One thing that restaurant owners often struggle with when they
open a 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. Find out exactly how to price a restaurant menu by reading the
following article.
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. It is crucial that you hit the target with prices that are competitive and profitable will still offering great value.
What are Other Restaurants Charging?
Visit a number of local restaurants, particularly those that are directly competing with you due to having a similar concept or being in the immediate vicinity of your establishment. Sample some of their dishes and check out what kind of service and atmosphere they offer in relation to their prices. 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 lot of different menu pricing formulas that can help you set prices. Formulas offer a basic guide to get you started but you may have to make adjustments to the results as your unique situation will differ from other restaurants. Instinct and experience definitely count for a lot when it comes to pricing.
One common formula requires you to calculate how much a dish costs in terms of ingredients and then multiply that amount by three to allow for overheads, wages and profits. 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 and non food related costs have risen a lot in recent years. However, 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 it. 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 target market.
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.
Once you know how to price a restaurant menu you will be able to 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.
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. It is crucial that you hit the target with prices that are competitive and profitable will still offering great value.
What are Other Restaurants Charging?
Visit a number of local restaurants, particularly those that are directly competing with you due to having a similar concept or being in the immediate vicinity of your establishment. Sample some of their dishes and check out what kind of service and atmosphere they offer in relation to their prices. 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 lot of different menu pricing formulas that can help you set prices. Formulas offer a basic guide to get you started but you may have to make adjustments to the results as your unique situation will differ from other restaurants. Instinct and experience definitely count for a lot when it comes to pricing.
One common formula requires you to calculate how much a dish costs in terms of ingredients and then multiply that amount by three to allow for overheads, wages and profits. 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 and non food related costs have risen a lot in recent years. However, 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 it. 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 target market.
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.
Once you know how to price a restaurant menu you will be able to 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.
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