Menu pricing is one of the most consequential decisions you make in your business and most operators get it wrong. They price based on what competitors charge, what feels right or what they think customers will accept — rather than what the numbers actually require.
Start with your food cost target
Before you set a price for any dish, you need to know your target food cost percentage. For most cafes and casual dining venues that sits between 28 and 32 percent. For fine dining it can be higher. For high-volume fast casual it should be lower. Your food cost target is the foundation everything else is built on.
Cost every dish properly
A proper dish cost includes every ingredient including oils, garnishes, sauces and condiments. It accounts for wastage in the preparation process. And it uses your current supplier pricing, not the price from six months ago. If your recipe costing has not been updated in the last three months, it is probably wrong.
Apply your multiplier
Once you have your actual ingredient cost per dish, divide it by your target food cost percentage to get your minimum sell price. If a dish costs $8 to make and you want a 30 percent food cost, your minimum sell price is $26.67. Round to a sensible price point and check it against the market.
Factor in perceived value
Pricing is not purely mathematical. A dish that is technically priced correctly but feels expensive for what it is will not sell well. Conversely, a dish with a high perceived value can often be priced above the mathematical minimum. This is where menu description, presentation and plating earn their money.
Review your prices regularly
Supplier prices change. Labour costs change. The economic environment changes. Your menu prices need to change with them. Build a pricing review into your calendar at least twice a year and every time your food cost moves by more than two percentage points.
If you want help costing your menu properly and setting prices that protect your margins, talk to Pestle and Mortar. Our menu engineering service covers exactly this.
About the Author
Wayne Farmer is the founder and chief consultant at Pestle and Mortar, Australia’s hands-on hospitality consultancy. With experience running hotel kitchens, boutique dining venues, and a successful catering business, Wayne has spent his career helping Australian restaurant, cafe, and catering operators build more profitable, better-run businesses. Learn more about Wayne and how Pestle and Mortar works.