6 restaurant pricing strategies that actually work

Discover pricing strategies that will increase restaurant sales and lower costs

TableCheck

TableCheck

Sep 29, 2022 - 4 min read

6 restaurant pricing strategies that actually work

Hospitality operators are always looking for ways to improve their bottom line and maximize restaurant profits.

While raising prices may seem like an easy solution to increase restaurant revenue, business owners need to think strategically before committing to any price changes. Will the move be consistent with the restaurant brand identity and will it help create a better dining experience for your customers?

Recalibration of prices needs a multilayered approach. A solid menu should be able to help upsell the other extras in the restaurant to truly drive sustainable business profit.

Aside from pricing methods, restaurants should also take additional actions to generate revenue. They must also be ready to weather rough times when inflation is high, or when ingredients and labor costs skyrocket due to supply chain disruption.

Clearly, to drive profit back to the business, a restaurant needs to employ a blend of cutting-edge tools and tried-and-true methods.

1. Find out which category best describes the restaurant and who the customers are

Restaurants can be divided into approximately 11 categories. Let's investigate what these are:

  • Fine Dining 

  • Casual Dining

  • Contemporary Casual 

  • Family Style 

  • Fast Casual

  • Fast Food

  • Cafe 

  • Buffet

  • Food trucks and concession stands

  • Pop-Up Restaurant 

  • Ghost Restaurant/Cloud Kitchens 

An establishment's pricing strategy is heavily influenced by the group to which it belongs and the characteristics of its target market.

To further comprehend this idea, let's look at a few examples. A fine dining establishment is likely to spend a lot of money on interior design, ambiance, staff, premium ingredients, tableware, etc. The menu would need to be expensive to generate a worthy return on investment. The target market, however, determines how expensive the prices are. Are city dwellers willing to spend $100 on an upscale dinner for four? Or is it a little town where even the more affluent visitors are probably going to pass at $80?

Contrarily, consider the situation of a fast food or QSR restaurant, which concentrates on providing food quickly and affordably. Their focus would be on delivering wholesome meals at reasonable prices while keeping costs under control. 

Menu - restaurant pricing strategies

2. Managing prime costs and recipe costs

There are two costs that are essential to cost management: recipe cost and prime cost.

Recipe cost is a concept whereby a restaurant sticks to a single recipe and sets the cost.

This is how it would work:

  • List all the ingredients that go into a dish.

  • Measure how much the ingredients cost in a single dish by the amount used.

  • Sum up the cost of the ingredients as well as take into consideration labor costs.

Meanwhile, the prime cost is the sum total of the cost of goods sold plus labor costs. This includes the cost of goods sold refers to the cost of ingredients, kitchen supplies, restaurant supplies like napkins, etc.—basically any cost that is incurred on a regular basis. Labor costs refer to the cost of labor and insurance.

To bring down prime costs, a restaurant can take the following steps:

Step 1: Monitor and track prime costs regularly

The first step in cost reduction or cost management is to identify each and every expense the establishment incurs on a regular basis. Churn out expenses that seem frivolous or that don’t have a lasting impact on the restaurant’s branding and day-to-day operations.

Step 2: Recalibrate menu

Restaurants should reevaluate their menu to maximize sales without compromising taste or patron expectations. A restaurant can employ several different menu techniques. As an example, if a restaurant's sales are slow during a season, it can choose to decrease serving portions for the same price.

Step 3: Define recipe costs

Another way of controlling costs is through recipe management. Basically, the restaurant should stick to one recipe and determine its cost. The process would be:

  • List all the ingredients that go into a dish.

  • Measure how much the ingredients cost in a single dish by the amount used.

  • Sum up the cost of the ingredients as well as take into consideration labor costs

Step 4: Set a target for controlling Prime Costs

Having a set goal in mind aids in methodical and numerical cost-cutting. A clear objective also makes sure that management is motivated to operate responsibly. If a restaurant, let's say Cafe Insomnia, was routinely incurring $2000 in prime expenses each month, it should consider a new target prime cost of $1500 for example, after recalibrating the menu and applying other tactics.

3. Leveraging exotic dishes and seasonal menus

When it comes to exotic dishes, food cooked with rare, and imported ingredients needs to be priced at a premium. There are two reasons why: The first rational explanation is that most exotic ingredients are quite expensive, and the second reason is that customers anticipate paying a higher price for things that contain unique ingredients. Therefore, including exotic items on the menu that are priced at the upper end may actually help the business achieve larger profit margins.

Another great menu strategy is creating a special seasonal menu. Seasonal menus help keep costs down. Seasonal products are cheap when purchased in bulk and are readily available at grocery stores, farmers' markets, and also via local suppliers, so incorporating seasonal ingredients in the kitchen pantry also eliminates the need for restaurants to spend a fortune on shipping and imports. There's also the fact that seasonal dishes are always a hit with customers. The delectable seasonal treat would draw customers looking to indulge in the season's strawberries and boost the cafe’s sales. 

For instance, when strawberries are in season, it's a good idea for restaurants to provide desserts that feature strawberries. The seasonal treats will bring in customers who are wanting to take advantage of the season's harvest, which will increase the restaurant's profits.

4. Executing promos and deals

So often restaurants find themselves having to increase the prices of dishes, reduce portions or use less expensive ingredients, just to keep their margins at bay. However, there are measures that restaurants can take to satisfy customers by giving them discounts and deals that offset the premium pricing or cost reductions. These are some of the things that a restaurant could do:

  • Promote happy hours to provide patrons with an opportunity to buy more food and drink for the same price.

  • Organize themed events to spice up the usual fare and ambiance.

  • Add combos to the menu that will help diners save money and will also help the establishment sell more food.

  • Incentivize huge purchases with a complimentary sweet. If a table spends over $100, for instance, make them eligible for a complimentary dessert.

5. Competitor research

It is critical to research competitors, especially if the hospitality operator is in the fast food or casual dining business. This type of restaurant often focuses on providing good value for money because that is what its target market expects. To encourage return visits from guests, such restaurants must ensure that they serve more food at a lower price than competitors.

As an illustration, consider a fast food business, let's call it Zoey's, that has four competitors within a 200-meter radius. Assume that the chicken burgers at the competing fast food chains cost around $5. Then, Zoey's chooses to reduce the price of its burgers to $4 while also including a complimentary hash brown and cookie. Naturally, customers seeking a deal on a meal would swarm to Zoey's.

Competitor research - restaurant pricing strategies

6. Michelin restaurants

A Michelin-starred restaurant, or any restaurant operating at the same level of sophistication, might follow in the footsteps of these legendary establishments and maintain a set menu with a different price head for lunch and dinner. Michelin-starred restaurants typically have significant overheads and strive for perfection on a regular basis. They stick to predetermined menus to keep costs under control while wowing guests at every meal. These set menus are an excellent cost-controlling technique. More often than not, the recipe is consistent, which aids in controlling and meeting cost requirements.

RELATED: What can you learn from Michelin-starred restaurants and iconic establishments?

The use of technology

While pricing methods are one way to preserve profit margins, restaurants also need to be more receptive to integrating new technologies into their operations in order to boost their overall profitability and control costs. It can take the shape of QR menu cards, food delivery apps/plug-ins, or the utilization of social media to generate excitement about the restaurant.

Apart from that, there are booking platforms like TableCheck that let businesses manage reservations and keep track of important customer data to enhance the dining experience of guests and encourage repeat visits. In addition to aiding the restaurant in food sales, client data can be used in a variety of other ways. Utilizing technology to reduce food waste in restaurants exemplifies the proper application of technology. Using guest data, restaurants can figure out how their customers eat and keep their stock levels in line with consumption trends, thus reducing waste. 

Embracing technology can enable restaurants to achieve a range of goals, with the aforementioned illustration highlighting just one of its numerous benefits. 

RELATED: Engage guests – Make the perfect dining experience come to life using guest data

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