrooms another day which I had not ordered and without an invoice. I alerted the distributor and they happily picked up the items. I helped my distributor discover an internal problem and it paid off. We had a group in excess of 2000 customers at a Seniors Expo and we were short 1000 juice & pop. It was a Saturday and we needed the product within the hour, delivered and on ice for our customers. The distributor was there in less than an hour with the product. The moral is, check orders in the interest of both you and your distributor and your integrity will pay back.

Receiving if done properly can identify quality problems that can cost you money. A customer had been purchasing mussels at $30.00 per 25lb. Bag. This averaged at a cost of $1.20 per pound. Along came a great deal from another supplier, great! $$27.50 for a 25 lb. Bag. Upon receiving the less expensive bag indeed weighed 25lbs so all seemed well reducing the cost of this new product to $1.10 per pound. It seemed like smart shopping double checked by smart receiving. BUT……. When the bags were opened 5 pounds of gravel, rock and seashells came out. The cost per pound of these mussels was now $1.37 per pound.

Establish your standards. Don’t shop by price alone. Check weight, quality and invoices! Every time!

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Many distributors use their own tools and software offering you this service. Be sure however that the system they are using includes an allowance for waste factor.

The advantages of doing your own costing with the Menu Maestro are many. Some distributors will simply give you a food cost figure. You need to see the details in order to make adjustments. Knowing your food cost on your existing menu will not increase your profits. Doing something about them and understanding them will! The Maestro offers “what if” scenarios for pricing and menu mix. It also offers you the ability to compare “apples to apples” when costing using alternate similar products with regard to pricing, yield and value. This is a profitable tool! See everything, not just what they want you to see! Quality products will hold up under all scrutiny.

For a free demo of the Menu Maestro please contact Menu Tools at
wayne@menutools.com

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Your accountant does you a statement one way for practical reasons. I am not an accountant but I am a chef and a businessman. In the foodservice Industry it is very important to show breakdowns and keep an eye on the month as it is happening, as opposed to reviewing numbers 2 months later.

A good example of a simple breakdown necessary is the food cost. More often than not non-food items are included in your statement. Cost of food should be cost of food ONLY. Remember if you cannot eat it, it is not food cost.

The food and beverage statement should be detailed enough to display the cost trends, by expense category and the year to date.

Expense categories are best managed when they are coded separately and shown on the Income Statement separately, to best define the progress of expense categories.

The profit and Loss Statement should also reflect the same summary of expenses.

For an example of what a food and beverage Income Statement should look in order for it to have some meaning to you as an operator click here