What Is a Pricing Strategy?
People generally open restaurants because they love food and sharing it with others. So, when it comes to figuring out how to make it profitable, it might come as a surprise that success does not rely simply on this passion. Marketing tactics such as menu pricing strategies play a huge role in determining whether an eating establishment will stick around for the long term.
But what is the definition of a restaurant pricing strategy? In short, this is a method (or a set of methods) used to establish the best prices for your menu items. Between balancing the cost of food and labor with the price guests are willing to pay, a good restaurant pricing strategy is an essential tool to make sure you are on the right side of the situation.
The Different Kinds of Pricing Strategies
There is no magic formula for the best restaurant pricing strategy around. What is ideal for you really depends on several factors. Menu optimization strategies can be both monetary and psychological, and a mixture of both are generally recommended. Take a look at the strategies that have revealed to be the most effective, which can give your restaurant the revenue boost you might just need.
Determine Your Target Menu Prices
How can you establish what the best prices are for your menu items? One easy strategy that can really help you find a base line is cost-plus pricing. All you have to do is determine how much it will cost you to make a dish, then add on the profit margin you would like. To do this, consider the following expenses:
- Ingredients
- Plates
- Rent
- Labor
- Utilities
Let’s say, for example, that your world-class hamburger costs $10 just to make. How much profit would you like to get from this product? 30%? Sounds good. Here’s how you calculate it:
30% profit, $10 hamburger
30% x $10 = $3
Now, $3 (your profit) + $10 (your expenses) = $13 (the total price)
Bear in mind, however, that the type of eating establishment you own will play a role in how much you can and should charge. Fine dining restaurants are more expensive to run since they have higher overhead costs. On the other hand, a fast food joint requires a lot less to operate. Your pricing model should therefore reflect this, because guests’ expectations largely depend on it.
Charm Pricing
There are some psychological tactics you can employ to increase your profit margin without raising any eyebrows. One that is regularly used in restaurants is charm pricing. This means convincing your guests that your prices are cheaper than they are by using the digits of “9” and “99.”
Let’s go back to your world-class hamburger to see an example of this pricing strategy. Want a bigger profit margin than 30%? Increase your price by 99 cents. To the human brain, a burger that’s $13.99 looks like $13.00, though it is, of course, closer to $14.00. You’ve just gained almost 10% in profit and your guests are none the wiser.
This is due to what has been coined by researchers as the left-digit effect: the left-most digit greatly affects our perception on price. It has been theorized that the human brain begins to process certain bits of information before it has finished taking in the full content. So, anything after the decimal point holds less importance, making your burger seem more like a bargain.
Customization Is Key
As consumers, we like choice. Customization is an excellent strategy since it gives guests the option to select items according to their specific wants and needs. Particularly when you’re considering an Order & Pay solution, modifiers, extras, and upsells are an integral part of the ordering experience. Plus, it helps restaurateurs yield greater profits. One aspect of this is triple pricing. By offering the same dish in three different versions, restaurant owners can have a diversified menu with similar ingredients, which also reduces food waste. Part of this boils down to having strong relationships with your suppliers.
Let’s go back to your world-class hamburger. Your basic burger may just come with a patty, bun, pickle, and sauces. Zhuzh it up a bit with some caramelized onions and locally sourced cheese, then add a dollar or two to justify the upgrade. Your most expensive version might have some bacon or another protein added, and the bun can be swapped out for some special artisanal bread.
Another trick to this technique is relative pricing. This is when your most profitable item is next to a more expensive dish. By placing your high-profit cheeseburger with caramelized onions next to the pricier option, you will guide your guests into ordering the dish that you really want.
It’s All About Placement
Another great marketing strategy for a restaurant is the menu format. As you have seen with the left-digit effect, readers make the bulk of their conclusions before they finish consuming the entire content. By placing your prices at the end of your menu descriptions, you have already enticed your guests with the items, and they are less likely to be put off by the final cost. There’s also a visual art to building your menus that extend beyond pricing.
Sometimes it is best to forgo information altogether. This is especially true for currency signs and zeros. A big old dollar sign next to your prices will just remind guests how much is coming out of their wallet. Who wants to be confronted by the amount of money they will lose at the end of their meal? Here’s a hint: very few people. And if you want to further coax your consumers into ordering a dish without thinking about how much they will have to fork over after, remove the zeros completely from your menu. This gives price an elegant appearance and also prevents a lot of confusion for foreign guests who read decimals differently.
Be the Poet of Your Menu
If you really want to sell your menu items and ensure excellent promotion of your restaurant, it is crucial you write mouth-watering descriptions. Let’s compare, shall we?
A: Our world-class burger comes on a bun with onions, cheese, and a pickle.
B: This juicy, world-class Angus-beef burger comes on a toasted Ciabatta bun and is topped with slow-cooked caramelized onions and locally sourced sharp cheddar cheese. A tangy, white-vinegar pickle adds that perfect final crunch.
Between A and B, which menu item are you more likely to choose? Telling a story with your menu will create a connection between your guests and your brand. Emotional marketing via detailed descriptions is a sure way to elevate the prestige of your eating establishment. So, let your imagination run wild and have your passion for your food be proudly relayed through your menu descriptions.
And if you need help, find some inspiration here.
Another way to raise your menu a notch and make your mark among competition is to offer a special ingredient to some of your dishes. Exotic spices, artisanal goodies, and unusual flavor combinations can revamp your menu and justify higher prices. Current industry trends also include farm-to-table fare, organic and locally sourced foods, and plant-based alternatives to meat.
The Recipe for Success
With these restaurant pricing strategies in hand, you have the tools you need to optimize your menu and increase your revenue. Remember that every menu pricing method has more or less of an impact according to the type of restaurant you have, the clientele you are targeting, and the location of your establishment. You may also want to implement these strategies one by one to test how successful they are on their own. Eventually, you will find the perfect combo for you!
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