How to work out restaurant menu pricing that works for your food business
Restaurant menu pricing

Restaurant menu pricing can be one of the most intimidating tasks, yet an essential process that needs utmost planning and diligence before starting your business. You have to consider numerous factors like competition, variable and invariable expenses and your restaurant USP’s before you price your menu. 

Many costs of the ingredients used in the dishes have variable pricing. The food cost fluctuates due to seasonality, inflation, scarcity etc.; It’s not practical to change the pricing of the dishes as per these fluctuations as this may hurt the restaurant business. The menu should strike a delicate balance between being profitable and competitive. 

Below are some of the tips and tricks that you can use while pricing your menu:-

Calculating the total cost of ingredient:-

Ingredients are the products that are used in the dishes. You have to decide the quantity of ingredients which you utilise for the menu item, e.g.for dal makhani; you utilise 500 gm of lentil from 50 Kgs of dal the hotel uses daily. If the cost of lentil per Kg. is INR 100, the lentil price utilised in one portion of Dal makhani is INR 50. As we calculated, the lentil cost used in Dal makhani, calculate the cost of other ingredients also, e.g. as below:- 

Onion Cost – INR 10 

Tomato cost – INR 10 

Butter cost – INR 50 

Garlic – INR 5 

Ghee – INR 25 

So the total cost of the ingredients used for one portion of Dal Makhani is INR 150 (i.e. a total of lentils and all the ingredients mentioned above) 

Calculating food cost percentage:-

Many indirect expenses have to be borne by a food business; these include labour and other monthly overhead expenses like rent and electricity bills. The cost mentioned above also has to be added to the dishes when pricing this menu. Below mentioned is the food cost percentage:- 

Food cost percentages = 100 – (labour cost + monthly overhead expenses + proft) / Total sales. 

Ideally, the food cost percentage is around 27 to 35%. We can assume that the food cost is 30% for illustration purposes.  

Finalising restaurant menu pricing:-

Once you calculate the cost of ingredients and the food cost percentage, you can calculate the menu pricing as per the below formula. 
Menu dish price = (Total cost of ingredient / Food cost percentage) = Price.

Re-evaluating the factors before finalising the restaurant menu pricing:- 

Once you arrive at the finalising menu pricing as mentioned above, there are some essential factors that you ought to consider before you give a final go-ahead to the pricing as mentioned below:-

Demand and Supply analysis:-

An Important deciding factor in your menu pricing should be the demand and the supply for your menu items. Suppose your restaurant is located in an area where food options are limited, like an airport with no other competition; you can keep a handsome markup without giving it a second thought, as your customer does not have many options. If a restaurant has high demand due to the exquisite cuisine, ambiance or locality, the food can be sold at a premium as clients may not hesitate to pay for higher satisfaction.

Your unique selling points:-

A restaurant’s unique selling point can be its ability to market its food differently, location or decor. Your strategy to make your restaurant stand out from the crowd by highlighting its unique features gives you an upper hand in pricing your dishes. A restaurant with a sea view or panoramic city view will attract couples, and a restaurant with a special kids menu will pull the family crowd. If you have impeccable service standards that make you stand out among competitors, that will be an added UPS of your food business. 

The customer would not mind paying extra for such USP’s as food is not all about the taste but also about the service and the ambiance the guest experiences at your restaurant.

Studying competitors:-

ompetitors analysis is crucial in understanding the market you will be stepping in. Your menu is bound to be a disaster if your competitor sells the same dish 100 rupees less and you have no reason to justify such a steep price difference. One need to collate a menu from at least a handful of food businesses that operate within a specific radius of your restaurant and work out an average price of all the 4 to 5 competitors. 

Once calculate the average menu price of your competitors, compare the same with the menu price you have worked out. If your menu pricing is working out cheaper than your competitor pricing and you think you give value for money at reasonable cost , then bingo, you have got your restaurant menu pricing right. If your rates work out higher than the average competitor menu price, figure reason out the USP’s that makes you stand out among your competitors. If you don’t have a USP workout, it can be your restaurant or cafe’s unique concept or food niches like organic ingredients or healthy alternatives. Once you have a USP’s, you can market your restaurant working out a strategy around this USP. 

Conclusion:-

Menu pricing is not a standardised formula, and every restaurant has its way of working out a strategy that fits the business requirements. Once your restaurant starts operating, it will be your guest who will be giving the final verdict of how reasonable your menu pricing is. You need to communicate with your guests and act on their feedback to successfully run your restaurant business

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