Bottom Line Blog

A finger points to menu prices.

The Art of Menu Prices

October 25, 2017 11:00 am Published by Leave your thoughts

The menu. For any restaurant in the world, it’s one of the most important factors and contributors to success. If your menu prices are too high, your potential customers will have no reason to choose you over the competitors in the area. If your menu prices are too low, you struggle to make a profit and give off the impression that you’re running a “cheap” establishment. If you’re opening any form of eatery – whether it’s a cafe, restaurant, bar, or mobile food unit – you need to master this art and today we have some tips to help you along the way.

Strategic Menu Prices

Know Your Costs

If you were to speak with any seasoned restaurateur, it wouldn’t be long before they asked the magic question: do you know your costs? If you don’t know how much the items on your menu cost, how are you supposed to know what to charge your guests? In today’s world, most restaurants allow the Head Chef to take care of the ingredients and formulate the menu while the owner chooses the prices. Unfortunately, this disjointed system no longer serves your restaurant’s bottom line in an increasingly competitive market, where menu prices are absolutely pivotal for profitability.

Moving forward, you should be looking to combine forces and create the menu together with the chef. Having a foggy idea of how much you’re spending on food ordering and menu prices isn’t good enough. You can only begin to apply a pricing strategy when you sit down and calculate the cost of each dish can you even start to implement a pricing strategy.

Cost Plus Percentage

Assuming you now know the cost of each menu item, some people will suggest adding a certain percentage to the cost to find your price. Therefore, you can determine the margin on each item, and you can be sure of profits. While this can indeed work in the industry, it’s important not to get distracted from your culinary niche.

In the past, we’ve seen restaurants abandon dishes that are synonymous with their niche just because they’ve found an alternative with a higher markup. Today, pasta is a good example since it’s cheap and the markup percentage you can add is significant. However, percentages don’t equal profit when your guests only have dishes with low prices to choose from. Your menu should also include high-priced luxury dishes that people are happy to spend money on, that take their night out to the next level.

Sure, pasta will give a higher markup but you also need to think about money. Even if the steak has a 50% food-cost percentage, the 50% profit you make will be significantly more money than the 75% you make on pasta and dishes with lower food costs. Looking ahead, you might be interested in finding a balance between the two (while keeping in mind your restaurant’s theme and target market).

A couple at a restaurant looks at menu prices.

The right menu prices don’t just benefit your bottom line, they can also attract new patrons – and maybe even convert them into loyal customers.

Check the Competition

With new businesses, they often say ‘I don’t even know where to start, ’ and this is something many restaurateurs struggle with. Why not look at the data you already have available in the shape of competitors? Of course, we would never suggest copying their menu prices looking at other successful pricing strategies gives you an idea of how you can improve your own.

After assessing the range of prices of individual dishes, you can then adjust your own pricing according to quality and the aim of your business. If you’re trying to position yourself within the quality and luxury niche, you can charge slightly higher prices (as long as your food and customer service can back this up). If you want to be an option for those on a budget, start a little cheaper. If you’re offering a similar service and price, you can’t be charging $5 more than everybody else without giving your patrons a reason for the extra fee. Let’s not forget, the goal of strategizing your menu prices is to allow your establishment to be more competitive while meeting and exceeding your bottom line.

To finish, we have a couple of parting tips.  The first piece of advice is to take your time with the whole process. To calculate costs, you’ll need to consider not just the ingredients but also time (wages), serving, overheads, portion sizes, etc. If you only consider your food ordering, you aren’t getting the whole picture, and you’ll be costing your restaurant money with no real way to recuperate it. Finalize your menu prices in accordance with your entire restaurant marketing strategy and cost control plans so that you won’t be adjusting your prices soon after opening.

Next, pricing a menu is an art and therefore not something you’ll get right straight away. Furthermore, it’s not something that’ll stay correct forever. Over time, your competition will become stronger/weaker, your costs will increase/reduce, your reputation will grow, and you’ll see various other changes in the industry. With this in mind, we recommend sitting down with your chef and assessing your menu from top to bottom once a year (at least!).

Finally, whatever price you charge, you’re making a statement about the quality of your dishes and restaurant service – so make sure you can back up your menu prices with a superb dining experience, and your customers will keep coming back for more.

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