Restaurant Menu Pricing

 

One of the things that restaurant owners often struggle with when they open a new restaurant is menu pricing. There are some basic guidelines that you can follow to come up with the ideal prices for your restaurant concept and location. While you can learn a lot by observing the prices of your competitors, a large part of your pricing will come down to instinct. Below we have outlined some of the points that you should consider when it comes to restaurant menu pricing.

Pricing Just Right

It is important that you take the time to come up with menu prices that will optimize your profits. If you price your menu items too low then you will have trouble covering costs and you will struggle to make a profit. On the other hand, if you price them too high then you will scare away prospective diners and not get the volume of business that you need. Somewhere in the middle, you can find the perfect price points that allow you to fill your tables, offer value to customers as well as make enough money to be profitable.

What are Other Restaurants Charging?

One of the best and most enjoyable ways to make menu pricing decisions before you open up your restaurant is to do some research by visiting your competitors. Inspect their menu, sample their food and see what kind of value and experience they offer in their restaurant for the price that you paid. These days you can also check numerous menus online by quickly going through restaurant websites.

Consider the number of competitors that are located around you. Other restaurants represent an alternative to customers who don’t like the look of your prices. However if your restaurant is unique in your area or has a well established reputation then you may be able to get away with charging premium prices.

If there are two local options for Italian then customers may compare prices between the two. However, if you are the only Indian restaurant in town then customers may be prepared to pay a little more to dine with you if they just happen to feel like your specialty of cuisine.

Costs Affect Pricing

Keep in mind that some ingredients are subject to fluctuations in market prices, usually due to the fact that some items are seasonal. You can either limit these ingredients, add menu inserts with the latest prices for certain dishes or simply fix a price that you know will allow you to make a healthy profit most of the time. Some establishments, such as seafood restaurants have a chalk board where they can adjust the prices of menu items on a regular basis. Some menu items have to be priced differently due to the labor costs involved with their preparation if they take an exceptionally long time to prepare.

A Menu Pricing Formula

There are a few formulas for pricing menu items that will help you determine what to charge. These are good as a rough guide but you may have to make adjustments to them for many reasons.

One common formula involves figuring out how much a dish costs to make and then multiplying that figure by three to allow for wages, overheads and profit. It is important to be aware of food cost percentages. This method automatically gives you a food cost percentage of 33.3% or one third.

This method can be a little overly simplistic though as non food related costs have risen a lot in recent years. Many restaurateurs are able to get their food cost percentages much lower than this with some able to keep this ratio as low as 20%.

Price Promotions

Some customers are extremely conscious of price when they browse a menu. Market to this kind of customer by highlighting ‘house specials’ or ‘chefs specials’ that are discounted for a certain time period. You can also offer set menus that include a number of courses and beverages for a certain number of people for a fixed price. Discounts work well for most casual dining establishments and give people the perception that they are getting a great deal.

The Psychology Behind Pricing

Some consumers subconsciously respond to certain price points without realizing this. One example is how a price like $19.95 is considered by many consumers to be a much better deal than $20 would be.

Depending on your location and your concept some consumers may feel that main courses under $20 are a good deal and ignore those above that level. The key is in identifying the right price points for your restaurant.

Price Range and Minimums

Give some thought to the range of prices that your restaurant will offer and whether it will be perceived as being value, mid-range or expensive. Think about the minimum amount that you want to get out of each customer that comes through your doors. You may even go as far as having a minimum charge per head at times when your restaurant is really busy.