Dr. Paul Borosky, DBA, MBA
Business Plan Writer · Business Consultant
How Do You Price a Restaurant Menu for Profit? Price the Plate, Not the Competition
Most menus get priced by looking across the street and shaving a dollar. Ingredient costs, card fees, and delivery apps quietly do the rest.
Written by Dr. Paul Borosky, DBA, MBA
The Definition
What Is Restaurant Menu Pricing?
Restaurant menu pricing is the process of setting a selling price for each item based on its plate cost, the target food cost percentage, and what the market will bear. The standard method divides the plate cost by the target food cost percentage to find the price, then adjusts for competition, demand, and the overall menu mix.
Menu price = plate cost ÷ target food cost %
“Weigh what goes on the plate. Price every ingredient at what you actually paid. Then decide how much of the price the food is allowed to eat, and let that set the number. Looking across the street comes last, not first.”
Need the answer fast? Read the gold Short Answer boxes and the numbered steps. Want the full picture? Follow Louie Waffles, the big-hearted Labrador who runs Waffle Woofs Bakery & Café, from Dr. Paul’s Fabled Forest, as he finds out his most popular stack loses coins every time it leaves the kitchen. The story shows up in a few short gold notes along the way. The math sits in one section, clearly marked.
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Start learning →From Dr. Paul’s Fabled Forest
Meet Louie: The Most Popular Plate in the Forest
Some lessons stick better as a story. Dr. Paul’s Fabled Forest is his business school told through a forest full of small business owners. Doctor Owl, a dry-witted consultant who lives in the Lone Oak, helps them fix the same problems real owners face. Today he finds Louie Waffles at the Waffle Woofs counter, beaming over a stack of blueberry waffles piled higher than his ears.
LOUIE: (sliding the plate across) The Mountain Stack! Best seller in the forest. Everybody orders it.
DOCTOR OWL: What does it cost you to make?
LOUIE: Blueberries, batter, cream, syrup. Not much.
DOCTOR OWL: Blueberries went up last month. Cream went up the month before. Have you weighed one lately?
LOUIE: (tail slowing) I priced it when we opened. Same as the bakery across the square. A little less, actually. Folks like a deal.
Doctor Owl sets a small kitchen scale on the counter. Louie weighs each part. He prices each one from the latest invoice. He is quiet for a long moment.
LOUIE: Doctor Owl. The more Mountain Stacks I sell, the more coins I lose.
DOCTOR OWL: Then your best seller is also your best leak.
An original Fabled Forest moment. Similar stories about Doctor Owl and the forest’s owners are in Sales for Small Businesses, Book 5 of Dr. Paul’s Fabled Forest Business School.
Louie has a decision to make. Keep reading. You’ll see what he does, and why it works for your restaurant too.
Similar stories in Sales for Small BusinessesDr. Paul’s Fabled Forest Business School, Book 5 See the Books →
The Trap
Why Does Competitor Pricing Fail?
Looking at the competition is not wrong. Starting there is. The place down the street has different rent, different suppliers, a different crew, and maybe a different problem you cannot see.
Their costs are not your costs
Same dish, different rent, different supplier, different portion. Their price tells you nothing about your margin.
Ingredient prices move
A price that worked at opening can lose money a year later without anything on the menu changing.
Fees take a cut first
Card fees and delivery apps come off the top of every check before food or labor is paid.
Louie priced the Mountain Stack once, at opening, a little under the bakery across the square. He never weighed it again.
Show the Math
How Do You Calculate a Menu Price?
Start with plate cost: every ingredient on one serving, at what you actually paid. Then set the price from your target food cost. Illustration numbers only.
| Target food cost | Price for a $5.00 plate | Left after ingredients |
|---|---|---|
| 25% | $20.00 | $15.00 |
| 28% | $17.86 | $12.86 |
| 30% | $16.67 | $11.67 |
| 33% | $15.15 | $10.15 |
| 35% | $14.29 | $9.29 |
A $4.80 plate sold for $16 is a 233% markup. “Marking up 30%” on that plate gives a $6.24 price and a 77% food cost.
The same plate leaves $11.20, which is 70% of the price. Food cost is the other 30%. Think in food cost percent.
Then round to a price that makes sense on a menu and check it against the market. If the formula says $16.67 and everyone nearby charges $14, you have three choices: make the dish cheaper to produce, make it worth $17, or take it off the menu.
Pasta and eggs can run low food cost. A steak may run high because guests will not pay what a low-cost steak would need. What matters is the average across what people actually order.
Five Fixes
How Do You Fix Menu Prices That Lose Money?
- 1
Weigh your top sellers
The dishes you sell most decide your food cost. Weigh and recost them first.
- 2
Price every ingredient from the latest invoice
Not what you paid at opening. Not what you think you paid.
Louie’s FixLouie recosted the Mountain Stack from last week’s invoices. It went up a little, and he trimmed the cream to a measured scoop.
- 3
Fix the plate before you raise the price
A measured scoop, a smaller garnish, or a cheaper side can save the margin without touching the price.
- 4
Know what fees take
Card fees and delivery commissions come off every check. Delivery menus often need their own prices.
- 5
Raise what they get, not just what they pay
Dr. Paul’s study of 752 reviews found price costs a restaurant the second visit more than the first. When a price goes up, make the plate feel worth it.
From Dr. Paul’s Work as a Business Consultant
What a Business Consultant Checks on a Menu
When a restaurant owner asks Dr. Paul why margins are shrinking, the menu is one of the first places he looks. Not the design. The plate costs behind the prices.
The problem is rarely one terrible dish. It is usually a popular dish priced right two years ago and never touched since.
Your best seller decides your food cost. If you only recost one dish this month, make it that one.
From Dr. Paul’s Fabled Forest
What Louie Did Next
A month later, the Mountain Stack was still on the menu. It cost a little more. Nobody complained.
LOUIE: I weigh the cream now. One scoop. And I raised the price a few coins.
DOCTOR OWL: And the customers?
LOUIE: (grinning) Still ordering it. One lady said it tastes better. It doesn’t. Same stack.
DOCTOR OWL: Perhaps it tastes better when it is not costing you money.
The lesson for your restaurant: Price from your own plate cost, recost your top sellers often, and fix the plate before you assume the price is the only lever.
In Your Business Plan
How Does Menu Pricing Go in Your Business Plan?
Lenders do not read your menu for the food. They read it for the math. Related guides: How Do You Read a Restaurant Income Statement?.
- 1
Show your pricing method
Plate cost and target food cost, not “priced to compete.”
- 2
Show the average check
Built from your menu mix, by meal period.
- 3
Show blended food cost
The average across what you expect people to order.
- 4
Show how you will keep it current
Recosting top sellers on a schedule.
This is one piece of the full plan. See How to Write a Restaurant Business Plan for every section, start to finish.
Want your menu prices built for the margin you need?Dr. Paul works with restaurant owners on pricing, food cost, and prime cost.
Questions
Restaurant Menu Pricing Questions
How do you calculate a menu price?
Divide the plate cost by your target food cost percentage. Then round to a sensible price and check it against the market.
What is the difference between markup and margin?
Markup is based on cost. Margin is based on price. Restaurants usually think in food cost percent, which is the share of the price spent on ingredients.
How often should a restaurant update menu prices?
Recost your top sellers whenever ingredient prices move, and review the whole menu on a regular schedule.
Beginner’s Guide to Restaurant Financial Statements and Financial Ratios
Plate cost, menu pricing, card fees, and the margin every restaurant needs, in plain English.