Menu pricing is a key skill that every restaurateur should hone. There is a delicate balance on how to price food on your menu—if your prices are too low, you may not make enough profit; if they’re too high, you can drive customers away and drastically hurt your business.
In this article, I lay out the menu pricing strategies to use when building your menu. I also discuss best practices for menu pricing, challenges you may face, and some common questions surrounding menu pricing.
Key Takeaways
- Menu pricing is a dynamic process that should involve an in-depth analysis of how your menu flows together. I also recommend seasonal changes or adjustments based on the market pricing of goods and necessary ingredients.
- Rare ingredients and other value drivers are the best way to justify higher prices.
- Identifying which menu items yield more profit is essential to pricing these items along with the entirety of your menu.
What Is a Menu Pricing Strategy?
A menu pricing strategy is the process of setting prices for menu items compared to the costs and expected profit from these items. Your pricing strategy helps you earn a profit on the item while ensuring it is in a price range that is comfortable for customers. Any menu pricing strategy must also account for industry standard pricing, the key and unique features of a menu item, and the relative prices you have across your menu as a whole.
Menu Pricing Strategies & Examples
As you build out your menu, these strategies can help you account for cost, hone in on customer perception, and set a price that accurately reflects the menu item while offering value and earning you a profit. Use these strategies below to ensure you get the most out of the menu items you sell.
1. Cost-based Pricing
The first and most obvious way to price a menu item is to base the price on your target food cost percentage. For example, a certain dish costs $1.74 to execute, and you’re aiming for 30% food cost, which is a standard goal for most restaurants.
$1.74 / 0.3 = $5.80
So, the minimum price of that dish should be around $5.80.
Obviously, you can charge more based on what the ingredients are and the general market rate at other locations, but keeping food cost in mind is a good baseline for pricing out your menu.
If you want to learn more about food cost and how to calculate it for your restaurant, check out this guide I wrote on how to calculate food cost.
2. Profit-based Menu Item Pricing
You could also flip cost-based pricing and target a profit percentage on each item. This would include looking at all the costs associated with making the dish, then identifying a profit percentage goal and pricing from there. Most restaurants target a profit margin of 10% to 20%, though this widely varies. You can calculate this as:
Price = Costs / (1 – Target Profit Margin)
So if your overall food cost for a dish is $5 and you’re aiming for a 20% profit, you can price the dish at around $6.25.
$5 / (1 – 0.20) = $6.25
It is often sides, appetizers, desserts, and any dish that uses trimmings or other inexpensive ingredients that make the most profit for a restaurant. Higher-priced main dishes such as steaks or rare cuts of fish may carry a higher price tag, but the cost of the raw ingredients and the skill and labor needed bring the actual profitability of these menu items to a much lower level. To hit your target with this method, you should ensure that your menu highlights profitable dishes.
I worked in a restaurant where encouraging sides and appetizers was the main goal for serving staff. Items such as French fries, salads, fried foods, soups, and other sides had to be perfectly made and taste delicious every time. If we could consistently get customers to buy low-cost, high-profit items on each check, then we would become more profitable as a business and encourage this repeat purchasing in future visits.
3. Combo Pricing
A combination or “combo” order is exactly what it sounds like—a combination of multiple menu items offered for a single price. As we talked about above, the sides and lower-cost menu items drive the most profit for most restaurants. But in my time working in restaurants, it was very rare for the top-selling items to just be the best apps and sides. Combos let you pair a high-profit, low-cost item with a higher-cost item to drive even more sales, improving your profit margin at the end of each night.
Combos are also a great way to run through extra product and further lower your costs. Plus, customers love combination orders, especially when they are in a rush (like at lunchtime). Coming up with well-thought-out combinations and pricing them smartly is how you can really be creative with combos and add-ons.
4. Prix Fixe Pricing
Prix fixe (pronounced “pree fix”) is the industry term for “fixed price” and is essentially a fancy combo meal—a multicourse menu that is offered for a single price. Some prix fixe menus offer customers some options in each course—such as a choice of soup or salad, or a few entree selections—while others are strictly limited, chef’s choice affairs.
Since a prix fixe menu is a limited menu, you can more easily price the entire offering to both control costs and build profit. A prix fixe is also a perfect way to guarantee that each customer spends a minimum amount, or, in other words, let you hit a target check average.
5. Dynamic Menu Pricing
Dynamic pricing is when you adjust your menu price based on demand or other variables (like business traffic). The most common version of dynamic pricing is happy hour pricing, where you lower the price of certain menu items at a specific time to fill your bar or dining room. Restaurants that use a ticket model frequently price the cost of reservations based on the day and time when customers are more likely to dine—e.g., Saturday at 8 p.m. is pricier than 6 p.m. on a Tuesday.
Increasing prices temporarily for busy holidays like Valentine’s Day or New Year’s Eve is an easy way to use dynamic pricing and increase your profits during taxing services. Dynamic pricing can be a smart way to cover increased costs or wring the most profit from a busy time.
6. Supplemental Pricing
Supplemental pricing lets you raise prices on a dish if you are using ingredients that are rare for customers to try. With this pricing method, you add items to a menu that draws customers into making a higher purchase. These items supplement more money into the end check, and they are useful as they can bring sales up if done in a way that offers value. A markup on truffles that can be added to each dish is the perfect example of this, offering a delicacy to your guests while making it available for every dish.
7. Market Rate Pricing
You need to be aware of how similar restaurants price their food in your region. If your prices are exorbitantly high compared to similar businesses, then what value would it give to a customer if they chose you? Yes, outstanding quality can sometimes accompany higher prices; this is actually expected for fine dining restaurants. But if you are just charging more to make as much money as possible, then customers are not likely to respond well.
If you find your prices are generally higher than other restaurants, it is up to you to back up your pricing and why a customer should be willing to pay more. Maybe you make your bread in-house for all sandwiches and burgers or have your own charcuterie program. Or maybe your pasta is handmade. The novelty of food items being made from scratch or in-house does garner a higher price point. So if there is a reason that can allure customers even at a higher price, be sure to give it to them.
8. Balanced Pricing
The last strategy to consider is to offer a balanced menu for a diner to spend a reasonable overall amount on the dishes they are buying. Having a measured and balanced approach to both menu building and pricing is key.
You want your appetizers to be generally in the same price range, minus a few cheaper offerings and one or two pricier options. The same goes for entrees—have affordable options and higher-end offerings such as premium steaks or other more luxury-style ingredients. If half of your appetizers are around $8 and others are over $20, then there is a disparity in how you are sourcing, costing out, or pricing your food.
If there are drastic jumps and decreases in price for customers, then you may not be costing out or building your items correctly. For example, if a dish has a large food cost that cannot fit within the general pricing of the rest of your appetizers, then maybe that dish is not meant for your menu. One of the earliest lessons I learned in cooking is, “just because it is a good idea, doesn’t mean it is a good idea for this restaurant.” Something can be luxurious, taste heavenly, and wow guests. But if it or multiple items like it do not fit within the price point of your menu, then they are simply not needed. They will be high in cost, will confuse diners, and may waste precious prep time on a dish that costs way more than it brings in.
Menu Pricing Best Practices
There are definitely right and wrong ways to price out a menu. There are clear and actionable ways you can take for the prices on your menu to be received well by diners. Below are some of the best practices I’d encourage when pricing out your menu.
Offer Something Special
We’ve talked about supplemental pricing, or offering certain items that would encourage customers to pay higher prices. In the example below, diners can opt for the delicacy of truffle shavings at an additional cost.
Avoid Whole Numbers in Prices
This age-old rule works in restaurants as much as it does in retail. It is common knowledge that pricing a menu item with “19.95” is always better than “20.00.” While this may seem like the smallest detail, this method of pricing decreases the price in the consumer’s mind and can lead to more sales overall. This simple practice is followed by the most successful restaurant brands in the world. So be sure to use it.
Avoid Dollar Signs
You’ll notice above that I did not use dollar signs in my example. Dollar signs remind guests of the money they are spending, so doing away with them can lead to better sales and customer perception. Your customers know they are spending money and do recognize that the numbers at the end of the meal description are the cost. Leave dollar signs off the menu for your guests to develop positive subconscious feelings toward your menu.
Add Bridges
We talked about add-ons and combos above, but bridges across menus, such as a prix-fixe of existing menu items or course-by-course deals, enhance sales and drive up check averages. If you can offer small deals that encourage customers to spend more, then you will be able to create more revenue and profit for your business. Through different courses or dynamic add-ons to dishes, you are incentivizing the guest to spend more while giving them a deal and a reason to do so.
Price by Time of Day
You can drive sales by having a cheaper menu or more deals and menu bridges across a menu, such as for slower times like lunch and brunch. If you can price in a way that makes it impossible to miss out on, then sales during these times will go up drastically. Brunch deals, lunch tasting menus, and other opportunities exist in downtime for customers who are looking for a deal. So, be sure to utilize the time of day when it comes to how you price your menu. Portions for these times can even be smaller, so offer deals and lower prices to encourage guests to come in and drive up sales.
Menu Pricing Challenges
While planning and proper analysis of your menu is key, you are always contending with the fact that you work in the restaurant industry—you will know that nothing is guaranteed. That same point goes for prices and how they will hold up over time. Below are some of the key challenges you may face with your menu pricing strategy.
Changing Vendor Prices
When you work with inventory that perishes so quickly, it can be hard to find consistency financially. Vendor pricing changes monthly and sometimes even weekly. Whether it is due to seasonality, shortages, logistic issues, or any other event, pricing from your vendors can and will change. That being said, it can be hard to price out a menu in a rapidly changing environment. That is why it is important to give some buffer in your pricing when it comes to this. Be sure your price covers a little over the amount you’d like per dish to account for any major changes.
Related: Guide to Restaurant Food Suppliers & How to Open Accounts
Lack of Staff Training
Prices set on food cost and relative sales rely heavily on one thing: the people producing the product. A food cost is only attained when, in practice, your employees and staff actually hit the sales goal you are shooting for while also ensuring the cost of your products matches what you projected in theory. This means no excessive waste, properly cooked food, and accurate orders that get to customers with no problems. When your staff is trained and able to perform without large financial errors, then pricing allows you to be more precise in getting better profit margins and running an overall healthier business.
Related: 30 Key Restaurant Metrics + How to Calculate & Track Them
Lack of Updating Menu
Another barrier to menu pricing is keeping prices that are outdated and simply not working anymore. It is fine to update your menu prices to reflect current markets, and I would encourage you to do so as needed. You do not want to switch up your prices every week, as this would be jarring to customers. But if in a year, your crabcake dish is only making you 25% of the profit it was a year ago due to a jump in crab price, then it is time to change the price on this dish. For menu items that are based on seasonal or unsteadily-priced ingredients, then offering a market rate price on your menu is an easy solution.
Related: Expert Guide to Menu Development Planning & Design
Frequently Asked Questions (FAQs)
It can be challenging at first to price your menu in a way that effectively conveys value while offering profit for your business. Below are some frequently asked questions I get when it comes to pricing out a restaurant menu.
Last Bite
As you may have noticed by now, there is a lot of thought that goes into menu pricing. If you look at pricing as simply explaining how much a dish costs, then you will not find the benefits of the tools above. Rather, if you see a menu and its pricing as a dynamic process that aims for higher check averages, then it will help you offer pricing that benefits your restaurant while being fair to your guests. Be sure to take the menu pricing process seriously and think critically to have the prices that best support the success of your business and customer satisfaction.
