Ask George: If I pay $30 for a steak, how much goes to product, expenses, and profit? William P., St. Louis
Diners see high menu prices and think restaurant owners are all making a killing. Nothing could be further than the truth. A simple cost analysis illustrates this point.
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I’ve taken the hypothetical steak example and applied average industry percentages. It’s a simplistic approach that not only answers the above question, but sheds some light on menu prices in general.
By far, the biggest restaurant expenditures come from the cost of food and labor. Ideal food cost percentages range between 25 to 35%. Steak is a high-cost item—I used 38%, a realistic number—but one that plays havoc with the bottom line. See below.
In the rudimentary example above, the restaurant in question would barely survive if only selling $30 steaks. Combining a lesser cost item (say, with a 28% food cost) would generate a profit of 3.60 (or 12% of gross sales), which is respectable.
The example illustrates why a restaurant must have a proper menu mix (low-cost and high-cost food items), and why selling beverages (all of which cost less than food) is so critical to survival…otherwise that $30 steak would be priced at $40 or more.
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