A strong stomach for uncertainty: In the third in our series on creative businesses, the restaurateur Martin Lam talks to Richard Lander

Every plate of food, every glass of wine is chipping away at the money we have spent to get it there. Some people think restaurateurs invent the price of a dish out of thin air and double it, but our prices are always related to our costs of production. And of course there is a ceiling price, above which customers just wouldn't come in.

The biggest cost to cover is the money spent on opening the doors. We did that here for pounds 50,000 - and that's buying fixtures and fittings at a discount from the receiver of the previous restaurant on the site. From scratch it could easily be pounds 100,000 to cover everything from tables and chairs to the cookers. All that equipment is continually on the way out; stoves generally last about five years while we probably get through 20 per cent of our cutlery and 50 per cent of our glasses each year.

How much the replacements cost depends on what level you want to pitch at. We think our fine wines deserve better glasses, so they cost pounds 2, rather than pounds 1, each time one falls on the floor. And we think our customers deserve linen rather than paper napkins, which means 10p a throw rather than 2p. An accountant who looked at those figures might think otherwise but he'd probably change his mind should he eat here. He would also enourage us to make the tables smaller but again, he probably appreciates the elbow space we provide.

People see restaurant after restaurant going bust and think there's an army of unemployed cooks and waiters out there begging to be employed at rock-bottom wages. Unfortunately that's not the case, especially at the skilled end of the market. You can set an arbitrary price that you think you'd pay for a cook, and then the right one comes along wanting more and that's what you pay. As for waiting staff, they get more expensive as they go along - good ones get poached and if you don't want to get the routine upset you pay them more. That pushes up overheads, but it's generally good for business.

But it's the cost of the food and wine that can get diners most agitated. The excesses of some restaurants in the 1980s put them on their guard, making them ask why a bottle cost so much more than in their local off-licence and how a piece of fish that small could cost so much.

In fact the cost of everything we sell is directly related to what we pay for it. With wine, we have some pounds 6,000 of stock in the restaurant at any time. We have to pay for it in 45 days, which means that sometimes we haven't actually sold it before we cough up. As for pricing them, we operate a sliding scale of mark-up - 60 down to 40 per cent. It goes against the tradition of a constant mark-up but it means we still make a greater cash mark-up on a pounds 15 bottle than an pounds 8 wine, and still sell good wines at affordable prices.

On the food, we aim to retain a constant mark-up - about 65 per cent over the year - but we do put a ceiling on dishes, so that we would never sell fish at more than pounds 12. We try to make up the shortfall in margin by increasing occupancy. We are, almost literally, at the end of the food chain and at the mercy of our suppliers putting up prices. Some less scupulous ones did more than compensate for the fall in the pound to ramp up their margins. We can't do that - it would be madness in the current climate. Again an accountant would probably take the opposite view.

The most common question restaurateurs are asked is how do you know how much food to buy. In most cases it's not that difficult; unbutchered meat can be hung for two or three days while stocks of fruit and vegetables are turned over almost daily.

Guessing how much of the most perishable stocks - particularly fish - will shift can be harder. We have reasonably constant turnover but you can't tell how many people will want fish from one day to the next. The get- out is the set lunch menu - if I get 20 portions of brill and have five left after dinner it's better to sell them off cheaper the next day rather than throw them out.

The bottom line is that only 10 per cent of the cost of a meal here is retained as profit - just pounds 10 out of a fairly typical pounds 100 that a party of four may spend here. From that bill, pounds 15 goes straight to the VAT man; pounds 34 covers the cost of food and wine; pounds 30 on the wage bill and about pounds 11 for rent rates, replacement costs and so on.

That pounds 10 is predicated on the place being 80 per cent full; fewer customers - terrible weather, a heatwave, roadworks or whatever - and the pounds 10 can fall away drastically. As I said, the price elasticity just isn't there; if we stuck the prices up 25 per cent the returns would fall - people just wouldn't pay up. 'Value for money' is the buzz phrase that everybody uses, but I don't think it's ever been any different.

(Photograph omitted)