When restaurant prices shot up by 27.2% since June 2019, people stopped eating out as much. To win them back, chains like McDonald’s, Burger King, and Taco Bell started offering $5 meal deals. But what about smaller establishments? 

Setting prices can be tricky for small business owners. They have to juggle market competition, changing ingredient costs, and what customers expect. With all this, they’ve to set the right prices on a menu. The price should strike the perfect balance between value and profitability.  

This blog explores steps and tips to help small business owners create menu pricing strategies that bring success without unnecessary stress.

The Lowdown on Menu Pricing Strategies

Example of a Balanced Menu

You want to charge enough to make a nice profit but not so much that your customers go away. So, menu pricing is that art and science of setting prices for items. It directly affects how much money you make, how happy your customers are, and how you stack up against competitors.

Get Your Menu Pricing Right: 3 Key Factors to Check

• Food cost percentage is part of your earnings that goes into buying ingredients. Usually, a food cost percentage of 25-35% ensures profitability while keeping prices reasonable.
• Raw food cost is the exact amount you spend on ingredients for each dish. It helps you price dishes accurately after considering both cost and desired profit.
• Gross profit margin is the gap between what you charge and what it costs to make. More margin means more profit.

Menu Pricing Hacks: A Simple How-To

Here’s a guide to menu pricing strategies for small business owners:

Step 1: Research Your Market

Get to know your customers, what they usually spend on, and what they really like. You can gather this information through the following ways:

• surveys
• online reviews
• social media analysis

For example, a food truck in a college town might need to be budget-friendly. Plus, it should have quick-meal options. This appeals to students.

Step 2: Analyze Costs and Overheads

Example of the Division of Costs and Overheads

To set the right prices, you need to know all your costs and expenses. This includes the following:

• raw ingredients
• rent
• utilities
• labor
• marketing
• small items like napkins and packaging

Let’s say your tofu sandwich sets you back $2.50 and you’ve got an extra $1.00 for all overhead costs. Then, your total cost would be $3.50.

Step 3: Set Profit Margins

Food costs and overheads can further help you decide on the profit margin for each menu item. Just add a percentage to your costs to get the selling price. So, if that tofu sandwich costs you $3.50 and you’re aiming for a 30% profit, you’d price it at $5.00.

Step 4: Conduct Competitor Analysis

Consider similar businesses in your area or those targeting the same customer base. Analyze their menus, pricing, and customer reviews. You can visit them, go to their websites, or use tools like Google Reviews to see what’s up. Then, decide if you want to match their prices, go cheaper, or charge more, but keep an eye on your profits!

Step 5: Understand Customer Psychology

Pricing is more about perception and not just numbers. For this reason, customers often associate price with quality. So, setting your prices too low might make them question the quality of your offerings. Conversely, too high a price could deter them altogether. 

Test different price points to understand customer psychology. You can also offer a range of options at various price levels to see how customers respond. Then, observe purchasing patterns and customer reviews to know what price ranges are most appealing to your audience.

Step 6: Create a Balanced Menu

A balanced menu mixes high-margin items, like drinks and desserts, with lower-margin ones, like main courses. Pair a pricey gluten-free granola with a humble fruit salad, for instance. Customers would happily spend more without feeling like they’re splurging.

6 Key Types of Pricing Strategies You Should Know

Figuring out menu prices depends on your goals and what’s buzzing in the market. Here are some popular menu pricing strategies for you to see what clicks for you:

1. Value-Based Pricing  

Menu of Dirt Candy, an Upscale Vegan Restaurant, in New York, USA, Exemplifying Value-based Pricing

Value-based pricing sets prices based on the perceived value to the customer. So, if your customers believe something’s top-notch or unique, they’re cool with paying a bit more for it.

For instance, a vegan-only restaurant might charge a premium for a dish. This could be because the ingredients are rare or the restaurant has an awesome ambience or theme.

2. Competitive Pricing  

Menu of Veggie Grill, a Fast-casual Vegan Restaurant Chain, Located in California 

Menu of Plant Power Fast Food, a Plant-based Fast Food Restaurant Chain, Located in California 

Veggie Grill and Plant Power Fast Food restaurants have a similar menu as they both cater to audiences having vegan preferences or liking vegan food options. This way, many small businesses usually check what other places are charging to set their prices. It is a common pricing strategy for restaurant menu. So, if lots of places sell similar dishes or cuisines, you can try to match or beat those prices. 

3. Bundle Pricing  

Bundled Food Items at Burger King

Bundle pricing offers a deal where your customers can grab a bunch of different items together for less money than buying each piece on its own. This strategy makes the bundle seem like a better deal. This encourages customers to spend more. So, your restaurant can offer a meal deal that includes an appetizer, entrée, and dessert at a discounted rate.

4. Psychological Pricing  

Psychological pricing takes advantage of how customers perceive prices. So, a restaurant might put a $9.99 tag on a meal instead of $10.00 just to make it sound like a better deal. Here, the difference is minimal. Still, customers would see the price as significantly lower. 

5. Cost-Plus Pricing  

A Graphic Illustration of Cost-plus Pricing 

Cost-plus pricing is pretty simple. Just add up how much it costs to make a dish and a bit more to make profits. It ensures that all costs are covered. For example, a dish costs $5 to make. Then, you add a 30% markup. So, the final price would be $6.50.

6. Loss Leader Pricing  

A Menu Board Showing Discounted Cocktail Prices 

Loss leader pricing involves selling one or more products at a loss to attract customers. The hope is that they’ll purchase additional items at regular prices. So, you can sell a popular dish at a very low price to draw in diners who can then buy other, more profitable items.

How to Price Your Services: 10 Tips That Work

Here are ten service pricing strategies to consider for your restaurant, café, bistro, or food truck:

1. Good, Better, Best Pricing  

McDonald's $1 $2 $3 Menu as an Example of Good, Better, Best Pricing

Mix it up with different price options. Like, you could have a basic burger for $10, a fancy one with extra toppings for $15, and a deluxe burger with all the best stuff for $20. This way, there's something for everyone!

2. Hourly-Based Pricing  

Source: Hourly-Based Prices of Caterers in the USA in 2024

Charge customers based on how long they hang out or how long you’re serving them. For example, a catering gig might just charge a flat rate per hour for their service. This can be advantageous for longer events. Plus, it compensates for your time and resources.

3. Premium Pricing  

Menu of Shamiana, Taj Hotel, a Chain of Luxury Hotels Exemplifying Premium Pricing 

Set higher prices if you offer high-quality or luxury items for its perceived value. For example, a restaurant offers an upscale dining experience with top-notch ingredients and exceptional service. It might use premium pricing to reflect its exclusivity and high standards.

4. Promotional Pricing  

Example of Promotional Pricing through Happy Hours

Run some cool discounts or special deals to pull in more customers. Like, have a “Happy Hour” at your café with drinks half off to get more people in the door and increase sales during slow times. 

5. Dynamic Pricing  

Source

Adjust prices based on demand, time, or other factors. For instance, a food truck at a busy festival might increase prices during peak hours when demand is high. Conversely, prices could be lower during off-peak times to encourage more sales.

6. Project-Based Pricing  

Source: An Establishment Offering Project-Based Pricing

Set a price for a specific project or event rather than individual items. So, if a bistro is doing a wedding, they might just give its client one price that includes everything — food and service — for the whole event. 

7. Value-Based Pricing

Conduct surveys to gauge perceived worth and adjust prices accordingly. Suppose you offer gourmet truffle pasta to your customers, who view it as a luxury experience. You can price it higher to reflect its perceived value. 

8. Competitive Pricing  

Restaurants Offering French Dishes in Chicago 

Keep an eye on what other restaurants are charging. Suppose you want to start a French restaurant in Chicago. To stay competitive, you can assess restaurants in Chicago so that you can decide on menu pricing. This way, you won’t miss out on customers looking for a good deal.

9. Market Penetration Pricing  

Example of Market Penetration Pricing for a New Restaurant 

Set lower prices to attract customers and gain market share quickly. So, let’s say you open a new café and start by giving away coffee and pastries at lower rates. Once you’ve got a bunch of loyal customers, you can start hiking up the prices little by little.

10. Skimming Pricing  

Set high initial prices for a new or unique dish. Then, lower them gradually over time as demand stabilizes. This will attract early adopters as well as a broader audience.

Price Smarter with Tech

Make the most of technology to ease making menu pricing strategies and adjusting prices. Here's how:

Point of Sale (POS) Systems  

POS systems help you easily manage and set prices for your products. You can get the best prices calculated automatically based on your costs, sales data, and customer preferences. 

OneHubPOS keeps an eye on your sales trends and helps you figure out the best prices for your menu. This way, you stay ahead of the game and make more money. Plus, it updates prices everywhere with a snap, so you don’t have to bother with all the nitty-gritty!

Menu Engineering Software  

Menu engineering software takes pricing a step further. It analyzes the profitability and popularity of each menu item. It can help you identify which items should be promoted, adjusted, or even removed based on food costs, sales performance, and customer preferences. Then, you can make informed decisions that improve your menu’s profitability and appeal. 

Online Tools and Apps  

Various online tools and apps that simplify pricing range from calculators that help determine food costs to apps that analyze competitor prices and market trends. For instance, OneHubPOS offers a food cost percentage calculator that allows you to adjust your prices based on your production costs and other factors. 

3 Bonus Tips for Picking the Perfect Pricing Plan

Since choosing the right pricing strategy for restaurant menu is crucial, we have some bonus tips to help you make the best decision:

Cover Costs  

Ensure your pricing covers all your costs. If your prices aren’t covering what you’re spending, your business could be in trouble. Just figure out how much each item or service costs you first. Then, set your prices to ensure you break even and generate profit.

Maximize Profit  

Analyze your market to understand what customers are willing to pay. Then, add a reasonable markup that reflects the value you provide. You can play around with pricing — maybe charge extra for top-quality items and see what your customers go for. Find what clicks with them!

Control Costs  

Regularly review your spending to spot where you can save some money without messing up the quality. Maybe chat with your suppliers, figure out faster production methods, or cut back on waste. 

Price Blunders: What Not to Do

Here are some common mistakes you should avoid make while trying to set the right prices:

Overpricing or Underpricing  

Do not set prices too high as it can drive customers away. But make sure you do not set them too low that it erodes your profits. So, if a coffee shop is charging $10 for a latte while other places are selling it for $5, people might just go somewhere else. And if they price it at $2 but it costs $2.50 to make, they’re basically losing cash.

Ignoring Market Trends  

Do not ignore market trends as you may miss opportunities. Suppose a bakery continues selling traditional items, but competitors capitalize on a new trend like gluten-free products. Then, it might lose market share. 

Failing to Update Prices  

Your restaurant might lose profitability if it fails to adjust menu prices after ingredient costs rise. So, you should regularly review and update prices to maintain profitability and competitiveness.

Simplified Menu Pricing Strategies for You

To simplify menu pricing strategies, start by understanding your market and analyzing costs. Then, set profit margins that balance value and profitability. Mix and match different pricing strategies like cost-plus, value-based, and competitive pricing to find what works best for your business. 

Don’t forget to regularly review costs and monitor market trends. Make sure to tweak your prices often so you stay on top and keep making a profit.

OneHubPOS has all the cool features you need to set prices, track sales, and see what your customers want. You can easily adjust your prices whenever you need to and keep your profits high. Book a call with OneHubPOS today.