Our Client’s Pad Thai Was a Bestseller. But Was It Making Enough Profit?
By ProfitWise - a Visa Business Plans company
A Thai restaurant owner came to ProfitWise because he wanted to understand why his food costs were higher than expected. The restaurant had a loyal following, and dishes like Pad Thai, green curry, and drunken noodles were consistently popular. Yet despite strong sales of these items, he wasn’t seeing the profits he expected.
As we reviewed the restaurant’s financials, we wanted to understand what it actually cost to prepare the dishes customers ordered most frequently.
Pad Thai was a good place to start. It was one of the restaurant’s bestsellers, but the owner had calculated its cost some time ago, and several ingredients had become more expensive since then.
The calculation included rice noodles, shrimp, eggs, bean sprouts, peanuts, tamarind paste, and the other ingredients that went into the dish. So were the quantities used in each serving.
The question was whether the selling price still made sense given what the restaurant was spending to prepare it.
A Popular Dish Isn’t Necessarily a Profitable One
Consider a shrimp Pad Thai selling for $19.
If the ingredients cost $6.50 per serving, the food cost percentage is approximately 34%. But if ingredient prices rise or portions grow larger than planned, that percentage can creep up without the owner realizing it.
For example, if the actual ingredient cost reaches $8, the food cost percentage increases to approximately 42%.
That leaves considerably less revenue to cover labor, rent, utilities, and the restaurant’s other expenses.
Because Pad Thai is ordered so frequently, even a small difference in cost per serving can have a significant effect over a month.
We wanted to know whether the restaurant’s most popular dishes were contributing enough to cover operating expenses and support a reasonable profit.
Thai Restaurants Have Some Particular Cost Challenges
Thai cuisine relies on ingredients that can fluctuate considerably in price, including imported sauces, coconut milk, Thai basil, galangal, kaffir lime leaves and certain curry pastes.
Proteins also make a difference. A chicken green curry and a shrimp green curry may require similar prep, but their ingredient costs can differ widely.
Portion consistency matters as well.
An extra shrimp, a larger serving of noodles, or a generous pour of coconut milk may not seem significant during a busy dinner service. Across hundreds of orders, however, those differences can materially affect food costs.
We also looked at how ingredients were used across the menu.
If the restaurant buys fresh Thai basil for several dishes but frequently discards part of the order, it needs to consider that waste when evaluating profitability.
We Needed More Than a Food Cost Percentage
Knowing that the restaurant’s overall food cost was 35% wouldn’t tell us which dishes were responsible or what changes might help.
With specialized bookkeeping, we could consistently track food purchases, inventory adjustments, and other relevant expenses, giving us a clearer view of how food costs were changing.
We could then combine that financial information with the restaurant’s recipes, ingredient prices, and sales reports to evaluate individual dishes.
For example, a dish with a relatively high food cost percentage might still generate a strong dollar contribution toward overhead. Another dish with a lower food cost percentage might produce less profit per order.
Both measures matter when deciding what to feature on the menu.
We also wanted to consider the restaurant’s actual sales mix. Improving the margin on a dish ordered 500 times a month could have a greater impact than changing an item that sells only occasionally.
Should the Owner Raise Prices?
Increasing prices was one possibility, but we didn’t want to assume it was the best solution for every dish.
Thai restaurants often compete with nearby establishments offering similar menu items, and customers may have established expectations about what Pad Thai or green curry should cost.
We could evaluate whether certain prices needed to change, whether portion sizes matched the recipes, and whether purchasing or preparation practices could improve.
For instance, if the kitchen was regularly using more shrimp than the recipe required, addressing portion consistency might improve margins without changing the customer experience.
If ingredient costs had increased substantially, a modest price adjustment might be appropriate.
We could also identify high-margin dishes customers already enjoy and consider how to make them more visible on the menu.
Through our Fractional CFO analysis, we could estimate how different changes might affect food costs and overall profitability before the owner implemented them.
Understanding Which Dishes Support the Business
For our client, the review focused on how the restaurant’s menu contributed to its financial performance.
Pad Thai might remain one of its most important dishes even if its food cost percentage was higher than some other menu items. Its popularity could still make it a valuable contributor to the restaurant’s overall profit.
But the owner needed to know what each serving actually cost, how those costs were changing, and whether the selling price remained appropriate.
At ProfitWise, our specialized bookkeeping services help restaurant owners maintain reliable financial records and monitor expenses. Our monthly financial reviews give you a chance to discuss what the numbers mean, while our Fractional CFO services help you evaluate decisions about pricing, menu profitability, and operating costs.
For a Thai restaurant, where a few popular dishes may account for a substantial share of sales, understanding those dishes' financial contribution can make a meaningful difference.
