**When is the last time you updated your menu cost?**
If it’s been more than 3 months since the last time you calculated the cost of your menu items then there is a good chance you are either losing money or missing an opportunity to make more money. Regardless of what you are selling, as a business owner, it’s just common sense that **you need to know what your product costs you before you can set a selling price.**
Here are 6 important reasons you should **update your menu cost at least 3 times a year.**
1. **Profitability** – As we stated earlier, the #1 reason you need to know what each menu item is costing you is that it’s the only way you can truly know how much gross profit your restaurant should be making. Over time, rising prices or a change in ingredients can quickly alter your best seller from being a cash cow to a white elephant. Unless you keep up with your current menu cost, you won’t know how profitable an item is.
2. **Competitive pricing** – As costs increase, profits decrease. While raising prices is an option, customers will only tolerate so much before either deciding on another menu item, or even worse, another restaurant. Alternatives to price increases include adjusting portions, changing accompaniments, or changing the ingredients used. Knowing what your menu costs you, enables you to make better pricing decisions.
3. **Recipe changes** – As we mentioned above, one way to combat rising costs without a price increase is to adjust the recipe. This might mean changing the ingredients to lower-cost items or replacing with an entirely different product. Either way, you must know the costs of both your existing preparation method and of any new method you are contemplating.
4. **Product sourcing** – One of the most often-used solutions, when confronted with an ever-increasing rise on a specific ingredient, is to find an alternate ingredient – assuming, of course, you can do so without reducing the overall quality or taste of the dish. How much different would your salsa taste if you switched from vine-ripened tomatoes to a less expensive 4×5 lug?
5. **Vendor sourcing** – Keeping up with changing menu costs helps you to spot when vendors quote you a low price to get your business and then edge it up gradually over time. Sometimes the best way to combat rising costs is to simply shop around for new vendors for some ingredients.
6. **Promotional opportunities** – Menu engineering is an art that uses menu placement techniques to steer your guests to menu items that are more profitable. It is an excellent tool that every operator should use when revamping their menu. The first step in the menu engineering process is to calculate the cost of the menu items, then multiply the cost by the number of units sold as reported in your POS product mix reports to see which items are popular vs. which items are profitable. Once you identify your most profitable items you can plan promotions to sell more.