Cost Reduction

That Burger is How Much!? When to Raise Menu Prices

The question of when to raise menu prices is always a tricky one.

In its simplest form, you need to decide how much business you are likely to lose if you raise your prices, factor in your per person average, and figure out if that loss of revenue will be made up for by the increase in prices. That seems simple enough. Except that those numbers are all very fluid and hard to predict. How much business will you lose? You really don’t know until you try.

What is your per person average? In theory, it should be higher once you raise prices. Except people might share an appetizer instead of each ordering their own.  Or they may stick to one glass of wine with dinner. The first step of this analysis, which is thankfully much easier now with the internet, is to compare prices of local competitors. Find other restaurants similar to yours, and look at what their prices are.

As with many other things, knowing your customers is a critical step. Even if you are moderately under-priced for your market, do you think that your existing customer base is only there because you are a great value? If so, how quickly do you think you can replace those customers with less thrifty ones?

A common mistake is to raise prices not only to try to maximize profits, but to change the perception people have of a place as “cheap” or “low end” and bring in a better clientele. This sounds like a great idea if you are confident in the quality of your service and product, but it isn’t necessarily that easy. I am all for not under pricing your product (especially on the bar side) so as to avoid becoming one of “those places,” where people are going just for a good deal, likely overconsume, and often treat your staff less than kindly (both verbally and financially). Changing that image or reputation though, requires more than just raising prices. Raising prices will almost certainly scare away some of your customers; and nobody will notice it and decide that higher prices are a great reason to give your place a try. It would take a moderate to complete rebranding or reconcepting to draw in the new clientele to replace your former clientele.

The other side of knowing your guests is knowing how many are repeat customers versus how much new business you get. If you are in a touristy part of town, and your competition is priced slightly higher than you, you can likely get away with raising your prices with very little push back. On the other hand, if 75% of your clientele are repeat guests who order the same thing every week, they will absolutely notice if their weekly Wednesday night dinner suddenly becomes 10% more expensive.

If you have mostly repeat business, I would hesitate to raise prices until it becomes necessary to meet your financial goals.

The other reason that tourist trap type restaurants can get away with more frequent and/or dramatic price changes than local mainstays is the type of competition. We are in the business of providing people with food and drinks. Not only are we competing with other restaurants, we are also competing with home-cooked meals. If our prices become too high for our regular clientele, even if they are still competitive with the other restaurants in the area, our guests have the option of not giving business to any restaurant. So yes, comparable pricing studies do carry some value. However, we also need to know our guests well enough to know if they might just skip dining out all together.

 

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