How to price your restaurant menu: 7 simple steps

Getting your menu pricing just right can be a challenge, as it means finding the right balance between what a customer is prepared to spend and the income you need to be profitable. A number of factors need to be taken into account when calculating this price, such as costs (raw materials, staff, etc.), the margin you want to make, and the prices charged by your competitors.

What method should you use to generate a margin on your menu? How can you reduce the production costs associated with your dishes? 

Discover our 7 steps to finding the right price.

1. Define the dishes that will be on your menu

Before you even think about menu pricing, you need to choose the dishes that will make up your menu. Starter, main course, dessert, set menus: the dishes you choose and their position on your menu can already influence your sales. This is what we call menu engineering.

Some insignificant details can have an unsuspected impact on your income. For example, it is advisable not to use the € symbol on your menu. A study by Cornell University has shown that the € or $ sign on a restaurant menu has a psychological effect that makes customers less inclined to buy.

2. Choose your target sales margin 

Your objective as a business owner is profitability above all else. You can't afford to sell dishes for €5 and expect your revenue to triple in a few days. The price you set has to cover all costs involved in preparing each dish.

Before calculating the prices of the dishes on your menu, you need to determine the margin you want to make on your sales. In the restaurant business, this margin rarely exceeds 35%, and is calculated as follows:

Gross margin calculation: Selling price minus the cost of materials

3. Calculate and optimise production costs

There are several ways to set the price of your restaurant menu:

• Cost price calculation

Cost price: Sum of the cost of the ingredients in a recipe (per portion)

The cost price is the sum of the purchase, production and distribution costs. To determine it, you need to add up all the costs of the ingredients used for a single dish. 

Once you have determined the dishes and the margin, you can : 

1. Make a list of the ingredients needed for each recipe

2. Specify the corresponding portions for each ingredient (even a pinch of salt)

3. Then calculate the price corresponding to each portion in relation to the price you paid for the kilo of said ingredients

4. Add up the total ingredients

To this, you must add the production costs, which correspond to the cost of staff salaries and fixed costs (rent, water, remuneration, social charges) which are taken into account in the creation of this dish.

• Food cost method

The food cost method involves dividing the total cost of ingredients by the theoretical percentage of the food cost. This method allows you to calculate your menu costs quite easily but is not always effective for top-of-the-range restaurants.

The theoretical percentage is calculated as follows: (value of stock when inventory is full + purchases) – value of stock at last inventory check, divided by the number of sales made.

4. Define your strategic positioning

Pricing in restaurants varies from one restaurant type to another. A pizzeria and a gourmet restaurant will not have the same positioning, so you will need to decide on your strategy:

High sales prices

If you are aiming for a high margin, charging higher-than-average prices may be a solution. However, the raw materials and/or the service must be of sufficiently high quality to justify such prices, and this is also where the problem of psychological pricing arises.

Low sales prices

Low prices are more common when starting up a business, and are a good strategy for building customer loyalty right from the start. But this should not lead you to spend more than you earn—nor should you abandon quality in favour of rock-bottom prices, as this will affect the taste of your dishes.

Average selling price

If you're not interested in going from one extreme of price ranges to the other, stay in the middle, with the same prices as restaurants offering something similar to yours.

5. Adapt your prices to the competition

If there's one thing you shouldn't overlook when setting your price, it's your competitors. With many restaurants in your sector offering something similar to yours, it would be a shame not to consider the prices charged by your competitors when making your decision. 

A market study (often carried out as part of your business plan) will help you identify the average prices charged in the restaurant sector, and help you choose the right positioning.

6. Set the "right price" according to demand

Selling price: (cost of food + cost of staff salaries + fixed costs)

Meeting demand

Even with all the methods in the world for calculating menu prices, you still need to pay attention to your customer's expectations. Your prices must be adapted to the means of the consumers you are targeting. And if you don't want to leave anyone out, you can charge whatever you like and offer a cheaper dish as a bonus, accessible to everyone.

Psychological award 

We're talking here about the psychological impact of certain prices on consumer behaviour. For a customer, paying €11.90 for a dish is more attractive than paying €12. Yet the difference between these two prices is only 10 cents. 

This 'psychological price' effect is partly due to the order in which we read the price, from left to right. This would explain why, when we read €11.90, the price seems closer to €11 than to €12.

The psychological price is also what the consumer expects. In a luxury restaurant, a high price is expected, and if you lower the price, customers are likely to doubt the quality of the products used in your dishes. 

7. Test and analyse the results

That's it, you've set your menu costs using the methods described in this article.

In practice, things don't always go according to plan, and you need to be able to analyse the concrete results in order to bounce back. If your sales are going well, continue along the same path, even increasing prices slightly. 

On the other hand, if your customers don't show up and your sales drop, you'll probably have to lower prices for a while, look for cheaper suppliers, or reduce the portions served.