1. Money
Send to a Friend via Email

Video:How to Create Prices for a Menu

with Jonathon Stewart

Want to learn how to create prices for a menu? Here, see tips and tricks for creating restaurant menu prices.See Transcript

  • All Videos
  • All Money Videos
  • Franchises Videos

Transcript:How to Create Prices for a Menu

Pricing your menu can be a tricky thing. You don’t want to scare off your target clientele by making them feel like they’ll need to take out a loan to have a meal. But, at the same time, you are in business to make a living, so you need to ensure you cover your overhead costs and turn a profit.

Basics for Creating Prices for a Menu

Here are some criteria to consider when creating prices. First, you’ll want to do your research by taking note of other restaurants that reflect a similar cuisine and that are located within your area. It’s good to know what the competition is doing in terms of their pricing, including when and to what degree they offer specials, discounts, or other incentives. For example, if you are offering shrimp scampi at $19.00 but your competitor is charging $14.00, you’ll have to see what is different between the two by going to try theirs out. You may be right with your pricing because you offer more shrimp or larger shrimp—something you can accordingly highlight on your menu in the description in a way where patrons can easily understand the difference. However, if your dishes are very similar, you may want to consider reaching a similar price point.

Information About Creating Prices for a Menu

Beyond simply emulating what your competition is doing – after all, you do want to differentiate yourself – there are other things you need to consider when pricing your menu. Creating unique menu items is a way you might be able to charge a little more––after all, going out is often just a way to break from the humdrum at home.

More Information About Creating Prices for a Menu

Another idea is to create a variety of dishes that are offered at a wide range of prices. Including local, seasonal produce is a way to keep things fresh and cost-effective, though certain items come at a premium any time of the year. Restaurants also tend to get away with charging a little more for nightly specials, so you might try balancing more expensive limited offerings like lobster, fish, or beef with staples that cost less to make like a stew, pasta dish, pizzas or sandwiches and which can be consistently priced on the lower end on your menu.

Additional Information About Creating Prices for a Menu

Before you get too far down the line in pricing your menu, it’s essential to take a look at your overhead so that you know how to set your profit margins.As a trusty old school rule of thumb, the actual cost of creating a menu item should never exceed about thirty-five percent of its selling price to patrons. Simply stated, if you were to pay $10 for the raw ingredients to create a dish in the back of the house, by this rule you would need to charge at least $28.50 to customers who order it. The 65% net on the order goes pay your kitchen and front of the house staff, in addition to rent, utilities, entertainment, marketing, insurance, maintenance, and anything else that goes out the door at the end of the day.

Having a good desktop publishing system is a great way to both assess your ongoing flexible and fixed expenses that sales go against, but it’s also handy to be able to make slight adjustments to menu pricing as needed throughout the year. If you keep close tabs, you can raise (or lower) prices more gradually over time, as opposed to jacking up menu prices once or twice a year in amounts that might scare off customers. Of course, you want to be careful not to keep regular customers guessing––be sure to keep certain core items as consistently priced as possible, for as long as possible. By carefully managing portions and waste as well as maintaining a tight inventory, you can also maximize your profits without having to overprice your menu. Consider measuring portions to ensure that all items are to size.

Finally, be sure to convey to your customers the value they are getting by visiting your restaurant, whether by low prices for quality food, or by offering a unique, extraordinary menu item that comes in for less than the competition.

I'm Jonathon Stewart, with About.com.

About videos are made available on an "as is" basis, subject to the User Agreement.

©2014 About.com. All rights reserved.