How to Win The Menu Pricing Game

Want to learn how to win the menu pricing game? Well, stick around and I'll share five tips to make sure you win the menu pricing game once and for all. Hey, Donald Burns, a restaurant coach and author of the youe Restaurant Sucks trilogy. You know, one topic I get a lot of questions about is menu design. So today I thought we'd have a talk about one element of great menu design, and that's menu pricing. Now, menu pricing should be straightforward, yet it's rarely that simple. There are many elements that you need to keep in mind when pricing out your menu. So let's explore the five dynamics of menu pricing. 1. You gotta know your real food cost. Too many operators live in the land of theory. You think that the purchases divided by sales tell you your food cost. Well, it only gives you one side of the equation. The problem is that this process doesn't give you your performance metrics to measure what is really going on under the surface of your menu. And honestly, that's where the profits are hiding. Knowing your true theoretical food cost is not a luxury. It's a requirement if you want to have a chance to really making a lot of money in an industry notorious for thin margins. To do this, you're going to need at least one of the following. You're going to need a food cost program. Now it could be as easy as an Excel spreadsheet or you get a program like Get Me or Get Filet. You could get a fully automated integrated restaurant management systems like Margins Edge or Marketman. And these systems usually integrate with most POS systems. Or you could just get an all in one point of sale system like the one by Toast that has a food costing software called Extra Chef that works right inside their system. The key is if you want to play the menu pricing game and win, you need to stack the odds in your favor. And that starts at ground zero. Knowing your theoretical food costs precisely. Number two, understand the commodity pricing model. Another major mistake restaurants make is pricing your menu based on the competition. I'm always shocked when I ask a client, how did you come up with the price of that plate? They say, well, that's what the place down the street charges for it. And then I'll say, well, how do you know they're making money? I mean, maybe the restaurant's packed all the time, but what's their profitability? You don't know. Don't base your pricing based on someone else's because your business model is totally different. Your overhead, your expenses are totally different than your competition. Now here's the thing, if you can provide better service and products, why price your menu to compete? Creating value is a lot more important than price. Many people get that wrong. They think that value is purely price driven and it's not. Value is created when you deliver those intangibles that add to the perception of value. What are some of those things? I mean, stellar service, outstanding facilities, professional looking staff, and the presentation of the food are all part of the dining experience. If you compete with other restaurants in your market on price, you are a commodity. Pricing on the commodity level is a never ending battle of lower prices. It's just a game you can't win in the long run. The only way to compete is to be cheaper. If you want to win that game, if your competition does the same, what you're going to do is you kind of keep lowering your prices till one or both of you go out of business. I recommend building value by embracing the spirit of hospitality, acting like a host, and everyone who comes in your door gets that kind of essence and a complete surreal dining experience. Number three, you gotta play to your strengths. Your menu needs to be a representation of what you do best. Think of your menu kind of like your greatest Hiss album. The rolling stones recorded 439 songs. Now if you go to a Rolling Stones concert, do you want to hear those B side tracks or you want to hear the hits? Your menu needs to play your hits. Those are the items that allow you to stand out from the crowd. That creates a brand differential. Having items that separate you from the others will allow you to raise your menu prices and compete at a different level. Being different is good. Think of Apple. I mean, they sell computers, laptops, mobile devices like a lot of other companies. But being different allows them to sell, stand out, create brand differential, and also charge a premium for their products. Number four, you got to know what the market will bear. You need to do some research and conduct a competitive pricing analysis. Gather menus from your market and kind of write down what's the pricing of similar items on your menu. Don't use it as a copy, but more as research. Collect data from 5 to 7 restaurants in your market with similar food items. And now you're looking for. When I look at the data, I'm looking for the high point, the low point. And then I try to figure out what the average is. Now, based on the value you bring, what can you price your item for? Let me give you a great example. Take a hamburger in Albuquerque, New Mexico and then drive up to Santa Fe, which is only 45 miles away, you can charge 2 to $3 more just because the market in Santa Fe will bear more. Think about the last time you were at the airport and you paid $6 for a bottle of water and $8 for yogurt. See, when you have a captive audience, you can charge whatever you want. Well, to a point, if you price gouge your guest and they don't feel it was worth it, you're going to lose them very, very fast. And number five, seek menu balance. The trick to winning the menu pricing game is to balance your menu with high and low cost items. Once again, you can stack the deck in your favor by taking advantage of menu engineering principles and modern consumer psychology. Menu placement is really critical to getting that balance just right. Think of your menu kind of like real estate. I mean, you have nice parts of town and places that you actually don't like to go to after midnight, your menu is kind of the same. Finding the right balance is not an overnight process. It takes a lot of time to kind of dial in the menu and get that balance just right. At a minimum. To do this, you're going to need, number one, keep your food cost accurate. Number two, you need a modern point of sale system. Then get what you need is called a product mix report or a PMIX report. And you also need an abundance of patience and focus. Now a new menu design can stimulate sales overnight, anywhere from 3 to 5%. A well engineered menu can increase your profits 10 to 15%. Sales without understanding your cost is a recipe for failure in the restaurant industry. The cold hard truth is there's no one size fit all menu pricing strategy. It has to take into account your brand, your market conditions, your overhead, your staff, and most importantly, your guests. Because in the end, your guests will give you feedback if your menu pricing is right where they want it to be. To spend money with you, you need to listen to them. Hey, if you want to learn my four menu design hacks that I use to get clients to increase sales 20% overnight without raising menu prices, head over to MenuDesign cheatsheet.com and click grab the free training. Now it's part of a workshop I teach. I teach this complete eight hour workshop on total menu design called Extreme Menu Makeover. And that's just one of nine workshops inside the restaurant Accelerator coaching program. And that program has been used by over 2,600 independent restaurants around the world to make more profits and work fewer hours in their restaurant. Hey, before you go, make sure to hit the like and subscribe button. Click for more tools, Tips to break free from being average.