Determining restaurant menu prices for your dishes can be tricky—you need to turn a profit, but you don’t want to scare potential diners away with sky-high prices. As a 30-year veteran of the restaurant world David Allred advises, “The goal is to pick a price within good practice industry standards, but to also pick a price that makes your guests happy.”
That’s why we’ve put together this handy guide packed with tips and strategies for how to price menu items fairly for both you and your customers.
Before we get into the meat of menu pricing, let’s take a look at some common terminology used in restaurant pricing. Some of the terms you should know include:
Now that you're familiar with some of the terminology frequently used in restaurant pricing, we’ll discuss two popular price calculation methods. The first pricing method is called the food cost method. This method involves the following steps:
The biggest benefit of food cost pricing is the fact that it’s incredibly simple to calculate. All you need to do is track your raw material costs and portion sizes so that you know how much of each item goes into your dishes. You decide your ideal food cost percentage and do a little bit of quick math to get your final food cost calculation.
However, this method does come with some drawbacks too. If you want to maximize profit, some items may end up priced too highly to be competitive. Furthermore, fluctuations in raw material costs might require frequent menu price changes to maintain your profit margins.
A second menu pricing strategy is the gross profit method. Your gross profit is all of your food sales that take you over your break-even point. Remember, your break-even point needs to take into account all of the costs of running your restaurant, not just the raw food cost.
To calculate menu prices based on gross profit, you’ll use the following steps:
This method produces a slightly higher price than the food cost percentage method.
Gross profit pricing can be beneficial because it helps you to protect your bottom line and provinces a little more cushion when prices are constantly in flux. This method can take a little more time and effort to calculate, though. It may also leave you with slightly less competitive prices.
If your restaurant offers buffet-style dining, you’ll have a more unique approach to pricing your menu. There isn’t a set restriction on how much each customer will eat, however, you won’t have to worry about pricing each menu item separately. Instead, use the following guidelines:
Since some people will eat more and others less, your profits should be pretty balanced by using the one pound per person average.
You also need to consider how you price drinks in your establishment. Depending on your restaurant style, you might serve:
You can price your beverages based on a per glass basis. You’ll simply calculate the number of servings in a container to determine your menu cost for one glass. For example, let’s say a container of orange juice has eight servings and costs you $3.00. That means your cost per glass is about $0.38. You can apply your markup using either of the pricing methods discussed above.
Finally, other factors come into play when you sit down to decide how much to charge for each item on your menu, including:
The last few years have been tough for restaurants. Yet, many have managed to survive by implementing creative marketing tactics and flexibility. Encourage people to try your new eatery by utilizing Nextdoor to get the word out. This strategy helped Tortas Vegas stay open and thrive during the pandemic closures.
You can also use Nextdoor’s hyperlocal focus to reach your customers directly. You can offer local deals and specials on specific menu items while still allowing your business to profit. It might be helpful to look ahead when you price your items and build in a little cushion for those you think will make good specials in the future.
Pricing your menu requires patience, research, and flexibility. You want to offer a fair price to your customers that honors the hard work of your team and factors in the costs of producing that delicious food. But once you find your pricing sweet spot, you’ll be able to see that success in your profit margin and your customers’ happy faces.
This is where Nextdoor can step in and boost your business to new heights. After you claim your free Business Page, you can take advantage of our hyperlocal focus. This allows you to target customers in your neighborhood, interact with them, and offer highly desired specials that your neighbors will love.
Sources:
Restaurant Engine. How to Determine Food Costs for a New Menu. https://restaurantengine.com/determine-food-costs/
Restaurant Owner and Manager. 4 Methods for Pricing Menu Items. https://rmagazine.com/articles/4-methods-for-pricing-menu-items-2.html
Restaurant Business Magazine. Costing Buffet Guidelines. https://www.restaurantbusinessonline.com/advice-guy/costing-buffets-guidelines