Pricing menu items for your restaurant business is one of the most challenging yet essential tasks. There are multiple ways of pricing the restaurant menu correctly. You can either find out the cost of your food and supplies and charge your customers three times its value. Or, serve meals at lower prices than your competitors. You can also work around your margins and quote a price that covers the essential cost. However, these are not the most appropriate ways of pricing your restaurant menu. There is a high risk attached in following these methods; either your prices might not be competitive, or customers may find your menu expensive. This often leaves your restaurant with minimal profits. As a menu is exceptionally critical for your restaurant’s long-term success, it is essential to work out costs and overheads. This article explains how restaurants in Saudi Arabia can do correct restaurant menu pricing and keep their customers satisfied.
Factors Affecting The Restaurant Menu Pricing
These are some of the elements that will help you hone your restaurant pricing methods.
Direct Costs
These costs are directly associated with the food items on the restaurant menu itself. Direct costs involve raw material purchases, portion sizes, drip loss while storing, and food wastage from spilling, spoiling, or overcooking.
Indirect costs
Indirect costs do not primarily cover the costs of preparing a dish, but it includes those costs that add value and quality to your food. Labor costs, overhead expenses such as decor, ambiance, lighting, tableware, marketing efforts, etc. constitute the indirect costs.
Volatile Food Costs
These are the food costs that keep fluctuating based on conditions prevailing in the market. Restaurants must maintain an account for the price fluctuation of items such as fruits, vegetables, and meat, according to seasonal or economic factors such as inflation and taxes.
Competition
It is essential to keep a check on your competition. For similar menu items, your menu pricing should ideally be close to your competitor’s prices. In case you plan on charging more, you must provide proper differentiating points to your customers.
Service Costs
The type of service your restaurant offers has an effect on restaurant menu pricing as well. For a casual restaurant, menu costs shouldn’t cover a hefty service fee as the service is limited. However, for a fine dining restaurant, the menu prices increase as the quality of customer service is also better.
Boundary Pricing
The rental costs, according to the location, quality of food and service, etc. define the restaurant’s boundary prices. Figure out the lowest price your restaurant can charge while still making a reasonable profit and the highest price your customers should pay for menu items.
Different Restaurant Menu Pricing Methods For Saudi Restaurants
These are some of the restaurant menu pricing methods operators in Saudi Arabia must know of;
Pricing By Portion Cost
Standard portion cost is the cost of serving one food item or beverage as per the standard recipe. Using this method, you can determine the portion cost by dividing the purchase cost with the portion. Learn how Portion Control can help you control your Food Costs and reduce wastage here.
Pricing By Raw Food Cost Of Item
This method takes the raw food cost of an item and divides it by the desired food cost percentage. This will fetch you the final price. You must know the value of each ingredient, such as meat, vegetables, oil/butter, condiments, etc. Take into account the garnishing ingredients or any other sauce served.
The formula is:
Raw Food Cost of Item ÷ Desired Food Cost Percentage = Price
Take into consideration factors such as indirect costs, fluctuations in food prices, competition, etc. For instance, if you want a food cost percentage of 35%, while allowing a difference of 5% for multiple factors, you would want to keep a markup of 30% on your food items.
Pricing By Competition
In this method, take the prices determined by your competition as your reference price. You can decide whether to price your items the same as your competitor, slightly lower to attract customers looking for a bargain, or price the menu marginally higher to attract customers looking for premium quality. As your restaurant must function within a specific price limit, pricing the menu by competition may impact profitability negatively.
Pricing By Demand Analysis
This concept works on the principle of demand and supply. Restaurants having outlets at airports, food courts, or malls charge more due to the high demand. As the demand is more than the supply, customers at these locations are willing to pay a higher price. If your restaurant serves exclusive or specialty menu items or offers food items in a different ambiance, you can charge more for the food or the experience. Remember to study the target market and analyze the customer base before pricing your menu items.
While finalizing the restaurant menu pricing, make sure that your restaurant food and quality justify it. Utilize these effective tips for restaurant menu pricing, and watch your total restaurant sales in Saudi Arabia soar!
