Menu pricing is one of the most overlooked details of restaurant management. When done right, it has a significant impact on customers.
Regardless of how excellent your dishes are, it will matter little if you don’t know how to price menu items or if your customers don’t think your menu prices are worth their money. Find out about menu pricing strategies and discover which is best for your business.
Why Are Menu Pricing Strategies Important?
Menu pricing is an essential factor behind restaurant success, as it directly impacts the bottom line. Pricing defines the value you put on your dishes, and this lets your customers know whether your menu is worth their time and investment. In other words, get your menu pricing right, and you’ll attract customers; get it wrong, and they’ll walk away.
1. What Kind of Restaurant Is It?
The type of restaurant you operate can determine what your pricing menu should look like. Before you decide on the price of any dish, keep your restaurant format in mind.
Your menu price needs to sum up your labor cost, food cost, overhead expenses, as well as your projected profits. And that means you need to know the difference between the food cost of a dish and the menu price. This difference is your gross margin value (GMV). This value varies depending on what kind of restaurant you run.
Ideally, your GMV should hover around 60 and 65%. But because a fine dining restaurant attracts higher overhead expenses than other restaurants, your GMV may be around 75%.
A casual dining restaurant usually has lower overhead costs than fine dining. That means your GMV may fall significantly lower, say around 55%.
Most quick-service restaurants do not provide infrastructure or much customer service. That means you can set your GMV even lower than you would with casual dining. A GMV of 45% is a good example of a quick-service restaurant.
While the type of restaurant and its corresponding GMV is crucial, you should not choose your food menu price based on that alone.
2. Charge More for Exotic Food
Your cuisine type is an important consideration when deciding your restaurant pricing strategies.
For example, a gourmet Italian dish can attract a premium price tag even if the ingredients you use are cheap. Exotic dishes play on the mind and emotions of the customer. And buying a premium for a rare meal makes customers feel they’re receiving a fine dining experience.
3. Bundle Pricing
With bundle pricing, you can combine several products into one pre-packaged set. This pricing strategy can introduce your customer to different products at once while adding or increasing the sales of other related food items.
A good example is fast food restaurants offering different products like burgers and fries as a single bundle. A customer may not initially want a burger but will pay for it because it comes as part of a bundle.
4. Charm Pricing
Charm pricing works by understanding a customer’s psychology. Most customers focus on the first part of the price tag, and not the rest. For instance, a price tag of $29.99 will appear significantly cheaper than a price tag of $30, even though the difference is only a cent. In this case, the brain notices a price within $20 instead of near $30.
5. Relative Pricing
Relative pricing allows you to tilt a customer’s perception of a dish or product by creating a distinct contrast between two items.
For example, you can place two dishes side by side (cheap food next to an expensive one) on a menu with stark differences in pricing. Doing this can encourage customers to go for the cheaper one, even if it offers your restaurant more profit.
6. Portion Pricing
You add different size options to your menu when you price by portion. In other words, a customer pays more for bigger or larger portions. This strategy is ideal for new customers trying a dish for the first time, as they’ll prefer to start with smaller portions.
You can also increase the price of a dish by making it extra special. The easiest way to do this is to add a special ingredient to a basic dish.
For example, adding some exotic vegetables can turn a simple burger into a special one. The most important thing is that the added ingredient creates extra value that attracts a premium price.
8. Avoid Currency Signs
Placing a currency sign next to the dish price can make your customers conscious of how much they will spend even before they make an order. And this can lead to some level of hesitation from a customer.
9. Put the Description First
Descriptions are crucial in any food menu. However, it’s best to add them before the price. The price may be enough to dissuade a customer from choosing a dish without even checking out the description. reading the food description first can whet a customer’s appetite and encourage them to try the dish despite the price tag.
10. Cost Plus Pricing
The cost-plus pricing strategy allows you to calculate all the expenses that go into making a dish in addition to the expected profit margins. The expenses may include labor, the price of ingredients, utilities, and other fixed costs. Once calculated, you can divide the cost among the dishes you serve in your restaurant.
11. Premium Pricing
Similar to specials, you can create a feeling or perception of luxury by employing premium pricing. This pricing strategy uses high prices to create a perceived value.
Otherwise known as “prestige pricing” or “luxury pricing,” customers will associate your restaurant or brand with elegance, prestige, and luxury and will be drawn to it as a result.
12. Rule of Three Pricing
The rule of three pricing strategy also works around adding extra value. This time, you can achieve this by creating three variations of the same dish, with each dish value significantly higher.
For example, you can prepare a basic dish as the first choice, make the same dish with some extras as the second choice, and add even more extra ingredients or tweaks to the third variation. Each variation will have an increased price.
Menu Engineering Can Offset Fluctuations
As a restaurant operator, you have the freedom to alter your menu prices as often as you want. However, choosing to do so too often can persuade customers to choose a different restaurant. If you need to increase prices regularly, do so differently.
For example, add expensive side dishes, appetizers, or desserts to your cheap main course instead of altering the prices. You can use the costs of these additions to cover your less-than-expensive dishes.
Stay on Top of Pricing Design Psychology
You can consider enhancing your restaurant’s pricing approach with the way you design your pricing menu. This menu pricing psychology can help you play on your customer’s thinking.
When designing your menu, place your expensive dishes in strategic positions on the menu. You can also consider using traditional or catchy names to make some dishes more memorable.
How Much Should Your Food Cost?
Several determinants or minor expenses will influence or determine how much your food should cost. It’s important to ensure that each cost reflects these minor expenses so you don’t end up with losses.
Recipe costing flows from the cost of your ingredients. Fluctuations in the prices or costs of your ingredients may require you to adjust your menu prices to capture these fluctuations.
Your plate pricing combines all the costs of your recipe as well as all the raw ingredients that go into your dish. And you can break these costs down by portion size. When calculating your plate costs or pricing, it’s important to use the right measures to control your profitability.
Food Cost Percentage
You can determine your maximum allowable food cost percentage. Most restaurants look for a food cost percentage between 28 and 35%. But that said, every restaurant is unique. For example, if you’re a quick-serve restaurant or your business is located in a small town, a lower food cost percentage can still bring in good profits.
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What is menu pricing strategy?
Menu pricing is the way of setting a menu price to maximize profit. It requires a good understanding of your overall costs, recipe expenses, and plate cost.
What are the elements that make up menu prices?
Menu prices need some critical elements. They include readability, allure, variety, branding, and organization.
Why is menu pricing important?
The right pricing approach will keep your restaurant competitive and bring in the value your dishes and services deserve. Menu pricing also directly impacts your bottom line.