The painless way to increase prices

As a fellow restaurant owner or operator, you’re probably all too familiar with the challenges of maintaining and scaling profitability. One common mistake we make is focusing solely on increasing volume without addressing the underlying issue of profit margins. Revenue is a validity metric–profitability is freedom. If you’re not netting at least a 15% profit margin, it’s crucial that we address this above any other strategies.

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Over my 20+ years of experience in our industry, I’ve seen that many restaurant owners tend to undercharge. Why is that the case? More often than not, it stems from fear of customer pushback. Using the simple, two step strategy below will give you the tools you need to not only raise prices, but to also eliminate any potential negative reactions before they even happen.

Step 1: Increase prices

There are a variety of tactics we can use to increase prices but the three listed below are the most effective:

Average costing: Raise prices by $1 per item using average costing. This means some items may go up by more than $1 while others stay the same, ensuring an average increase of one dollar across all units​.

Target best sellers: Consider raising the prices of your five best-selling menu items by 10%. There’s likely room to increase by more than 10% without negatively affecting sales​​. This small adjustment will have a massive impact on your bottom line without affecting the bulk of your menu.

Service charge: Adding a 5% service charge across the board is a simple and effective way to boost your bottom line​.

While these strategies may feel intimidating, there’s no point in running a business that makes YOU no money. It’s essential to charge what your food is worth with the expectation that customers will pay an increased price for increased value.

Step 2: Increasing perceived value

To justify price increases, we must enhance the perceived value of your offerings. Here are my favorite tactics to get it done.

Physical menu presentation: Improve the quality of your printed menus and upgrade their design. A little bit of graphic design goes a long way. Another tool we used was listing local farms and vendors we source from as well as highlighting housemade items. Sharing your mission and the background of your founders and team can also add value​​.

Menu descriptions: Ensure that your menu descriptions sell the item and justify the cost. Use creative copy to make your offerings more appealing. For example, our “Beef Rib” became the “36 Hour Beef Rib” with a detailed description of the culinary process we used to cook the dish over almost two days.

Staff training: Prepare your team to handle questions and complaints about price increases–but there probably won’t be any. Educate them about the reasons behind the increase and provide them with talking points, FAQs, and roleplay scenarios to ensure they can address customer concerns effectively​​.

Strategies around raising prices

Timing: Plan your timing carefully. Avoid raising prices when sales are down or when public perception is negative. It’s easier to time your price increase around customer satisfaction if you operate a single unit or just a few​.

Price elasticity: Start by measuring item price elasticity to set your initial targets. Some menu items are more sensitive to price changes than others. Use your POS data to implement targeted price increases.

Cross-effects: Consider the linkages between menu items. Some items may be substitutes, while others complement each other. Use historical sales data to quantify these cross-effects and optimize your menu pricing​​.

Market research: Measure guest price expectations through market research to understand pricing thresholds. Balance your pricing strategy with analytics and research to avoid exceeding what consumers are willing to pay​.

Competitive analysis: Examine the competitive landscape to ensure your new pricing is aligned with the market. Collect data on your main competitors’ menu pricing and adjust your prices accordingly​​. I’ve provided a great tool to do so below.

Communication: Be transparent about why you are increasing prices. You don’t need to announce a price change, but in cases of significant increases, clear communication is essential​​.

Value equation: Remember that the key is providing value. Value is not what you pay, it’s what you get. Ensure that your prices still represent a good value for the quality and experience you offer​.

Menu engineering: Analyze your menu to identify high-profit and popular items. Focus on promoting these dishes and phase out low-margin items that don’t sell well​.

Feedback loop: Finally, keep an open line of communication with your customers and your team. Gather feedback on their perception of your pricing and value proposition. This can help you make informed decisions and maintain customer satisfaction​​.

Putting it all together

Candidly, raising prices can be a scary thing, but with the right strategy and a focus on adding value, it’s a vital step towards scaling your restaurant’s profitability. Remember, it’s not just about charging more; it’s about enhancing the overall experience–and that costs money.

Click below to download our Benchmarking Analysis Worksheet, providing you with the tools you need to compare your prices to your nearest competitors.

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