Pricing a menu is one of the decisions that most affects your restaurant's profitability - and one that most owners do by feel rather than by formula. That's understandable: it's uncomfortable to think too analytically about something as experiential as food. But pricing by instinct usually means leaving money on the table, or losing it.
Here's the method professional restaurateurs use, explained plainly.
The food cost percentage method
The most widely used menu pricing formula is based on food cost percentage. The logic is simple: your food cost (what the ingredients cost you) should represent a target percentage of the selling price.
The standard target for most restaurants is 28-35% food cost. That means if a dish costs you $4 in ingredients, you'd price it between $11.40 and $14.30.
The formula:
Selling price = Ingredient cost ÷ Target food cost percentage
So if your ingredients cost $4 and your target is 30%:
$4 ÷ 0.30 = $13.33
Round to $13.50 or $14 depending on what feels right for your market.
Step 1: Calculate your actual ingredient cost
This is where the work happens. For each dish, you need to know the cost of every ingredient that goes into it - including garnishes, sauces, and sides that come with the plate.
Go through each ingredient:
- What does it cost per kg/litre/unit from your supplier?
- How much of it goes into one portion?
- What's the cost per portion?
Add all ingredients together. That's your food cost for the dish.
Example - pasta dish:
- Pasta: $0.40
- Tomatoes: $0.60
- Olive oil: $0.20
- Garlic, herbs: $0.15
- Parmesan: $0.55
- Total: $1.90
At a 30% target: $1.90 ÷ 0.30 = $6.33 → price at $6.50 or $7
Step 2: Choose your target food cost percentage
28-35% is the standard range, but the right number for your restaurant depends on your cost structure.
Lower food cost % (25-28%): Makes sense if your labour costs are high, your rent is high, or your dishes are simple to prepare. You need more margin per dish.
Higher food cost % (32-38%): Makes sense if your labour costs are low, you're using premium ingredients as a selling point, or you're in a competitive market where price matters a lot.
Most independent restaurants target around 30-32%. Start there and adjust based on your actual numbers.
What the formula doesn't capture
Food cost percentage is a starting point, not a complete picture. A few things it misses:
Labour cost per dish. A dish that takes your chef 20 minutes to prepare has a different real cost than one that takes 3 minutes, even if the ingredients cost the same. Factor in preparation time when deciding which dishes to prioritise.
Market price sensitivity. If every similar restaurant in your area charges $18 for a burger and yours comes out at $22 using the formula, you may price yourself out of that category. The formula tells you your floor (below this price you lose money) - the market tells you your ceiling.
Psychological pricing. $14.90 and $15.00 are nearly identical in cost but feel different to a guest. Round numbers ($14, $15, $18) work better on menus than precise ones ($14.50, $17.75). Avoid the pence/cents.
High-margin anchor items. Drinks - especially alcohol - typically have food cost percentages of 15-20%, far below food. This is one of the best ways to increase your average check. A table that orders wine with dinner is significantly more profitable than one that doesn't, even if the food margins are the same. This is why cocktail menus and wine lists are worth investing in.
The menu engineering approach
Once you have food costs calculated for all your dishes, you can apply restaurant menu engineering and map them into four categories:
Stars: High profit margin, high popularity. These are your best dishes. Feature them prominently, put them in the top-right of their category (where eyes land first), add a photo.
Plowhorses: High popularity, lower profit margin. Guests love them but they don't make you much money. Consider whether the ingredient cost can be reduced slightly, or whether the price can be nudged up without losing orders.
Puzzles: High profit margin, low popularity. These make good money when ordered but guests don't choose them often. Look at description and placement - can you make them more appealing?
Dogs: Low profit, low popularity. Candidates for removal. They take up menu space without contributing to your bottom line.
This analysis is worth doing once a year at minimum. The results are often surprising - the dish you think is your bestseller may be your least profitable, and a dish you've been about to remove might be quietly making you money.
Updating prices: the digital menu advantage
One practical reason to have a digital menu: price changes cost nothing and take seconds.
On a printed menu, adjusting a price means a reprint - which means you absorb the loss on the current price until the new menus arrive, then pay for the print run.
On a digital menu, you change the price and it's live on every table immediately. When your supplier raises the cost of a key ingredient, you can adjust your menu price the same day, not the same month.
This matters more than it sounds. Food costs fluctuate constantly. Restaurants that can't respond quickly to cost changes either absorb the loss (bad) or wait too long to raise prices (also bad, because they've trained guests to expect the lower price).
A simple starting framework
If you haven't done a proper food cost analysis before:
- Pick your five bestselling dishes
- Calculate the ingredient cost for each one
- Divide by your current selling price to find your actual food cost %
- Compare to your target (30-32% for most restaurants)
- Adjust prices on anything significantly outside your target
You don't need to analyse your entire menu at once. Start with the dishes that matter most and build from there.
Pricing isn't set-and-forget. Revisit it when supplier costs change, when you notice a dish isn't selling, or when you feel like you're working hard without seeing the profit you'd expect. And if you're still building your menu from scratch, see our complete guide on how to make a menu for your restaurant.
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