A good restaurant menu invites customers to dive into your offerings. People should be able to rely on popular go-to items and new favorites—with a fair amount of flexibility mixed in, so they know what to expect. That said, your menu should be flexible (read: do not laminate). The big reasons for keeping it open to changes: changing food costs, spoilage and passing trends.

When you create a menu, you get to play around with food combinations and how to describe them. But there are so many variables. How much should you charge for each item to make sure you’re making a profit? Knowing your food costs and portion control are two ways to help price your menu correctly, so you can stay in business while not pricing yourself out of the local market. (Another way to assure a profit is to build in a balance of expensive and inexpensive items.)

Know your food costs

To keep your food costs in check, review your menu at least twice a year to make sure prices are where they should be, and nix items that aren’t selling. This doesn’t mean you have to rewrite the whole thing or add a ton of new items.

Generally, your food costs for any given menu item should be around 30% to 35% of what you sell it for. So if you pay $1.00 for everything that goes into a menu item (including packaging), you'll have to charge minimum of $3.34. That may seem like a giant markup for a 12 oz. latte, but you aren't just paying for the drink, you’re paying someone to make it, serve it, and clean up after it's consumed. Not to mention everything else that goes into running your café, including payroll, electricity, etc.

Take a look at the real cost of a 12 oz. latte:
The initial cost can be broken down into the following items:
Cup: $0.08
Lid: $0.05
Sleeve: $0.05
2 oz. espresso: $0.40
Milk: $0.25

Plug the above numbers into a costing formula:

Cost of your product/.35 = menu price.

Which makes your cost for a 12 oz. latte $0.83.

And for your retail price, you get: $0.83/.35= $2.90
So $2.90 is the minimum you should charge for that latte in order to make a profit. (Adding extra flavorings, shots of espresso, etc. will increase the cost and price.)

Note: Pricier ingredients lead to pricier menus, but that doesn’t mean you should use the least expensive coffee, milk, syrups, cups, etc. Quality far outweighs cost if you want return customers (and to be considered “specialty coffee”). If you’re also serving breakfast and lunch items, you can balance high and low food costs to carve out a reasonable profit margin.

3 Tips for keeping food costs in check:

1. Control portion sizes
One of the reasons chain restaurants are successful is that they are exacting about portion control. Every employee in those kitchens knows exactly how much of each ingredient to put in every menu item.

To control portions in your own coffeehouse, measure every ingredient, at least until you can accurately eyeball them. You can also purchase some pre-portioned items, like single-serving cream cheese packets for bagels. They may be more expensive but they can save you money in labor and food waste.

2. Create a balanced menu
Food prices fluctuate with the seasons, the weather and the price of fuel. When prices for milk and coffee go up there's little you can do, short of changing the core of your menu every few weeks, and who has time for that? You need to build a buffer for these fluctuations into the menu (meaning they will be on the more expensive side—with a higher profit margin, when wholesale prices are lower). You can charge less (with less profit margin) for items that have stable prices to help maintain your desired food costs and to keep customers happy about how much you're charging for things overall.

3. Use the same ingredients in more than one menu item
Throwing away food is throwing away money. Using ingredients in several menu items will keep food spoilage to a minimum. If you offer an egg sandwich, make sure people can get it several ways (ham and cheese, florentine, etc.) so you'll sell more of them. It's also a good idea to update your menu periodically and remove items that aren’t selling.

Controlling food costs and portions, and avoiding food spoilage are solid ways to assure you’re making money on each menu item. Now go have some fun revisiting your menu, so you can be sure you’re giving your customers what they want at a price they—and you—can afford.

Related Post: Revisit Your Café or Restaurant Menu, Part II: Designing and Printing Your Menu