Keeping pricing in control is very important for any restaurant. Also, the restaurant menu cover should also be nice as it leaves a great impression.
Guide to Pricing Menu Items at Your Restaurant
While many people who open restaurants know how to prepare great food, the fact is, they may poorly price their meals. Restaurant and business shows like The Profit or Restaurant Impossible frequently show restaurant owners who are losing money, often from incorrect pricing. Although there isn’t an exact science to pricing menu items at your restaurant, there are things to consider when you make your prices.
Choose the wrong price -- or raise your prices significantly without warning -- and you risk losing your customers. They depend on your restaurant for good food at a reasonable price, and if they think it’s too expensive, they won’t eat there. Your high prices might prevent you from attracting new customers as well, which is why pricing menu items appropriately is such an important topic when opening a new restaurant.
There are a number of things that will affect how you price your menu items, so be sure to take the following into consideration.
What Are Your Costs?
There are multiple costs that are part of your restaurant’s day-to-day operations, and these costs will affect how you price items. First, there’s the cost of the food itself, also known as direct costs. How much do you pay for the ingredients of a dish? Consider the cost of making guacamole: You likely need onions, avocados, peppers, and other ingredients. If you price your guacamole at $10.99, but it cost you $9.00 in ingredients, you have horrible margins and will net just $1.00 per order. Food costs should also include how much you use of each ingredient (portion sizes) and food waste. If your total cost per dish is too high, you wind up taking a loss on that bowl of guacamole.
Next, come the preparation and labor costs. The guacamole must be prepared by a trained member of your staff, which means they’re on your payroll while they make the dish. The dish may be delivered or handed to customers by another employee -- which adds in yet another labor cost. Failure to consider these costs when pricing menu items at your restaurant may result in a loss on the books.
What about when an ingredient, such as avocados, undergoes a pricing surge? If supplies are limited, certain vegetables or fruits can rise in cost. If you buy food out of season or don’t negotiate a bulk rate from your supplier, you may see these rising costs affecting your bottom line. Consider keeping a seasonal menu so you don’t have to change or lower your prices as the market fluctuates with volatile food costs.
When your customers sit down with their delicious bowl of guacamole, they like that it’s served in a beautiful bowl or another container. Because of the quality presentation before them, they perceive your food to be of a higher quality. Remember, no one wants to eat guacamole that’s just been heated onto a plate and shoved across a table. These perceived values or qualities are known as indirect costs. Similarly, there are overhead expenses to consider. These can include the decor, plating, presentation, and ambiance of your restaurant. All of these items take money and time to maintain and add to the value your customers expect.
Finally, what about your competitors and their costs? If your customers know another restaurant in your city will offer a bowl of guacamole for $3-$4 less than your version, they might eat at your competitor instead. You should keep tabs on your competitors’ menu items either by visiting the restaurant in person or by browsing their menu online. Doing so will help you keep your prices competitive yet profitable.
There’s another factor to consider when pricing menu items, and that’s demand. You need to know that your customers will pay for food, ambiance, and service accordingly, and you need to offer a price that matches these elements. If you're the only restaurant for miles, you may be able to charge more -- but don’t do it in a way that nets you negative online reviews!
What About Your Service Costs?
How your restaurant operates can affect your pricing. If you have a sit-down restaurant, you’ll have to use more labor than a fast-casual restaurant; therefore, the costs will be greater. You’ll likely employ a hostess, a waiter, a busboy, as well as the employees who prepare the food. Look at these elements when you begin pricing your menu items or changing menu prices.
After considering all of the items above, you’re closer to pricing items at your restaurant. You can go about it in a number of ways, and these are the most popular.
What’s Your Desired Food Cost Percentage?
It’s simple: How much do you want to make on food cost? The typical restaurant food cost percentage will range between 25 percent and 30 percent. You will take the raw food cost of the item then divide it between the percentage to arrive at your price.
For example, if your shredded beef tacos are $3.60 in food costs, and you want a 30 percent margin, your price would be $10.83, which you may round up to $10.99. If you want to charge $12.00 for your plate of shredded beef tacos, you could possibly offer a small side item such as two types of salsa, a cup of guacamole, or fried rice. These side items add to the perceived value of the dish and allow you to charge a greater price. Don’t add anything to the plate as a side though, without considering its cost.
Of course, if people in your area won’t pay $12.00 for your taco plate, then you might have to adjust your costs. Again, the cost of preparing the food must be considered as well --- see above -- or you’ll come out at a loss. Shoot for a reasonable cost that allows you to make money, but isn’t price gouging either. Your chef or cook will be able to help you choose a reasonable price since they’re the ones actually making the food.
How to Control Food Costs
Every penny counts, and there are a variety of ways to control food costs in your restaurant.
Storage - Make sure your storage spaces are adequate so you reduce your food waste from bad or spoiled food, or from over-ordering.
Keep Inventory - Don’t find yourself running to the store for each and every ingredient you run out of, or you’ll be killing your food costs, since store prices fluctuate - sometimes daily.
Maintain Portion Sizes - If your portion sizes for steaks and other meats vary from day to day, you could be losing money without knowing it. Make sure anyone who prepares food in your restaurant knows exactly the size and weight of each dish. Commercial food scales and other measuring options will help with these decisions.
Some big chain restaurants can offer the same menu items day after day, without much of a price fluctuation, however, a smaller local restaurant can’t. Here are a few pricing strategies you can use.
Use Seasonal Menus
Did your costs go up for a certain dish? It may be time to get rid of that dish, especially if it’s out of season. A seasonal menu will let you offer great food with ingredients that are affordably priced because there’s a surplus of the items when you buy in-season. Seasonal menus also give your customers variety so they have something new to expect each time they visit your restaurant.
Change Prices Gradually
If it’s time to change prices on your menu items, don’t make a significant price jump, or your customers will react negatively. Instead, you should gradually raise your prices. A $10.95 item can become $10.99, and it doesn’t lead to sticker shock for your customers.
Offer Food Specials for Surplus Food
Do you have vegetables or meat that should be used quickly? You can offer specials -- things not on the menu --- in an effort to reduce food waste. This also lets you and your chef explore a new possible dish for your customers. Try making new salads, poultry dishes, or even desserts to use up ingredients, then price accordingly using the guidelines above.
Remake Your Menu
Look at your menu. Does it offer anything special? What do you offer that’s different than what your competitors offer? Take an item on your menu and give it a remix, and you can price it higher than other restaurants. For example, if your hamburger comes with fries that aren’t very different than those served at other restaurants, you could spice up your hamburger and make it exciting -- then charge for the difference. How about offering homemade pomme “frites,” Belgian-style fries, served with a spicy sauce for dipping? That’s certainly different than a hamburger, and your customers will be eager to try the new dish, which means you can charge more.
Putting it All Together
Once you’ve considered everything that we’ve shared on how to price menu items at your restaurant, you can start marketing to your customers to drive more traffic to your business. Use coupons, flyers, and social media to promote your menu items, especially if you have a special or have remade a dish. Your prices are up to you. The key is to choose prices where you don’t lose money, but are also affordable for your customers.
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