Writing menu content is the most exciting part of opening a restaurant. Pricing restaurant menus, however, is not always easy!
But then, how do profitable restaurants price their menus?
Fortunately, you don't need a master's degree in finance to set your prices correctly! You just need to make the right calculations and take into account certain elements: food costs, competition, the market or the buying power of your customers.
Here's our complete guide on everything you need to consider when pricing your menus!
Fast food: define your menu before setting your prices
Set consistent prices
Do you own a fast food restaurant?
It is essential to list your dishes before setting the prices of your menus! This way, you have a global and complete view of your menu, which is essential to propose a coherent price range and not leave anything to chance in your cost and margin calculations.
At the same time, choose your dishes carefully according to the spirit of your establishment, according to the latest trends or according to seasonality. The names of the dishes and your menus are also important to be sold and to give desire.
👉 Going further: 12 restaurant concepts to discover in 2023!
Think of your kitchen brigades for the preparation
Defining your restaurant's menus and prices has another big advantage: a better managed kitchen! The more different menus and dishes you offer, the more preparation you will have to optimize. The multitude of formulas leads to a decrease in the efficiency and therefore the productivity of your teams.
Clear menus, with a homogeneous price range, make it possible to mutualize costs and limit losses.
Offer your dishes at the best price in your menu
The money generated by the sale of your dishes must support the many expenses of your restaurant: rent, staff costs, cost of raw materials, insurance, taxes, etc.
To manage a restaurant financially, be careful to price the menu items correctly so that they cover these costs and generate a profit!
Calculate your production costs
Here's how to calculate the cost of production:
Total production cost = direct expenses (raw materials consumed and labor) + indirect expenses charged to production
Calculate the profitability of your fast food restaurant
In order to correctly define the prices of your restaurant's menus, calculate the cost per portion, the cost price of your dishes and the profitability of your fast food.
The cost per serving is simply the sum of the ingredient costs for a single serving of a dish.
Example with a hamburger:
- 200 g of ground beef: 1,90 €.
- 1 sesame seed bun : 0,25
- 1 tablespoon of sauce: 0,10 €.
- 2 slices of cheese: 0,95 €.
- 2 slices of tomato: 0,45 €.
That is to say : 3,65 €.
To calculate the cost price of your different dishes, you need to do the following formula:
Cost of goods sold + Total food costs.
As for the calculation of profitability, here is the formula to apply:
- Profitability per dish = (dish price - dish cost) / dish price
- Overall profitability = (total sales - total costs) / total sales
👉 To go further: Margin and profitability in restaurants, understand everything!
Calculate the cost/material ratio (food and resources)
In order to calculate your cost-to-material ratio, you must:
- Take the purchase price of your raw materials
- Add the change in inventory
- Deduct the cost of staff meals and customer "offers
- Then divide the result by the turnover over a given period (month or year)
You now have your cost/material ratio!
Know the average price in your restaurant
The average price is simply the average amount a customer will pay in your restaurant.
To calculate it, simply average out what your guests spend at your place. You can calculate this average per day, per week or even per month to establish trends and refine your strategy.
Why set your markup in fast food?
Restaurant profit margins are critical to determining whether or not a restaurant is successful. However, many restaurant owners still have difficulty calculating their margins or improving them.
If you want to sustain your restaurant, it is essential to know how to set your restaurant markup!
What rate to apply in fast food to be profitable?
The gross margin rate in fast food is approximately 70%. This only takes into account the cost of purchasing raw materials. To know the global margin, you must add your expenses and in particular the costs related to your payroll.
Here is the formula to apply to calculate the gross margin of your restaurant:
(Sales excluding taxes - Purchase cost of food consumed) / Sales excluding taxes.
Calculate your margin ratio
To determine your prices, you must first conduct a competitive survey to see what your competitors' practices are, but also establish a rate based on the desired margin.
To know which multiplier to apply, you must calculate the multiplier at the margin. In general, the multiplier is between 4 and 4.5.
Example: for a purchase price of 40€ excluding taxes, apply a coefficient of 4.5, i.e. a customer sales price of 180€ including taxes (40€ x 4.5).
Pricing strategy: what you need to know about the Omnes principles
The Omnes principle is a very popular technique in the restaurant industry, used to check the consistency of an establishment's offer.
1. The opening of the range
Each range is like a product category (beers, dishes, tapas, desserts, etc.). The principle is simple: within each range, the highest price must not be more than 3 times higher than the lowest price.
The calculation is as follows: most expensive price / least expensive price. The result must be between 2.5 and 3 (with exception for wines).
Not only will this allow you to increase your margin on products with lower material, but it will also make the menu more consistent for your guests.
2. Price dispersion
This second principle is applied in two steps.
Within the same range, divide your products into three identical price zones.
For example, if the prices of your dishes range from 12€ to 18€, then :
- the low zone is from 12€ to 14€,
- the median zone from 14€ to 16€,
- and the high zone from 16€ to 18€.
Then, make sure the number of dishes in the middle zone equals the sum of the other two zones. The goal? For diners with different budgets to be able to eat at your establishment. It also makes it easy to see the average price of a meal!
3. The supply/demand ratio
This principle is essential to know if the offer you are proposing corresponds to the demand of your customers.
For example, you can calculate:
- the average price offered: sum of the prices of the range / number of dishes in the range,
- but also the average price charged: turnover of the range / number of dishes of the range sold.
Then divide the average bid price by the average ask price.
It must be between 0.9 and 1 :
- If the result is less than 0.9, your rates are too low. You can therefore remove dishes located in the low zone and add some in the high or median zone.
- If it is higher than 1, they are too high, which could make you lose customers in the long run. The solution is to remove dishes from the high zone and add some in the low or middle zone.
4. Putting it forward
Finally, the fourth principle says that when you offer a dish on special, the new price should be in the middle zone, not the low zone.
Defining your target audience: the law of supply and demand
Your target customers are the group of diners you would like to attract to your restaurant. These are the people who are most likely to come to your restaurant to eat.
Target markets are determined by a combined analysis of:
- Demographics: age, income, gender, education, geographic location
- Behavior: buying and spending habits, digital behavior, leisure activities
- Psychography: aspirations, attitudes and values
In order to set the price of your menus, it is essential to know your target clientele and how much they are willing to spend in your establishment.
Calculate the psychological price of your menu according to your activity
The price point is the price that customers consider appropriate for a given product. The calculation of the price point is done after answering two questions:
- Below what price would you not buy this product, considering it to be of poor quality?
- Above what price would you not buy the product, believing it to be too expensive?
After collecting the responses of the respondents, the calculation of the psychological price is as follows:
100 - (Question 1 + Question 2)
To find out, ask your target audience directly by conducting a survey among your friends or on social networks, for example.
Propose promotions and offers
Do not hesitate to propose offers and promotions from time to time on your menus! This will allow you to retain your existing customers but also to attract new customers who would not have jumped yet.
👉 To go further: customer loyalty, 6 ideas for your restaurant
Listen to your customers' opinions and analyze your sales
Your customers are your best indicator! By analyzing your sales, you'll quickly see which product lines are performing best, which ones aren't, and which ones are the star items on your menu.
Also read carefully the reviews of your customers on social networks or on Google My Business. Customers are not stingy with comments when they complain about a dish that is too expensive or on the contrary when your address is cheap!
Why not also create satisfaction surveys to find out more?
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You will have understood, defining with precision the price of the menus of your restaurant is decisive, that it is to protect the margin of your restaurant or to be in adequacy with your customers!
But now that you've set your prices, you're wondering how to boost your margin without having to aggressively raise your rates?
👉 Check out Alfi's case: he managed to increase his average shopping cart by more than 28% with a simple technique!
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Are you a restaurant owner who wants to develop your business? Call on an Innovorder expert and benefit from tailor-made support to digitalize your establishment.
