Accurate pricing of menu items is vitally important for restaurants to succeed. If your prices are too high, your competitors will get your business. If your prices are too low, you’ll miss out on profits. The following are four helpful strategies to accurately price your menu items:
1) Cost-Plus Method: A good place to start is to determine what markup percentage you would like to have on your sales. Then calculate your overhead costs (labor, rent, utilities, etc.) per meal by taking total overhead cost per month divided by total meals sold per month. Add the direct food cost per meal to the overhead cost allocated per meal. Multiply this total cost per meal times 1 plus the markup percentage to get the target price for your menu item. You may also want to add an estimated inflation percentage to account for price increases throughout the year unless you change your menu prices more frequently.
Direct Food Cost per Meal
+ Overhead Cost per Meal
Total Cost per Meal
X (1 + Markup %)
Target Price for Menu Item
2) Competitor’s Prices: Find out what competing restaurants in your area and region are charging for similar menu item. Compare it to your target price calculated. Do you need to reduce your price to compete? Can you find another wholesaler of food who can give you a better deal on your food purchases? Shop around to see where you can reduce your costs.
3) Market or Value Factors: Restaurants in tourist locations, airports, and sports stadiums can charge more for menu items because their visitors’ food options are scarce. People in affluent areas are in general less sensitive to slight price increases.
4) Attribute-Based Pricing Method: Research has shown that people are willing to pay more for menu items with longer specific descriptions of unique attributes. Justin Massa, CEO of Food Genius, in his 3 part article “The Cost of Outdated Pricing Strategies” in QSR Magazine points out that restaurant owners are leaving profits on the table if they don’t apply this method. Mentioning that your french fries are seasoned or hand cut will allow you to charge a higher price than for just regular french fries. Use terms like artisan, glazed, and dusted to describe your menu items and you can charge a little more. He also points out that consumers are enticed by locally grown produce. Mention on your menu board the local farm you’re getting your produce from.
And, of course, always promote your items with higher gross profit margins by making them stand out on the menu or have your wait staff recommend these higher profit margin items to your customers.
Allen & Company, PC - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta. Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses. Extensive experience working with franchised restaurants and other franchised businesses.