Top 14 Restaurant Menu Pricing Strategies for 2022
Restaurant menu pricing strategies are the most overlooked part of the restaurant management system. Many restaurant owners have made it habitual to determine their menu pricing based on other restaurants’ offerings.
Developing the right menu requires a diligent study of the various factors that influence the performance of a menu. Such factors include monetary cues and currencies, whole numbers, and font size.
Research on menu price presentation influences consumer purchase behavior in restaurants showed a significant reduction in spending when formats with monetary cues such as the word “dollars” or the symbol “$” were used. In addition, no significant spending differences between numerical and scripted presentation formats were found.
This blog discusses the different strategies involved in restaurant menu pricing and the importance of menu pricing targeted at increasing your restaurant profits.
Determine the Menu Price based on Your Restaurant Type:
You should consider four factors before fixing your menu pricing: cost of raw materials, labor, restaurant décor, regular maintenance, and other related expenses. The ideal menu price must be the sum of your food cost, overhead cost, labor cost and projected profit for that item.
To calculate the menu price, you need to calculate your Gross Margin Value (GMV).
GMV is calculated as:
GMV= (Total Revenue- Cost of goods sold) / Revenue
An ideal GMV should be around 65%. The GMV depends on the type of restaurant. The GMV of a fine-dine restaurant will have higher overhead costs than a casual dining restaurant. A Quick Service Restaurant will have a lesser GMV than a fine dining restaurant as there is no customer service or a fixed infrastructure.
The following is the GMV of different types of restaurants:
- Fine dining: 75%
- Casual dining: 55%
- Quick service: 45%
You can not fix a menu price based solely on this strategy alone. But your restaurant menu pricing strategies should target these numbers.
Charge More for Exotic Cuisine
The type of cuisine plays a major role in determining the price of your dish. When you have an exotic dish featured on your menu, you will have to determine the cost based on the ingredients used, the method of preparation, the cost of labor, authentic taste and the presentation of the dish, every small detail matters. It is a strategy that aims at making your diners understand that they are treated with exotic dishes, for which they will be willing to pay more. You cannot price an exotic dish at a tag that is on the lesser side economically. So launch your exotic cuisine for a higher price that represents the value of the cuisine to the diners.
Amp up an ordinary dish with a special ingredient
You can charge more even when you offer regular but quality dishes. In other words, you can use a set of basic ingredients for a dish and add a couple of other exotic ingredients to amp up the taste and flavor factor and, as a result, the price. For instance, add edible silver to your regular biryani and make it super luxurious. Transform the regular pulao into Moti Pulao by adding deep-fried paneer balls and decorating it with edible silver leaf. Think creatively and choose an ordinary dish extraordinary to price it on the higher side.
Make your dishes tempting with relative pricing
Use relative restaurant menu pricing to make customers buy more. The key is placing high-profit items next to expensive ones. It will make your customers order the cheaper ones that are also high-profit. For example, regular french fries sold at 50 rupees include nominal food costs but are still sold at a high margin. But, french fries with the peri-peri seasoning, on the other hand, can be labeled at a higher price yet at a different margin. Thus, placing regular french fries next to peri-peri french fries will motivate the customer to go for regular fries, resulting in a higher profit.
Hike Value with Complimentary Pricing
Complimentary item pricing is a good way to persuade customers that are otherwise skeptical about buying more. You can influence customers to buy more by promoting a combo offer. For instance, you can persuade customers who want a burger but do not want to buy a pack of fries for an extra amount by offering a combo offer that includes any beverage of their choice. If you price the burger at 60 rupees and the french fries at the same price, customers will not want to buy both the burger and the fries. If you promote it through a combo offer that offers a complimentary beverage for a price of 150, then it is more likely that customers would buy it.
Employ Cost-Plus Pricing
Cost-plus pricing is a common pricing strategy followed by most restaurants. It involves calculating all the expenses for making a dish and adding the profit margin.
The list of expenses must include fixed costs, which include rent, utility, wages paid to the cooks and other staff, and the price of the ingredients. The next step is to divide the cost among all of the dishes. Finally, add the preferred markup percentage to this amount to get the final price.
For example,
Cost of dish = $10.00
Markup percentage = 40%
Markup price = $10 x (40/100) = $4
Cost + markup = $10 + $4
Final price = $14
For even better results, combine this strategy with charm pricing. Place the final menu price as will be $12.99, which is more attractive to customers than $13.00
Market Minus Pricing
Market Minus Pricing is the best way to determine menu prices. It combines Cost Plus Pricing and Market Minus Pricing to create a happy medium.
To determine the price of an item, Look at what the market will pay for a dish and determine the price of that dish.
For instance, The price range of cheesesteaks in the market is $8 — $11. So the price point for a cheesesteak in your restaurant is $10. Work backward and develop the recipe to 25% ($2.50) using only the best ingredients.
When using Market Minus Pricing, tweak each recipe until the food cost is balanced.
Finally, you will come up with a price that customers are willing to pay, which is also profitable.
The price range varies significantly from market to market. A cheesesteak that costs $5 for the budget version can cost up to $120 for a luxury steak.
Loss Leader Pricing
If a restaurant decides to introduce a new menu item, more customers would want to buy an item with a price that looks like a good deal. Likely, customers would also order higher margin items. If this is a success, you can permanently offer the menu item at a profitable price.
Loss leaders or lower-priced items are meant to draw customers in. Though no promotions or discounts are attached to them, once the diners read the menu, they are tempted to order more.
The trick is to make the diners buy those menu items with a higher margin. The higher margin is the difference between the cost of obtaining and selling the item and the sale price.
Happy hours are a great example of loss leader menu pricing. You can easily target a few high-margin items by as much as 75% and promote those alongside other items at a much smaller discount or no discount. A cafe-restaurant can sell $2 bagel and $3 beer but sell $8 garlic bread and $10 mocktails.
Increase Accessibility with Portion Pricing
Portion pricing is a strategy of adding different size options to your menu.
The portion pricing strategy makes your menu accessible to many, including new customers. It is also a great way to influence small eaters to try new food items they would otherwise not do for fear of being unable to eat a whole dish.
Charge a higher profit margin for a smaller portion.
You can charge 60% of the full-size price for the half-size version of the same dish.
For instance, Full-size (100%) price = $15 (100% of the full-size price)
Half-size (50%) price = $9 (60% of the full-size price)
This is a win-win for you as it allows people to buy a smaller portion if needed. But most people are more likely to purchase a full-size one. If they purchase a half-size, the restaurant gains more profit.
Create Luxury with Premium Pricing
It is a strategy used by reputed brands that already have established a strong market presence. Premium pricing focuses on creating a perceived value by placing a high price tag on items. Hence the name luxury pricing or prestige pricing.
The price tag is the center of focus for customers that value your menu for the luxury it holds within the price tag. This aspect draws them to your restaurant and will influence them to be associated with your brand.
This strategy may not apply to all types of restaurant brands. If you have made a name for yourself as a brand that offers affordable food, then switching to luxury pricing may not turn out well for your restaurant brand as people have placed their trust in you, where they can have good food at a cost-effective price tag.
But, if you are a soon-to-open restaurant, it is feasible for you to launch restaurant promotion as a brand that offers a sense of luxury in your menu pricing.
You still have to be careful in adding the price. You cannot overprice when considering the luxury aspect of dining. Your price should be between the acceptable range of premium pricing in restaurants. Anything beyond that can be excessive and might even turn off your customers.
Pricing Based on Quantity
Many restaurateurs make the mistake of either overpricing or underpricing a dish. Overpricing a dish will deter customers, but underpricing will depreciate the dish’s value, making it look less than ordinary, which you must avoid.
While you are pricing your dishes, there are some mistakes you have to avoid:
Avoid charging more for more
Charging more for a larger quantity may not be received well by diners, especially first-timers.
Avoid charging less for less
Charging less for less may not be the best option to stay ahead of the competition because your customers may not find it acceptable, particularly if they like a particular dish very much.
Avoid Charging More or Less
Again, charging more for less is not a good strategy when customers expect to have more of their favorite food for a lower price tag.
Price Menu for Chef Special
In each section of the menu, customers always look for a special dish. They want to spend more for the one that is the chef’s choice. Choose the highest profitable dish and remake it by adding some exotic ingredients. Turn it into a signature dish and feature it as a chef’s special with a higher profit margin.
Avoid Putting a Currency Sign next to the Item
The number one important strategy that you should never ignore is not to put the currency sign next to the price. Having a currency sign next to the price makes the customers concerned about how much they spend on a dish. Avoiding the currency sign is a good way to keep budget-conscious customers calm and at ease in spending on their favorite food. Add the price at the end of the menu description.
Add Price to the End of the Menu Description
Crafting a great food description is as important as creating a dish. Write appetizing descriptions stating the ingredients used in the dish. Explain the specialty of the item and build an appetite for the dish. The price stated at the end of the description might get customers craving for the item by the time they finish reading it. Customers craving a particular item are likely to consider less about the price and more about the experience they’d anticipate while reading the description.
Executing the Best Restaurant Menu Pricing Strategies
Crafting the best menu pricing is much more than incorporating a handful of tricks. It is a process that requires continuous revision based on real-world factors. Assess production costs, competitors’ pricing, and customer demand before using any of these restaurant pricing strategies.
We have compiled these best restaurant pricing strategies after researching what works for several restaurant brands in the market. When you combine these strategies with real-time market research, it can work wonders for your restaurant business.
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https://slickpos.com/article/research/restaurant-menu-design/
