How to set the right menu prices that encourage customers to spend more? Most restaurateurs get into this dilemma while planning a menu and determining menu prices in ways that entice more customers. At that, restaurateurs often end up making a few menu pricing mistakes which you need to guard against.
Earlier, we have discussed how to plan and design restaurant menu; now, we took it to the next step to elucidate the best techniques of pricing menu items. We have rounded up top 9 formulas and strategies to determine menu prices to generate more restaurant sales.
1. PRICE YOUR MENU ACCORDING TO THE TYPE OF RESTAURANT
Before you decide the price on your menu for each item, you must keep in mind what kind of establishment you are running.
The price you are charging should not only include the cost of raw materials but, also the labor costs to get that dish prepared, costs of restaurant décor and regular maintenance costs etc. Ideally, the menu price must total the food costs, overhead cost, the labor cost and the projected profit for that item.
For this, you need to take account of the Gross margin value (GMV) which is the difference between the price and the food cost of an item. This is how to calculate GMV:
GMV= (Total Revenue- Cost of goods sold)/Revenue
Ideally, GMV should be around 60-65%. The GMV varies according to the type of restaurant that you’re running. A fine dining restaurant has higher overheads cost than a casual diner. A quick serving restaurant (QSR) doesn’t provide much customer service or infrastructure; hence, the GMV is set relatively lower than fine dining restaurants. The GMV of varied types of restaurants are as follows:
Fine dining: 75%
Casual dining: 55%
Quick service restaurant (QSR): 45%
2. CHARGE MORE FOR EXOTIC CUISINE
The type of cuisine that you offer plays an important role in deciding the menu price. If your restaurant serves gourmet Italian food then, tag premium price rates on your food items despite the cost of raw ingredients. This is where you need to play with the psyche of the customers; the premium price tag will make them feel they are treating them with fine dining experience and rich gourmet foods. The delicacy of the dish might be lost if it is priced as economically as any other local cuisine or fast food items. Therefore, don’t hesitate to charge a bit hefty for an exotic dish and earn the higher rate of profits.
Read more: Five mantras to control restaurant costs
3. REVAMP THE DISHES WITH A SPECIAL INGREDIENT
The best way to optimize a menu is to play with different variations of the same dish. Add dishes that use low-priced basic ingredients except one or two exquisite ingredients to enhance the richness of the flavor and the aroma. For example, you can sprinkle a few exotic herbs and spices to add fusion flavor twists to your existing dishes. Thereafter, you can tag a premium price to increase the exclusivity of the dish and monetize more from the same dish.
For example, you can add saffron leaves to plain biryaani and charge more for providing a specialty dish, Zafraani biryaani.
4. USE RELATIVE PRICING
Use relative pricing strategies to get your customers buy more. When you place your high-profit items next to expensive dishes, your customers are likely to order the cheaper, yet the high-profit item. For example, a plain salted fries tagged at 50 rupees include nominal food costs but, still are sold at a high margin. On the other hand, chilly cheese fries are tagged at 90 rupees but, does not include the same high margin. Thus, placing plain fries next to chilly cheese fries will make you earn more profit.
5. DECIDE THE RIGHT PRICE FOR THE RIGHT QUANTITY
There has always been a struggle in setting the price tag right. Many restaurants make the mistake of either charging too much or too less on foods. While charging too much would drive the customers away, charging too little will diminish the margin of profits. Restaurateurs should also take in account of the portion sizes while setting the price.
Here are the methods restaurants employ for deciding the price for the quantity offered:
- Charge more for a large quantity – Charging more for bigger quantity might not work well, especially new customers who are not aware of the exact quantity served.
- Charge less for less quantity – Many customers charge less for less quantity to stay ahead of the competition and encourage customers to order more but, the less quantity would definitely be a put off.
- Charge more for less quantity – A lot of restaurants tend to charge more for less quantity. This pricing strategy can dishearten customers since they are getting less food compared to what they paid – eventually, they might not return to your eatery.
Here is one tip to strike a right balance between the price and the quantity and avoid above three menu pricing blunders: do not decide the price solely based on the quantity. Serve decent quantity of food and mention the number of servings alongside the price of each item to clear the confusion. At the same time, also take account of other crucial factors involved in processing and serving food.
6. HAVE A CHEF SPECIAL IN EACH SECTION
In each section of the menu, you can have a ‘Chef’s Special’ item. Customers are always looking (and often ask too) for something exclusive when they’re ordering. A special item, especially the chef’s favorite infallibly catches their fancy. 3 quick steps to do it:
- Add a few exquisite ingredients to revamp the highest profit dish
- Name it as the ‘Chef’s Special’
- Place it at the top or within a highlighted box in each category
In this manner, you can promote such items in each category, charge a premium price for it and make profits on the same item than earlier.
7. AVOID PUTTING THE CURRENCY SIGN NEXT TO THE PRICE.
Putting a rupees sign next to the price makes customers conscious about how much they are spending when they see X ‘rupees’ on that item. This might daunt and discourage customers a bit.
The currency sign marks their expenditure on the budget conscious customer’s mind – and this is what we need to minimize in order to coax them in ordering food without hesitating about the price. That’s why we recommend removing the currency sign unless you are expecting guests using foreign currencies
8. PUT THE PRICE AT THE END OF THE ITEM DESCRIPTION
Food descriptions of the dish are a must for all menu items. Write appetizing descriptions stating ingredients used in the dish to explain the delicacy of the item and build an appetite for the dish. The price stated at the end of the description might get customers craving for the item by the time they finished reading it. Customers with craving for a particular item are likely to consider lesser about the price and more about the experience which they’d anticipate while reading the description.
9. USE COMPLIMENTARY ITEM PRICING
You can offer discounts on complimentary items to increase the sale of related food items. For example, a customer ordering burger worth 50/70 rupees may not want fries worth of 50/60/90 rupees and a beverage. However, offering three items together as a combo pack worth rupees 130 might be a cost-effective deal for customers and they want to order three items as a complete meal. A small discount on complimentary items will increase sales.
Do you find these tips and formulas useful? Implement these menu pricing strategies in your restaurant and let us know how it works for your business! We yearn to hear from you – drop your comments below.