Creating the menu for your new restaurant is definitely a fun part, said that, you have to make sure that you price it also correctly.
Some restaurants calculate the price based on the cost of that dish, some take a more marketing approach and will price it based on what their competition do. Which is the better way? Well, neither one by itself.
The winning formula to price perfectly your restaurant menu is based on balance. You have to find the right balance between 3 important factors that I will explain you in this post.
Those 3 factors are:
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#STEP 1: WHAT IS THE COST OF THAT MENU ITEM
First obviously you have to find out how much is that specific menu item costing you.
To do that you will have to use recipes and portion control system.
Here you can see how a proper recipe should look like and what are the elements that all recipes should have.
For example if we want to calculate the price of our Pasta Bolognese, we need to find out how much it costs us to produce one portion of that pasta.
Having the recipe will make it very easy to calculate the price of that dish because we can see how much of every ingredient we need for that dish.
Once you know how much that menu item costs you, you can use this formula to price your menu item:
Price of menu item = cost of menu item / desired food cost percentages
#Example how to calculate menu item price
Costs of ingredients for 1 portion = 3,90 €
Desired Food Cost = 25 %
Price = 3,90 / 25% = 15,6 €
If you are in doubt how much should your desired food cost percentage be, considered something in between 25% to 35%, obviously will change based on your concept, type of restaurant (fine dining, casual, fast food, full service or not etc) and country where your operation is based.
#STEP 2 : How much the market will bear
So now you know how much your menu item costs in your restaurant and therefore we know that the minimum price acceptable will not be less than the cost.
Of course it will be more, because you have to make profit, but will never be less than that.
Now to find out which is the maximum price that you can apply you should look at what the market will bear.
With that I mean what is the maximum price that a customer is willing to pay for a specific menu item?
Let’s keep the Spaghetti Bolognese as an example. We said that it costs us 3,90 € so that will be the minimum price in our price range.
To determine the maximum price range you should look in your market where you can find the most expensive Pasta Bolognese.
For example let’s say that in your city there is a 2 Michelin Star restaurants, and they do their version of the Pasta Bolognese that has a price of 31 € .
So this will be our price range then:
Our Price will be somewhere inbetween this price range.
The more competition you’ll have in your market the lower will be the price. Vice versa if in your market there aren’t many competitors your price range will higher.
#STEP 3 : What is your Unique Value Proposition ?
Every restaurant should have their unique value proposition (UVP). What are the factors the make your operation unique? Which elements differentiate you from your competitors?
If you have a restaurant you probably already know what your UVP is, and that will help you decide decide how to position your price.
For example, to stick always with the same example of the Pasta Bolognese, if you own a Italian Restaurant and your differentiation point is your amazing terrace with ocean view, you should take that in consideration when setting the price.
Another examples is McDonalds , one of his UVP are obviously the cheap burgers. So the price have to be cheaper then their competitors.
Then let’s take in consideration also Burger King, they also make cheap burgers so how can they differentiate from McDonalds? Their UVP is to make the burger fired-grill, whereas McDonalds uses to fries their Burger.
Therefore they will also be in the same price range of McDonalds but they also have clear their differentiation points.
To conclude, if you have an Italian Restaurant, and there are another one similar to yours nearby, you can price your Pasta Bolognese higher or lower, but you have to make sure that you find a differentiation point and that from the guest prospective it’s a good value proposition.
# BONUS CHAPTER : How to sell more with Pricing Psychology
The goal in understanding pricing psychology is to get the customer to choose a menu item for his description and not for his pric
You don‘t want a guest to pick a dish just because it has the cheapest price.
So how do we do that? Well basically we have to try to draw as little attention as we can to the prices. Here some useful techniques to do that.
- Don‘t line up the prices
- Avoid monetary symbols (€, $)
- Try not to use dots to connect the descprition to the price
- Use same font and size of the description
- Don‘t use Bold
Here you see an example of two wine lists. In the first example your attention will go straight to the prices and you will most likely scan the prices first and the description last.
In the second case is much more difficult to scan the wines for price, here we don‘t draw much attention to them, and this is what we want.
Also I prepared for you a Free Pdf Checklist to create the perfect menu designed based on Pricing Psychology and Menu Engineering.
In order to correctly price your restaurant menu, you have to do 3 things:
- Calculate the cost of your menu Item
- Find out what the market will bear
- Make sure you know your Unique Value Proposition
After that don’t forget that you should always keep an eye on the market. The prices change frequently and you should revise them at least every 6 months.
If you have any doubt about how to calculate your food cost, you can read the guide on How to calculate your Food Cost Percentage
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