How to Raise Menu Prices the Right Way Article by Jillian Henze, Senior Communications Manager at Washington Hospitality Association
Raising menu prices can be scary because of the worry that your restaurant will lose customers. Our experts recommend how to raise menu prices the right way.
Play with percentages Here is how David Jones from Blazing Onion and Subway restaurants prices a menu from scratch.
It’s an art and science Washington State's Hospitality Association President and CEO Anthony Anton combines numbers with what he observes about customers.
1. Jones said to start, each manager takes their average employee hours schedule and plugs in total cost of current wages for a week.
“Menu pricing is combining art and science,” Anton said. He recommends calculating the percentage you need to increase menu prices and using some key observations about your customers to decide where to make the increases. For example, at a casual, full-service restaurant with regular weekly customers, those customers are not highly aware of the beverage or dessert prices, Anton said. But, the customers are paying close attention to the prices of the appetizers and entrees. The art would be to raise prices where the customer’s awareness is lower, he said. “Look artistically at how to move that percentage around in different areas,” Anton said. And make sure to keep an eye on the competition. Identify similar restaurants in the area customers would choose instead of your restaurant, and evaluate their menu prices, Anton said. “What are your customers choosing instead of you?” he asks. Excel and Quickbooks are tools to help you with basic menu pricing, Anton said. Your supplier may have software or a consultant to help, though he cautions that the supplier’s software may only include recipe items you purchase from that supplier. Anton said if he were running a restaurant today, he would change menu prices two to four times per year. Why? Things are changing faster than ever before, and because you don’t want customers to get attached to a price point, he said. Plus, like muscle memory, doing the calculations daily or weekly will make it more familiar and easier for you. Tracking numbers like food cost, labor cost and other expenses (utilities, administrative costs, etc.), will help you stay on top of change, and will help you protect your margins more vigorously, Anton said.
2. Then the regional manager, the general manager and Jones sit and discuss new wages. New wages are plugged into the schedule to discover the increase in weekly labor cost. 3. Next, the regional manager pulls up a menu mix report (can also be called a food cost report) for an average week and drops it into a spreadsheet with the restaurant’s latest menu prices. 4. Jones said he will play with numbers in his spreadsheets by plugging in a menu price percentage increase, rounding up or down until he makes up for the labor cost gap. Jones said that increasing menu prices too much can cause a major hit on customer traffic, while raising prices too little can cause an unsustainable loss in profit. “That will creep up on you and show its face on a delayed schedule, mainly because accounting reports and P&L’s come delayed, which kills you,” Jones said. “You just increased prices, you can’t increase again so soon, so now what do you do? Strategize.” Focus on dollars Chris Patterson, the business solutions director at Food Services of America Spokane, said he recommends clients first find out what the wage hike will cost. 1. Calculate the increase in labor cost. 2. Then, do some “menu mapping,” he said. Some calculators or accountants would recommend a menu price increase percentage (for example, you’ll need to raise your menu prices by 3.6 percent in 2020). But, Patterson prefers to do the math with real dollars, he said. That 3.6 percent menu price increase in the calculator was necessary because the wage increase and other items equal a dollar increase of $36,022.50 in 2020. 3. “Break it down into a daily total so your head doesn’t start swimming,” Patterson recommended. So, divide $36,022.50 by how many days the restaurant operates (364 days of the year for example), and you are left to increase revenues by $98.96 per day.Next, go into your POS terminal, or check your Excel spreadsheet where you keep your sales data, and grab numbers from the past three or six months.
