For many restaurant owners, the P&L can feel like a foreign language. It’s full of numbers, percentages, and accounting terms that don’t always connect to the day-to-day work of running a kitchen. But your profit and loss statement is one of the most useful tools you have for making smarter Restaurant Menu Pricing decisions.
When you understand what the numbers are really saying, you can see which menu items are pulling their weight and how a few simple adjustments can make a big difference in profit. Let’s walk through how to read your P&L in a way that actually helps you with your restaurant menu pricing decisions with confidence.
What a Restaurant Profit & Loss Statement Shows You
Your restaurant P&L shows how much money is coming in versus going out and what’s left at the end of the month. For menu pricing, pay attention to these few lines as they are especially important:
- Sales – Your total revenue from food and beverage sales.
- Cost of Goods Sold (COGS) – This is what it costs to make your food and drinks, everything from ingredients to garnishes.
- Labor Costs – Wages for your hourly staff and salaries for your managers or chefs.
When you combine COGS and labor, you get your prime cost. This is one of the most important numbers for a restaurant to watch because it reflects the daily controllable expenses that change with sales. Prime cost tells you how efficiently your menu and operations are working together. When it stays around 60 to 65% of sales, it usually means your pricing, portions, recipes, and staffing levels are in balance.
Your P&L will also show your operating expenses, which include rent, utilities, insurance, marketing, software, and other fixed costs. These aren’t part of prime cost, but they still matter for Restaurant Menu Pricing because they show you the baseline amount your restaurant needs to earn just to keep the doors open. When you understand these fixed expenses, you can set menu prices that not only cover the cost of producing each dish but also help contribute to your restaurant’s overall profitability.
How To Read Your P&L For Menu Pricing
First, you can start by pulling the last one or two months of your P&L statement and focus on the sections that relate directly to your menu. Look at what percentage of your sales are going to food costs and labor.
Here’s a simple example:
Let’s say your restaurant did $120,000 in sales last month. Your food and beverage costs totaled $36,000 and your total labor was $36,000. That means your prime cost was $72,000, or 60% of sales.
That’s a healthy number. But if your food costs jump to $45,000 next month, your prime cost suddenly becomes 67%, which means your profit margin is shrinking. Your P&L gives you an early warning before that trend becomes a problem for Restaurant Menu Pricing decisions.
Which Numbers Matter Most For Menu Decisions
Once you know your food cost percentage, you can use it to guide your menu prices. Most restaurants aim for a food cost between 25% and 35%, depending on the concept.
Here’s a quick way to check your pricing:
If your raw ingredient cost for a dish is $5, and you want to maintain a 30% food cost, divide $5 by 0.30. That gives you a target price of about $16.70.
If you’re currently charging $14, that dish may be underpriced. To address this, you could raise the price slightly, adjust portion sizes, or swap in a lower-cost ingredient to hit your target.
After implementing these changes, you can monitor your P&L to tell you whether those small changes are paying off. Over time, by pairing it with your POS data, you’ll start to see which dishes consistently deliver strong margins and which might need a second look.
How To Use Menu Mix And POS Data With Your P&L
Your P&L gives you the totals, but your POS data gives you the details like how each dish performs, what it costs to make and how often it sells. By combining them, you can see which menu items drive your sales and which drive your profits.
For example, maybe your chicken sandwich sells 1,000 units a month at a 32% food cost, while your steak entrée sells only 200 units at a 28% food cost. The steak looks better on paper, but the chicken sandwich contributes far more dollars toward covering your fixed costs.
That’s where menu engineering comes in. You can use what your P&L and POS are telling you to highlight high-margin, high-volume items by featuring them more prominently on your menu, in server recommendations or in promotions.
How To Track Costs Weekly Using Your P&L
The best operators don’t wait until month-end to check their P&L. They review key numbers weekly or even daily.
If your food cost percentage starts to climb, you should check your recent invoices to see if supplier prices went up. Otherwise, you can check if portion sizes are being followed consistently or if there’s more wastage in the kitchen.
Likewise, if labor costs spike, you can quickly look at scheduling to adjust staffing during slow hours or tighten up prep shifts.
These aren’t just accounting tweaks; they’re real levers that affect your profitability. A 2% drop in food or labor costs can free up room to keep prices competitive or improve your bottom line without raising prices at all, making a big difference in Restaurant Menu Pricing.
Example: Using Your P&L To Set Prices And Covers
Let’s look at how this plays out with real numbers.
Imagine your fixed costs (rent, insurance, and salaried management) are $50,000 per month. Your variable costs (food, beverage, hourly labor, and card fees) make up 60% of sales. That means your contribution margin is 40%.
To break even, you need:
$50,000 ÷ 0.40 = $125,000 in monthly sales.
If your average check is $35, that’s about 3,600 covers per month, or roughly 120 guests per day if you’re open 30 days.
Now, look at your menu. If your average entrée costs you $10 to produce and you’re charging $28, that’s a 35% food cost, which is decent but maybe a dollar shy of where it should be.
By adjusting your pricing to $29 or $30, your profit can be meaningfully improved without scaring away guests.
Why Reviewing Your P&L Monthly Helps Profit Margins
Menu pricing isn’t something you set once and forget. Ingredient costs change, guest behavior shifts, and inflation sneaks in. Reviewing your P&L monthly helps you catch those changes early.
If your food cost percentage starts trending up, review your recipes. If labor creeps higher, see if scheduling changes or menu simplification can bring it back down. The goal is to keep your prices, costs, and profit margin aligned so you’re not working harder for the same return, which is essential for effective Restaurant Menu Pricing.
To learn more about structuring your restaurant’s finances efficiently, see why a Standard Chart of Accounts is non-negotiable for restaurant chains.
How Vast Helps Restaurants Use P&L For Smarter Decisions
Once you know how to connect the dots between your P&L and your menu, you’ll start to see patterns that help you make better decisions every month.
At Vast, we help restaurants turn financial data into strategy. Whether it’s understanding your prime costs or modeling menu changes, we’ll help you make sense of the numbers, so you can focus on running your restaurant.
If you’d like to learn how your menu and P&L can work better together, reach out to Vast today.