Menu Pricing Strategies: How to Price Your Restaurant Menu for Profit

Pricing your menu is one of the most important decisions you'll make as a restaurant owner. Price too high and customers walk away. Price too low and you're working for free. The right pricing strategy finds the sweet spot that keeps customers happy and your business profitable.

Understanding Your Costs First

Before setting any prices, you need to know your numbers. Every dish has three main cost components:

1. Food Cost The ingredients that go into each dish. A bowl of minestrone soup might include: - Olive oil: $0.25 - Onions, carrots, celery: $0.60 - Cannellini beans: $0.45 - Pasta: $0.30 - Tomatoes, broth, herbs: $0.80

Total food cost: $2.40

Need help calculating your ingredient costs? Learn how to calculate food cost percentage with our complete guide.

2. Labor Cost The time spent preparing and serving the dish. For most restaurants, labor runs 25-35% of revenue.

3. Overhead Rent, utilities, insurance, equipment—everything else that keeps your doors open. Typically 20-30% of revenue.

Popular Menu Pricing Strategies

Cost-Plus Pricing (The Standard Approach)

The most common method: calculate your food cost, then multiply to hit your target food cost percentage.

Formula: Menu Price = Food Cost ÷ Target Food Cost %

Example: If your risotto costs $3.50 to make and you want a 30% food cost: - $3.50 ÷ 0.30 = $11.67 - Round to $11.95 or $12.00

This method is simple and ensures consistent margins across your menu. Not sure what percentage to target? See our guide on ideal food cost percentages by restaurant type.

Competition-Based Pricing

Research what similar restaurants charge for comparable dishes, then position yourself accordingly:

• **Premium positioning**: Price 10-20% higher with better quality or presentation
• **Value positioning**: Price 10-15% lower to attract price-conscious diners
• **Match positioning**: Similar prices with differentiation elsewhere

Value-Based Pricing

Price based on perceived value rather than just costs. A hand-rolled pasta dish might cost the same to make as a basic spaghetti, but customers expect to pay more for the craft and experience.

Consider: - Unique ingredients or techniques - Presentation and plating - Story behind the dish - Dining atmosphere

Psychological Pricing

Small tweaks that influence perception:

• **Charm pricing**: $9.95 feels cheaper than $10.00
• **Remove dollar signs**: "12" instead of "$12.00" feels less transactional
• **Avoid price columns**: Scattered prices prevent easy comparison
• **Anchor with premium items**: A $45 entrée makes $28 seem reasonable

Building a Balanced Menu

A profitable menu mixes dishes with different margins:

High-Margin Items (Stars) Popular dishes with low food costs. Feature these prominently. - Example: Bruschetta with fresh tomatoes and basil ($2 cost, $12 price = 17% food cost)

Workhorses Consistent sellers with average margins. The backbone of your menu. - Example: Pasta primavera ($4 cost, $16 price = 25% food cost)

Challenges High food cost but still profitable due to popularity. - Example: Wild mushroom risotto ($6 cost, $22 price = 27% food cost)

Puzzles Low popularity, variable margins. Consider updating or removing.

When to Raise Prices

Ingredient costs rise constantly. Review your pricing:

• **Quarterly**: Check food costs against targets
• **After supplier changes**: New vendors mean new calculations
• **Seasonally**: Adjust for ingredient availability
• **Annually minimum**: At least once a year, recalculate everything

How to Raise Prices Without Losing Customers

1. Small increments: $0.50-$1.00 increases go unnoticed 2. Add value first: Improve portions or presentation, then raise prices 3. Update the menu: New design makes old prices forgettable 4. Communicate quality: "Now featuring locally-sourced vegetables"

Common Pricing Mistakes

Pricing Too Low Many new restaurants underprice to attract customers. This creates: - Unsustainable margins - Perception of low quality - Difficulty raising prices later

Ignoring Portion Costs A recipe might cost $4, but if your staff serves 20% more than portioned, your actual cost is $4.80. For more on controlling portions and costs, read our guide on [reducing food costs without sacrificing quality](/blog/reduce-food-costs-without-sacrificing-quality).

Not Accounting for Waste Spoilage, mistakes, and staff meals add up. Build a 2-3% buffer into your calculations.

Copying Competitors Blindly Their costs, location, and target market differ from yours. Use competitor prices as reference, not gospel.

Putting It Into Practice

1. Calculate food costs for every menu item 2. Set target margins (aim for 28-32% overall food cost) 3. Price each item using cost-plus as your baseline 4. Adjust for perception using psychological and value-based techniques 5. Balance your menu with a mix of margin levels 6. Review quarterly and adjust as costs change

Tools to Simplify Pricing

Manually calculating costs for dozens of recipes is tedious. A food cost calculator automates the math, showing you exactly what each dish costs and what you should charge.

Still using spreadsheets? Compare the approaches in our article on food cost calculators vs Excel.

Try our free food cost calculator to analyze your menu and find your optimal prices.