Restaurant Pricing Strategies that Actually Work

Restaurant interior

In the restaurant industry, the art of pricing food begins with understanding the science of food costs. In other words, 32% of the revenue in which restaurants earn is spent on food, beverages, condiments, and supplies. Restaurants also sell their service, food, camaraderie, and their brand making restaurant menu pricing and art and a science. The process of costing and pricing, however, differ based on the various services which restaurants provide. This is due to one-time events which create their exclusive costs and restaurants need to earn more money to compensate for the time and effort they invested in providing alternative services.

Finding Potential with Several Menu Pricing Methods

Pricing is an important tool for generating revenue and thereby ensuring the financial security and success of a company. Unfortunately, reports and practical experience show that companies rarely put much thought and consideration into developing and prioritizing a strategic pricing program. Furthermore, when business is struggling, pricing issues are overlooked by cost reduction schemes. The report study further examines the potential a restaurant pricing strategy has for revenue enhancement both in increasing foot traffic to your venue and netting a larger share in customer surplus. The finding indicates with managerial implications and suggests the prospective for the increased use of different pricing strategies; namely price discrimination, bundling and peak load pricing.

How Menu Pricing can be Turning Point of Your Business

Setting restaurant menu pricing is a pivotal decision you should make for your business. Pricing your menu is a task you need to assume and revisit to respond to the changes in the industry, shifting prices, fluctuating marketing trends, and popular demands. There are several factors involved in setting restaurant menu pricing ranging from tracking and calculating expenses cost of labor to cost of food and keeping score of competition as well as taking notes of what and how much your customers are willing to pay. It is also important to not overlook overhead expenses such as rent, utilities, taxes and even the cost of your restaurant furniture and other furnishings.

According to Forbes magazine, restaurants mark their success if they have a 5 percent profit margin. Restaurants use that small profit margin to implement effective food pricing strategies to keep their business afloat and running. Extensive research on fluctuations in food prices, prices of competing restaurants and customer demand can help you not only introduce you to various types of menu pricing but help you set prices and predict the type of profit you can expect.

Name of the Menu Pricing Game

Though it should be self-explanatory, menu pricing is not as simple as it looks. There are many dynamic to explore when trying to put a price on the items you serve. Knowing the real cost of food is a starting point. In fact, it is compulsory, especially if you want a chance of success in an industry notorious for thin profit margins. Unfortunately, there are too many restaurateurs who erroneously think that purchases divided by sales shows them the real food cost. While that may be partially true, it only gives you one side of the equation and not the total cost. At the very least, this formula does not show you performance metrics that measure your revenue under the surface of your menu. You need to do the following to reveal where your profits are hiding out:

Do you think movie directors and producers do not know how much it costs to make a movie? They most certainly do: down to the last penny! To play the restaurant menu pricing game, you need to stack all odds in your favor – starting at ground zero of knowing your food costs. Ultimately, bankruptcy is not a great way to start your restaurant business and not monitoring your expenses and revenue can lead you down that destructive road.

Setting Up Your Menu Prices with Automatic Updates

Profitable restaurants usually make sure that food costs don’t exceed over 35 percent of the gross revenue. This applies to the cost of food itself, food waste, employee meals and in some cases, theft. With keen understanding of food costs, you are analyzing the cost of making each item on your menu. When determining the overall food cost percentages, you need to calculate the expenses of food waste too. That is where automatic inventory control systems and software come in. These programs are designed to make it easy for you to cost your menu items, update you on wholesale food costs, and adjust menu prices as needed. Food costs are extremely volatile and are affected by the marketing conditions. For instance, food can go from being profitable to a major financial loss in just a month! This is due price increases and therefore it behooves restaurateurs to update their costs regularly. Automatic systems make sure you always have an accurate report of the costs on everything you sell at your restaurant by updating prices after each delivery. Best practices you can use for setting various types of menu pricing are:

  • Adjusting prices according to seasonal ingredients
  • Using market prices on highly volatile foods< li>
  • Combining low cost and high cost food items on the menu
  • Preventing spoilage and ensure maximum freshness by using all produce and ingredients in multiple dishes< li>
  • Making the time to review costs and prices
  • Taking non-monetary factors into consideration when pricing items
  • Including inventory when totaling your food cost expenses

Non-monetary aspects of menu pricing are making your rates competitive with other restaurants, basing the price of your menu items on preparation difficulty and charging more for popular dishes or items that command higher prices at competing restaurants. You must also think about your customers, what they like, and if they are willing to pay the prices you set on your menu.

Playing Menu Pricing Strategies to Your Strengths

Your menu is the ambassador of your restaurant. It represents your service, brand and talents. The listed items on your menu allow you to create a brand differential, making your restaurant one-of-a-kind. Having items that separate you from your competitors allow you to price your menu differently. Being different is advantageous in many ways. It allows you to stand out in the crowd, create unique brands, and charge a premium for your most recommended items that carry your restaurant’s reputation. All it takes is doing some research, collecting data, and conduct a competitive pricing analysis. Once you have gathered all the information you need for pricing your items correctly, you need to create a balance. Menu placement is crucial for getting the right balance.

Finding the right balance for your menu is not an overnight process. It can take a little while and patience, commitment, focus as well as a reliable point in sales system is required. While a new and creative menu design may stimulate sales, a well-engineered menu will increase your profit margins by a long shot! It’s also important to remember that there is no real one size fits all menu pricing strategy. There are numerous variables that come into play from your market conditions, your overhead, your staff, and your customers.

Your guests will give you feedback on the quality of the items as well as the pricing. Pay attention to what they are telling you. Look carefully at the data from the food cost program you are using. Review your product mix reports and make the necessary adjustments. Many chefs recommend changing your menu a couple times a year. Lastly, keep your eyes peeled on the market, including which restaurants are closing and which restaurants are opening as well as how many. Continue to refine your menu every quarter.

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