How To Make Better Pricing Decisions for Your Restaurant

We don't need to tell you that running a restaurant is hard - and it's only gotten more complicated in recent years.  Keeping your restaurant running month after month, bringing in customers, and making enough money to justify the effort can be a herculean task that only a few can accomplish.

One of the most important elements to focus on is pricing.  The price of your foods determines your profits but also determines your market - and how likely they are to stop by.  Plus, price is also influenced by quality, making proper pricing difficult to determine.

There's no one single metric for determining food and beverage pricing, but we can still offer some hints, tips, and suggestions to help you improve your bottom line!

10 Tips For Better Pricing At Your Restaurant

1. Always know your cost-plus pricing for each dish.

This is the single most crucial piece of information for a restaurant owner trying to determine prices.  The cost of the dish isn't only in the raw material costs - it also includes labor, electricity, worker wages, and all the other secondary costs.  You absolutely need to sit down and work out a reasonably accurate cost-plus price for each dish you serve.

Once you have that as a foundation, you then have the information necessary to pick a price for the dish which ensures a profit.

2. Practice strict portion control

This boils down to two simple words: measure everything. There should be set portion amounts for every single ingredient in every dish, even very basic materials like salt or lettuce.  These should be strictly enforced, and only changed if the recipe changes.    

This is necessary for cost-plus pricing to work because it regularizes costs.  Also, portion control creates consistency in your product.  Your regulars will appreciate that they get the exact same dish every time, even down to the fine details.

3. Try to always put some money in the bank.

Running a restaurant on a purely month-by-month basis is extremely risky because there's a lot that can go wrong. Fires are common, as are failed freezers, or potential contamination problems with the food.   Any restaurant which has survived for more than a few years almost certainly has a 'safety net,' money in the bank they've set aside to deal with emergencies when they happen.

There's no hard guideline for this, but if you can afford to set aside 5%-10% of your profits each week, you'll quickly build up a nice little emergency fund.  If you need to price your items slightly higher to accomplish this, it's a worthwhile trade-off in most situations.

4. Employ the 'good, better, best' pricing strategy

In most situations, you want a variety of price points for your food items so that you can cater to buyers with different purchasing ability.  In restaurants, this is typically called the "good, better, best" strategy.  Basically, establish three tiers of pricing, based on how good or tasty the food is, and try to cluster prices around those three tiers.

So, a basic hamburger might be in the 'good' tier, a cheeseburger + fries is 'better', and a 1/4 pound bacon cheeseburger with fries and drink is 'best.'  There should be a clear increase in food quality and quantity as price goes up.

(To be clear, those tiers should not be communicated directly to the customer.  Just use them as a guideline for pricing.)

5. Write better menu copy

Psychology matters in menu design as well.  In test after test, it's been shown that buyers will be willing to pay more for a dish if it has a well-written and mouth-watering description in the menu.  You can potentially charge up to around 25% more without losing customers if your menu makes the food sound like it's worth it.  In many cases, they may even perceive the food as being better just because you've hyped them up.

Just be careful here not to overhype your product.  Psychology only influences perception to a degree - and if your food disappoints, there'll be a higher level of disappointment than if the food hadn't been hyped up.  Don't call your food 'an explosion of flavor' unless you really think you can back it up.

On the topic of menu psychology, here's another sneaky brain hack: don't include the decimal in the listed price.  A price of "$8" is likely to inspire more buys than a price of "$8.00" even though they mean the exact same thing.

6. If you need to increase prices, communicate why.

No one wants to raise prices on their food since it risks driving customers away.  Fortunately, the good news is that customers - especially regular patrons - can be understanding as long as the price hike isn't too large.  Most people are well aware that supply lines are disrupted, and prices are going up in general.  If you communicate why your prices have to go up, you probably won't make too many people angry.

One side note: for whatever reason, this tends to be truer of material costs than overhead costs.  People understand if a beef dish costs more because beef has become more expensive.  They're less likely to accept the change if, for example, your rent has gone up.  Consider this in your messaging.

7. Know thy enemy

Always keep an eye on your competition, particularly competitors which offer similar fare to your own.  The last thing you want is for someone to start undercutting you, without you realizing it.  That can quickly leech customers away from you, especially if it's a relatively common food.

This is particularly important during holidays and other events where sales are common.  Watch your competition's social media accounts and other messaging sources so you know what they're planning, and plan your own pricing to compete.

8. Be willing to cut menu items that don't sell

Do you have any specialty items on your menu that require ingredients not commonly used in other dishes?  They can quickly become a money sink unless they're popular enough to justify the extra cost of providing them.  Keep a close eye on your sales, relative to the ingredients being used.

Ideally, your restaurant should be making the most possible use of a relatively small set of ingredients, because that allows you to minimize costs.  Any dish that calls for unique components should be first on the chopping block if you need to start making cost cuts.

9. Point visitors directly at your most profitable items

While indecisive people do exist, most people don't read a menu all the way through.  Most of the time, they select one of the first things they see - basically the first dish that sounds good.

So, use various tactics to help ensure they see the profitable items first.  If you offer tableside service, your staff should always point out these items or talk them up as the special of the day.

You can also use design tactics to make those dishes more prominent on the menu itself.  Put them at the top or use different fonts/coloring so that they stand out.  Give them a label like "House Specialties" or such.  Make them feel special while giving them a prominent position, and they'll probably sell well.

Also, stick one or two high-profit items at the bottom of the lists as well - they can catch the eye of more thorough patrons who do read the entire menu.

10. Pair up expensive and profitable items

It's no secret that your most expensive dishes may not be your most profitable, especially if they're based on unique or expensive ingredients.  Often, your mid-tier dishes are very likely to be the most profitable overall.

So, put them side-by-side with the expensive dishes.  This makes the pricing of the profitable item feel cheaper by comparison and will usually inspire more purchases of it.  Of course, this might eat into sales of the expensive dish - but unless your menu relies on that dish, it still works out to better profits for you.

Finally, one important caveat for all of this: know your audience.  These are all tips that tend to work well, statistically speaking, but no one knows your regulars' tastes and preferences better than you.  Learn from your customers and adjust your pricing and menu design to match them.

Buy Affordable Equipment At Zanduco

The equipment, appliances, and decor of your restaurant will also affect your bottom line - and we want to make running a restaurant as affordable as possible!  Zanduco Restaurant Equipment & Supplies offers a full range of every non-food item you need to create a great restaurant, with options for every budget.  If you're looking to make a large purchase, we can even talk about bulk pricing.

To get started, why not check out our constantly changing selection of bargain-priced refurbished and discontinued items?