n August 2014 Minnesota saw the first wave of minimum wage increases, and August 1st of 2016 has marked the next bump of increases. Small employers are now required to pay employees $7.75 per hour, no matter the industry.
While workers are celebrating the pay bump, many restaurant owners are dreading the thought of finding additional cash in their razor-thin profit margins.
There’s a pretty easy solution to cover the new costs to your business that come from wage increases.
Restaurants and bars don’t like the idea of raising their menu item prices, and we understand that.
You’re worried your customers will freak out and march straight to your competitors.
For starters, your competitors are in the same boat as you, and if they want to stay in business they will have to raise their pricing as well. No business can keep their doors open by running negative profits margins.
For this reason, you need to spend time calculating how much you need to increase your menu items.
One way you can cover the minimum wage increase is by raising some of your menu items prices is by lowering others.
McDonald's used this method when phasing out their popular dollar menu. Since beef prices were rising and costing the company, they cleverly replaced their hamburgers as a dollar menu item to cookies and ice cream cones.
They did this because those specific items are vastly cheaper and cost the franchises less, providing a higher profit margin than the soda and french fries. You can use the same strategy with your own menu.
Because there are a lot of percentages floating around out there as suggestions, but you shouldn’t raise them just arbitrarily.
Sit down, and take some time reviewing your POS system reports. Calculate how much you’re currently paying employees and factor in the pay increases. Then decide how much profit is needed to cover the expense. Estimate a bit higher to be on the safe side.
If you use a great point-of-sale system like Restaurant Manager, it has tools built in it to consolidate and track your food costs. These features can work with an additional tool, called U.S Foods Menu Builder Pro, which gives you real-time data on the current prices for all your food items, allowing you to see the current costs of beef, cabbage, and the rest of your menu items.
Having that kind of tracking will help you keep your food costs down, and make an informed decision on how to best raise your prices. You need to calculate the total unit cost of each item for your menu, and then create a percentage to make up the wage difference.
Here’s a list of different ways you can price your items in more detail.
Wages rising are bound to happen over time but your business can survive it. By reviewing your costs and food prices, you can easily accommodate your employees raises, and also catch more money for yourself.
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