The All-in-One

Restaurant Menu Pricing

Strategy Guide
Restaurant management is arguably the most overlooked aspect of menu
pricing. It's a very calculated number game that involves understanding
overall restaurant costs, conducting recipe costing, estimating final plate
costs, and setting a price that maximizes profit. However, your restaurant's
menu is more than just a means of earning money. This means that your
menu will determine how much money you make. You can sum up your
profits and potential success based on your menu prices.

So, where do you begin?

Here's how to price a menu by considering all the factors that can
determine your price position on a spectrum. You have at one end the
lowest price you can charge for a lucrative profit, and at the other, the
highest price the market will bear.

What is Menu Pricing or Menu

Costs?
A restaurateur's menu pricing approach defines how much each dish should
cost. To put it simply, you need to calculate the cost per dish and charge
enough to recoup those costs with a profit. However, the profits need to go
a long way in covering other expenses, like rent and labor. A poorly priced
menu can cost you the profits and funds you need to stay in business.
Preparing the dish and other overhead expenses are accounted for when
you estimate your menu cost. That figure becomes your final menu price. By
charging this price, you generate profits and cover your costs.

Following proper menu pricing strategies is critical when such high stakes
are involved. Different restaurants price food differently by calculating food
costs, studying the local competition, and conducting market research.
Let's take a look at the bigger picture of pricing
BLINK CO 02
Factors that Affect Restaurant
Menu Pricing
Restaurant ownership is a demanding job. It takes creativity, an
appreciation for food, and basic math skills. Calculating your restaurant's
menu prices is where the math comes into play. In the beginning, you will
have to put money into a restaurant to turn a profit. As they say, you must
spend money to make money.

Eventually, you will generate revenue from food sales, but you must pay for
your employees' supplies, rent, utilities, insurance, and payroll.

Profitability requires some capital left over after all your expenses are
covered. Menu pricing considers all the factors and determines the profit
per dish.

Keep reading to find out more!

BLINK CO 03
 Costing

Choosing the amount to charge for items on your menu largely depends on
their cost. Using your food cost percentage is the simplest way to cost out
your menu.

You can calculate your food cost percentage using the following formula:

Food cost percentage =

(beginning inventory + purchases - ending
inventory) ÷ food sales.
Direct Costs
Dishes are priced based on what goes into them. Ingredients are probably
the most important factor that influences prices. Rather than only
considering direct costs, restaurateurs must also consider all other aspects
of the ingredients used in their dishes, for example:

1. Portion: Consistent portions should be a rule of thumb. Keeping track of

this will help you determine how much each time you spend on
ingredients, penny-wise.
2. Seasonal: Do the ingredients change with the seasons? Because
seasonal food (e.g., lobster) fluctuates in price, your cost will fluctuate
with the season. Think about offsetting seasonal ingredients with items
that can be purchased year-round to have a base cost to factor from.

Indirect costs
Indirect costs include labor and operating costs. You must recoup these
costs through your sales, just as you would with direct costs. You will need
to charge a certain amount depending on the type of restaurant you
operate. For example, you can charge less if you run a casual restaurant
with counter service because you will spend less on service. Alternatively, if
you run a fine dining restaurant, you'll need to charge more while providing
better service. This aspect of your restaurant adds to its value and quality --
think about table decor, ambiance, lighting, etc.
BLINK CO 04
 Overhead expenses
Costs associated with operations that are not directly related to production
are overhead costs. Regardless of how successful the business is and how
many orders it receives, costs will always be involved. A cost includes all
expenses related to facilities and utilities, including utility and maintenance
costs and items unrelated to production, such as supplies.

Seasonal costs
Despite being incredibly vulnerable to seasonality, the restaurant industry
remains exceptionally volatile. Some of the potential seasonal expenses
include:

Expenses associated with hiring additional staff during

peak months.
Depending on the season, ingredients' prices may change.
Costs associated with seasonal heating and cooling.

Considering your seasonal costs can help you thread the needle of your
entire cost.

Appealing to Your Customers

Imagine your menu as your greatest hits album, representing what you and
your team excel at. You can differentiate your brand and stand out from the
crowd by featuring menu items that showcase your and your team's talents
- and, as a result, price your menu differently. The ability to sell your top
items at a premium is a testament to your uniqueness.

BLINK CO 05
Market Fluctuations
Various factors can cause raw material prices to fluctuate, such as natural
calamities, reduced crop production, and seasonally slowdowns. A food
item on your menu can have a detrimental effect on your profit.

Despite the same price on the menu, price fluctuations determine whether
or not you would profit from a sale. Restaurant owners should keep in mind
that it is challenging to keep editing the menu price every time a price
fluctuation occurs in the market; therefore, menu pricing should take
seasonal trends into account. Setting the price a little higher will allow you
to create a cushion for price fluctuations.

As a result, a hike in the cost of raw materials or a drop in footfall wouldn't

significantly impact the gross profit percentage.

Customization
Various factors can cause raw material prices to fluctuate, such as natural
calamities, reduced crop production, and seasonally slowdowns. A food
item on your menu can have a detrimental effect on your profit.

Despite the same price on the menu, price fluctuations determine whether
or not you would profit from a sale. Restaurant owners should keep in mind
that it is challenging to keep editing the menu price every time a price
fluctuation occurs in the market; therefore, menu pricing should take
seasonal trends into account. Setting the price a little higher will allow you
to create a cushion for price fluctuations.

BLINK CO 06
Finding the Balance
An effective menu pricing strategy involves balancing your high-cost and
low-cost menu items. However, finding this balance won't happen
overnight. You need time, testing, and ongoing analyses to get your menu
right.

Here are some tips to help you reach your goal:

It is important to keep your menu costs up to

date to know every item's cost.
A product mix report can be generated accurately
by a POS system.
Ensure that you stay patient, focused, and
dedicated to the project.

Besides learning about menu psychology and menu engineering, you will
also need to learn how to optimize your menu. Consequently, you will be
able to maintain balance and increase your profits. Pricing menu items, the
location of dishes on your menu, and how frequently you update your menu
all play an important role in achieving that right balance.

Pricing Menu from Food Cost

Percentage
Restaurant expenses include a large portion of food costs. It is also
essential to continuously monitor the food cost percentage. You can easily
calculate your food cost percentage, stick to your budget, and effectively
manage your restaurant's finances with the right resources and formulas.

Based on how much food your restaurant spends on inventory, expressed

as a percentage, you can see what this inventory is generating for you
(revenue).
BLINK CO 07
Estimate inventory costs over time by figuring out your initial inventory cost
and adding that figure to any additional inventory purchased. Then, subtract
the inventory costs you are left with at the end of the period you are
analyzing. Lastly, divide this number by your revenue.

Food cost percentage =

(beginning inventory + purchases – ending
inventory) ÷ food sales.

The ideal food cost percentage is the sweet spot for restaurateurs to run
financially viable businesses. For a restaurant to be profitable, food costs
should be between 28 and 35% of revenue.

Benefits of Calculating
Restaurant Food Cost Percentage
Make smarter spending and earning
decisions
Each menu item will fit within your food cost margins if priced
according to its food cost percentage and cost of goods sold.
In turn, you'll be able to determine which menu items are
most profitable to promote.

Efficiently engineer your menu:

You can update menu items that are no longer profitable using
worlwide shoppers
25-34food cost percentage aredata
easilyintegrated into your restaurant POS
Year Age
Bracket
system. You can use menu engineering to determine whether
influenced by the
opinion of social
to retire, re-price, or media
change users a menu item based on a food cost

percentage

BLINK CO 08
 Become more familiar with the impact of
food supplies on profitability and cost
Farming trends and even international trade negotiations can
dramatically affect your results. Therefore, understanding and
managing inventory costs require an understanding and
knowledge of profitability.

Intelligently experiment with new recipes

You can create a new recipe to see if it aligns with your ideal
food cost percentage - more on the ideal food cost percentage
below. If it doesn't work, attempt to adjust the recipe and
store it away for another time.

Benefits of Calculating
Restaurant Food Cost Percentage
The percentage of sales generated by profit is the gross profit margin. In
other words, sales over your break-even point. A 25 percent gross profit
margin for onion rings means that 25 cents of every dollar spent on the dish
(including labor and raw ingredients) are profit.

Calculate your ideal gross profit margin

Your menu item's gross profit margin will depend on your chosen margin.
There is a wide range of gross profit margins for restaurants. These margins
can range anywhere from 20% to 80%. In the end, what matters is the net
profit margin, which includes all restaurant operating expenses.

BLINK CO 09
Find the COGS of the menu item in question.

While a menu is more than the sum of its parts, it should at least consider
the cost of goods sold (COGS) to ensure that you are recovering costs at
some level. The way to calculate this is

(Beginning Inventory + Purchased Inventory) - Ending

Inventory
Calculate the price of food items

The formula for calculating food prices by gross profit margin is as follows:

Gross profit margin = (menu price - raw food cost)/menu price

Profit margins are calculated using the equation, not menu prices. This
requires a little trial and error.

Consider calculating the gross profit margins for each item on your menu if
you already have one. You may want to consider new pricing strategies for
items with low margins.

Your Gross Profit Margin Determines Your Bottom Line

A company's gross profit is a crucial component determining net profit, also

known as the bottom line. Here is an example of how you calculate your net
profit:

Gross profit – (labor cost + operating costs) = net profit/loss

So, it is clear that the higher your gross profit, the more profit you will have
left after deducting labor and operating costs. Thus, you must ensure that
your business has high-profit items and that you sell these items only.
BLINK CO 10
Benefits of Calculating
Restaurant Food Cost Percentage
Setting up a price for a buffet menu is a science. In general,
restaurants decide the price based on the number of items offered
and the seating capacity for customers. It also includes the
average number of customers who visit restaurants daily and the
direct cost incurred to make arrangements for food. This way, they
know the cost per person.

This is the first step performed by restaurants. The next step is to

focus on making profits. The cheapest and most filling food is kept
right at the start of the buffet—most restaurants lookout for
costing advice using a la carte items. For example, pasta is a
popular buffet dish, and the price is calculated by adding the cost
of pasta, cheese, mushrooms, olives, and other items to ensure
the item is rightly priced.

But when it comes to calculating the cost of the buffet, it is a

challenge. We may observe that some guests eat food that costs
two-three dollars while others eat more than what they have paid
for.

BLINK CO 11
How Do You Price Drinks in a
Restaurant?
Choosing to price drinks at a restaurant can be tricky. Expensive
ones can drive customers away, and cheap ones are not effective
for the longer term. So how do you price drinks in a restaurant?

Let’s find out.

One of the ways restaurants can price drinks and make them
profitable is by managing their list of offerings. This adds a unique
value to the restaurant's service, and the price of drinks must
consider rent, overhead costs, and industry best practices.

These steps can guide you better in pricing a drink at your

restaurant.

Calculate your drink cost ( cost of drink + flavor

1 cost/number of servings = cost per drink)

Calculate the cost of beverage by this method (cost

2 to make drink/selling price = cost per glass)

Consider factors like location, competitors, and

3 target audience before you set the price

Round all the costing accordingly and make the

4 pricing visually appealing on your menu.

BLINK CO 12
Restaurant Menu Pricing
Strategies That Will Increase
Your Restaurant Profits
Menu pricing is one of the most concerning the detail of the restaurant
industry. No matter how great your food tastes, it's ineffective if your
customers don’t find it worth their money.

One way to do it is to avoid aggressive prices that may drive current or

potential customers away.

Here are a few ways to increase your restaurant profits.

Price your Menu According to the Type of Restaurant

Your restaurant prices must consider important elements like direct and
indirect costs.
The menu prices must consider elements like raw materials, labor,
restaurant, rent, payables, and expenses and adjust those costs in the
menu pricing.

Charge More for Exotic Cuisine

As a restaurant owner, you can charge a premium price for exotic cuisine. If
your restaurant serves gourmet food or French cuisine, you can charge
more for those food items. Remember that your customers will pay more
for exotic dishes. If you don’t charge more, most of your customers will
likely not place an order. This will let them enjoy the feel of fine dining at
your restaurant. You can also create an experience. For those customers
through excellent service, great standards, and splendid experience.

Therefore never hesitate to charge more money and make more profits on
exotic dishes.

BLINK CO 13
Revamp The Dishes With A Special Ingredient

The only way to ensure your restaurant menu is optimized is to feature

different variations of the same dish. Add dishes that have low-priced
ingredients and one expensive ingredient to balance and add flavor. For
example, dishes like fettuccine pasta can have multiple variations in sauce
and pasta types, and some exquisite ingredients may change while other
remains the same for most variations.
This way, Italian herbs like basil, rosemary, and thyme can add fusion and
bring out the aroma of the dishes.

Use Relative Pricing

Relative pricing contrasts two items that shift customers’ perceptions about
a product.

It is a widely used strategy to maximize profits and get customers to buy

more.

When restaurants place high-margin items next to expensive items on the

menu, customers are likely to shift their preference towards a high-margin
item. For example, a plate of french fries that costs $4.00 is a high-margin
product compared with pizza fries or cheese fries that cost $5.50.
By placing the two items together, customers impulsively order french fries,
a high-margin product. They are eventually grossing more profits for
restaurants.

This works best on expensive and cheap food items, and customers would
order a cheaper item that adds more profit to your restaurant.

BLINK CO 14
Decide The Right Price For The Right Quantity

Pricing is always a struggle with restaurant owners. Many restaurants either

charge too much or way too less. But how to know which price is the right
price on your menu?

Charging too much for a burger can drive your customers away, and
charging too less for Sushi does not make sense.

Here are a few points restaurateurs should consider when setting up pricing
for the menu:

More charges for More Quantity

Charging more for more quantity is a big turn-off as it can shift customers
away if you don’t make them aware in advance. Therefore, it is
recommended to avoid this blunder.

More Charges for Less Quantity

Many restaurants tend to charge more for less quantity, and this way, they
miss out on repetitive customers, recognition, and restaurant awareness
from their customers. This also disheartens customers in the long run.

Lesser Charges for Less Quantity

Many restaurants may charge less for less quantity and keep up with their
competition. It is a good way to attract customers, but less quantity can put
customers away after a certain time.

Have a Chef Special in Each Section

By adding a “chef’s special,” customers will get an exclusive dish personally

made by the restaurant chef. It sounds fancy, and mentioning chef
recommended also gives them a personal touch. But how can you do it?

BLINK CO 15
Here’s how.

1. In each section, add ingredients, pictures of food, and describe the

dish to develop curiosity among customers.
2. Then mention “Chef Special” under it.
3. Highlight the chef special or place it on the top to attract more eyes
This way, you can get to promote each item on the menu and charge at a
premium price that gets you more profit for your restaurant.

Avoid Putting Currency Sign Next to Item Price

The basic strategy to price your restaurant menu is to avoid putting a

currency sign next. E.g., $ 5.00 or Rs. 500.00. This way, budget-conscious
customers can determine how much they are spending and may not order
high-priced items. Therefore, it is recommended to remove any currency
sign on your menu.

Write Price at the End of the Menu Description

Food descriptions and details are a must in each menu item. While it is
highly important, some restaurants miss out on this detail. Mentioning
descriptions of the dish are a must for all menu items. However, it is
recommended that you can mention the price at the end. When reading the
description, customers will crave your food items and will focus less on
their price and more on the experience the food will provide. Therefore,
helping you make more profits.

Use Complimentary Item Pricing

The basic way to make more profits on your food is by offering discounts
and deals or a complementary item to increase the sale of a particular food
item. For example, you can offer customers a 50% discount on sandwiches
to purchase any two burgers. Or compliment items like fries and burgers on
the menu like fast food chains Mc Donalds, Shake Shack, and KFC. The
combo is cost-effective for customers and gets your restaurant more sales.

BLINK CO 16
Menu Psychology: How to Sell
High Gross Profit Margin Items
Every restaurant aims toward one goal, to maximize profits. So how to make
more profits? Menu psychology allows restaurant owners to study how the
menu can influence people’s decisions to spend more money.

The challenge here is to know the prices of your menu and evaluate the
highest cost of each product and people's purchasing and buying power.

However, on some items, restaurant owners earn more by increasing

prices. How is the pricing of the menu done?

The pricing is done in two simple ways.

Menu engineering principles

Menu psychology principles

Using menu psychology and menu engineering, restaurants can sell their
high-profit margin items, and here are some tips to focus on.

Customers mostly focus on the first items in each section of the menu.
Always place high-margin items on top in each section.
Grab the attention of your guests with a visual image, colored box, and
more. Highlight only one item in each section of the menu to avoid
confusion.
Place profitable items on the top two places on the menu.

Besides these, you can use descriptions, visuals, and other creative ways to
prompt your guests toward ordering that item.
BLINK CO 17
What is Menu Engineering?
Menu engineering evaluates and optimizes restaurant prices to create a
good menu and generate business revenue. This is performed by
categorizing the menu into four different categories.

According to Menu Cover Depot, menu engineering help restaurant increase

their profits by 10-15%.

Menu engineering plays a key role for restaurants and helps to:

Eliminate low-performing items from the menu

Prominently highlight the most profitable menu items
Create an organized system for regular running items, their analysis,
and keep an optimized menu

What is Menu Engineering?

There are four menu engineering categories
Stars: High Profitability and High Popularity
Stars are a high profit, high popularity items on the menu. They
are relatively cheap and attract guests to order them more. To
make more profits, keep promoting these items consistently.

Puzzles: High Profitability and Low Popularity

Puzzles are high profitable items but less popular. They are
difficult to sell, and you can develop ways to promote them on
social media, get influencers on board, and come up with other
marketing ways to attract people to order this item.

Plowhorses: Low Profitability and High Popularity

Plowhorses are a low profit but highly popular item on the menu.
So how to make it profitable? You can pair it with other items or
offer deals that help you make more profit.

Dogs: Low Profitability and Low Popularity

Dogs are the low profit and low popular items on the menu. They
take up space on the menu and do not get you profits. It is best to
omit those and rebrand your menu.
BLINK CO 18
Menu Psychology Principles

Next time you visit a restaurant, pick up their

menu and before you order, take a minute to
see the psychology of menu design. Think
about why they place items in a certain way
or make you choose specific items first.
Menu drives revenue for restaurants and is
carefully placed with a lot of science and
hours spent on positioning, branding, color
theory, and some buzz words.

5 Ways to Influence Menu Decisions

1. Paradox of Choice

When looking at a menu, customers are looking for choices with limited
spaces and long text. This becomes a challenge. To offer choice and not
clutter your menu. Separate items in different sections, and this way,
guests will remember.

2. Decoy Effect

Want to entice customers to order a profitable item? Try the decoy effect in
your pricing model and see how guests are more likely to order a good dish.
The decoy effect is psychological and shows that customers may change
their preferences. This happens when a second or third valuable option is
mentioned on the menu.

3. Social Proof

Has your menu been sorted? Want people to trust your particular item on
the menu?

Social proof develops a sense of trust among customers.

BLINK CO 19
Adding pictures, quotes and testimonials help to build trust, and with terms
like mom’s favorite, your guest may place their order for that item.

You can also encourage customers to share reviews on Yelp. TripAdvisor

and honest reviews are a great way to attract customers. Hence more
profits.

4. Semantic Salience

Manipulating salience creates a powerful impact of choice in most

situations. In a menu, you don’t want people to miss out on your profitable
items because of salience; therefore, here’s how you can place your menu
presentation.

$10.00 - 10
$14 - 14
The dollar sign makes people ambiguous about purchasing, and you can
avoid that by removing this.

The Golden Triangle

Have you noticed that when you go to a restaurant and look at the menu,
where do your eyes move? For some people, it is on visuals, and for most
people, their eyes are constantly looking at the middle, or to the top right
corner, and finally to the top left corner. According to Restaurant Menu
Engineers, this is commonly known as Golden Triangle.

So what to put here? The answer here is simple. Place your high-profit
items here and the most profitable ones. This is where your top margin
dishes must be placed.

BLINK CO 20
Conclusion
Are you a restaurant owner? Do you have a great online menu? Is it getting
you visibility and revenue? Is it user-friendly? Does it entice visitors to
check your website and social media? If not, then there is something wrong.

We at Blink help you scale your business with our quick commerce
enablement and engagement platform. We help you design processes and
digitize order fulfillment time for your business. We’ll make sure your well-
engineered menu is user-friendly, and you are making a profit from your
orders.

Want to know more? Visit our website and find out more.

BLINK CO 21