If you’re opening a new restaurant, you may be at a loss to know what your restaurant menu prices should be. Charge too little, and you risk cutting into your profit too deeply to see any revenue. Charge too much, and patrons won’t order the dishes, and you’ll be left with food waste on your hands.
It all starts by knowing your food cost. If you’ve used recipe costing software, you know the breakdown of each ingredient in a given recipe, as well as the overall cost for a dish. The cost for a recipe may fluctuate slightly throughout the year as ingredients rise and fall due to seasonality and availability.
Once you know your recipe cost, you need to determine the profit margin you want. The average full-service restaurant sees about a 6.1% net profit margin. Using this as a point of reference, you can aim for that profit margin for your restaurant. While you may not see equal profit on every dish, you can compensate: some menu items will have a slimmer margin (say, those with expensive Wagyu beef), while others will have a much higher margin (salads).
Include many high-profit items. Pasta, salads, appetizers, and desserts are all low-cost items with high profit potential, so maximize them on your menu.
Check out the competition. You won’t know what the market will bear until you see what other comparable restaurants are charging in your neighborhood. If you own multiple restaurant locations, you may find that diners are willing to pay more for the same dishes in higher-end neighborhoods, so charge accordingly.
Another strategy for setting restaurant menu prices is to start with a higher price. If, after you set the price, you see that not many people are ordering the dish, you can gradually lower it until you find the sweet spot that people will pay. You can always lower your prices, but it’s not advised to raise prices. You can even use lowering the price as a marketing strategy.
Let’s say you’ve been charging $50 for a prime rib dinner, but you’re not seeing enough orders of the dish to justify the price, so you decide to lower it to $44.99. Rather than just quietly lowering the price on the menu, you can make the dish a “special” and promote it on your chalkboard out front and have your wait staff talk it up. Not only will you see more takers, but you also can use this as market research to see if you should permanently lower the price.
And finally, maximize pricing strategies. It may take a few iterations to figure out if people respond better to prices that end with “99,” (like $10.99 versus $11) or if removing the dollar sign completely will make diners feel like your restaurant is high-end and justified in charging more.
Box off any item you want to sell more of on the menu as a special, and do the same with daily specials on your chalkboard for items you need to sell before they go bad.
Restaurant menu prices aren’t carved in stone. You may initially need to test out pricing strategy, but once you find that customers are consistently ordering all dishes, leave pricing alone. Do, however, check in once a year or so to make sure that those dishes are still just as profitable. If not, look at lowering your food cost or slightly raising menu prices.