Restaurant Owners Alert – Revise Menu Prices – the cost of goods increases, and you cannot afford to absorb the increases.
ST LOUIS, MO (StLouisRestaurantReview) As inflation has taken center stage with the news media and impacted all of our wallets, it is more important than ever for restaurant owners to price their menu options correctly.
The most common mistake we see with small independent restaurant owners is that they want to be competitive to gain market share, thinking that increased sales will help them avoid financial disaster. However, the truth is that if a restaurant runs negative profit margins and increases sales, it will dig a deeper hole faster.
Restaurant owners must know their numbers. They know the financial ratios like food cost as a percentage of overall sales. IMPORTANT, VERY IMPORTANT!
Consulting with many restaurants, we see owners pricing menu items without even knowing the overall expenses.
Many restaurants that fail have sales. They go out of business. They sell their menu items at a loss because they do not know their numbers.
Recently, we assisted two restaurants. One has not increased prices since 2012. However, rent has increased, prices have increased, wages have increased, and they raised their items by $1.00. The other restaurant compared their prices to a competing restaurant with an entirely different market, different customer base, and less expensive rent. The increase in menu items was insufficient to cover the rise in prices. Therefore, the restaurant owners still struggle to stay in business.
Restaurant owners can’t price menu items without using a metric that considers their current expenses. Therefore, we strongly recommend that restaurant owners review their menu prices monthly to avoid this financial mistake that can destroy their establishment.
If a restaurant has strong sales but losing money, it is likely due to a poorly priced menu.
Quickbooks have made it easier than ever for small businesses to have the same quality of information that large companies have. You can integrate your bank account to download the transactions saving time and increasing accuracy. Good accounting does take time, but it is more important than ever. More than 15% of restaurants have closed their doors permanently. Don’t become part of that statistic. Good accounting is the most crucial management task that a restaurant owner needs to love and appreciate to avoid massive financial errors. It is Business 101!
