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Finding your maximum menu profit when designing your menu
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Pricing - do it right, and right from the start for the best business success. Estimate the actual cost of a menu item, from your distributor all the way to the diner. Include delivery fees, cooking costs and employee wages in addition to the wholesale cost of the ingredients. To estimate the actual cost, consider:
- Price per raw item - divide the total cost of a lot (delivery included) by the number of unprepared items.
- Prep time and approximate cost - estimate the time it takes your prep team to get the item ready to cook or serve. How much are you paying in wages for prep?
- Cook time and approximate cost - estimate the time it takes to cook the item. How much are you paying in wages for cooking this item? If you want to be really particular, estimate your energy usage cost for cooking, as well.
- Clean up (general) - A small percentage of your clean up costs should be factored into your base price.
Adding these factors up will give you the base cost of your item or dish. Going through this process for every item on your menu can be time consuming, but helps you to set reasonable, profitable price points for each offering. A shortcut would be to research other restaurants with similar offerings in your area, and then experiment with prices around this range.
Setting Your Price Point
If you're just starting out, a good general rule is to take your base cost per dish and double it to reach a ballpark menu price. From this baseline, you can adjust your prices to more closely match those of your nearest competitors. You'll quickly find that many 'indulgence' items (coffee, desserts, wine, spirits, cocktails, etc.) are still incredibly cheap by modern standards, even with a 100% markup. Think about pushing the envelope with the prices of these items. A 300% markup is not uncommon for normal restaurant dishes. For indulgence items, consider a 500% markup.
The Price Barrier
The term price barrier means the cost above which most middle income diners will not buy. Currently the price barrier in the United States is about $20.00. Unless you cater to an upscale clientele, keep this number in mind as an upper limit for the price of a single dish.
How Do Prices Affect My Restaurant Image?
The prices you choose for your menu can say something about the type of restaurant you run and the demographic you hope to attract. Upscale, classy establishments often round their prices to the nearest dollar, knowing that their patrons are looking for a luxurious dining experience. Family restaurants and those that cater to middle-income diners may set prices just below the nearest whole dollar, such as $4.99 or $4.95. It's basic psychology, but it works - people see a '4' instead of a '5' and think 'more affordable'.
Where Do Prices Go On My Menu?
There are many different ways to display pricing, and what works for one restaurant may not work for another, unfortunately. A 'price column' (where you list all your dishes and the prices next to them in a large block) may be great for a quick-service eatery that attracts cost-conscious diners, as it allows all the prices to be quickly scanned. However, it almost forces your customer to directly consider the price of their meal. If you sell items for $10 and above, it may help to de-emphasize prices by listing them at the end of a menu description, like this Hawaiian menu. Removing the dollar symbol from your prices may also help increase sales.
Consider Your Demographic
Are you a restaurant for every day middle class diners, a fancy option for those looking to indulge, or a small establishment serving a primarily low-income group? Along with your base cost, your clientele will help you determine a proper price point.
What If A Dish Isn't Selling?
If the dish is perishable, lower your price point. It's better to get some return on an item than to have to toss it because it's gone south and get nothing at all. Other options include shifting the dish to a 'high traffic' area of your menu, such as the center or upper right corner. You can also run special promos such as a 'Buy 1, get the second 1/2 off', which can be distributed through local newspapers, your email list, or through Facebook or Twitter.
Written by: Bob Robertson