8 menu pricing strategies to boost restaurant profits

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In today’s restaurant industry, inflation, shrinkflation, and rising food costs are pinching both restaurant profits and customers’ wallets. These market pressures make focusing on a restaurant menu pricing strategy more critical than ever, demanding restaurant owners walk the tightrope between covering costs and satisfying customer expectations. Relying solely on a cost-plus pricing—where you simply add a set markup to costs—is no longer enough for a restaurant to grow and thrive.

Here, we’ll explore a number of innovative menu pricing strategies to get your menu as profitable as it can be while appealing to cost-conscious customers. Since different restaurants have different needs, like quick-service restaurants vs. fine dining restaurants, we’ll cover psychology and market dynamics to help you figure out the best path to profit. Starting with food cost calculations as your baseline, you can build a menu that drives sales and keeps customers happy and coming back.

Does cost-plus pricing still work in 2025?

Traditionally, cost-plus pricing has been the go-to menu pricing strategy for most restaurants. It’s a straightforward way to set prices by marking up the cost of ingredients.

However, rising food costs plus inflation means restaurants need to get a bit more creative than the stock-standard cost-plus pricing. This is not to say cost-plus pricing has no place in restaurants—rather, it’s just a good starting point.

How cost-plus pricing works

Cost-plus pricing is fairly straightforward. Calculate the cost of goods sold (COGS) in a dish, and apply a markup—usually 3X your cost—and, voila, you have your menu item cost.

For example, a dish with $5 in COGS would come out to $15 on a menu. This gross profit margin of around 30-35% ensures you can cover your overhead, including labor and operational costs, while generating profits.

Upsides of cost-plus pricing

Cost-plus pricing has been popular for a reason: It’s simple and reliable. Basing prices on actual costs means you know you can cover all your expenses and still make some money. It’s a good way to establish a baseline price across all restaurant types.

Downsides of cost-plus pricing

Cost-plus pricing has its limitations in today’s volatile market. Its one-size-fits-all approach can lead to inaccurate pricing based on customers’ perceived value.

That $15 dish that costs $5 in food costs might seem overpriced in a casual diner where a customer might expect lower costs, or it may seem underpriced in a high-end establishment where customers associate higher prices with higher quality.

The rigid 3X model doesn’t take psychological factors, competitive pricing, or demand fluctuations into account. This means potentially missing profitability or turning off customers.

Moving beyond cost-plus

Cost-plus is a valuable starting point, but using it as your only strategy risks misalignment with customer expectations and market trends. To optimize your menu pricing strategies, combine cost-plus with strategies like charm pricing, price anchoring, or perceived value pricing—which we’ll explore in the next section.

8 menu pricing strategies to consider

Using advanced menu pricing strategies can help maximize sales and boost profits while maintaining customer satisfaction. Below are eight proven pricing strategies that tap into customer psychology and market dynamics to ensure your menu turns a profit.

1. Charm pricing

Charm pricing involves setting prices just below a round number, like $9.99 instead of $10. You’ve likely seen this psychological pricing strategy used in retail as well. This tactic makes prices seem lower by focusing customers’ perception on the first digit.

Best for: Fast food, quick-service, and fast-casual restaurants, where customers are price-sensitive and used to seeing this restaurant pricing strategy 

Charm pricing is often used in counter-service restaurants and diners. This strategy taps into the bargain-hunting mindset that customers often have. 

However, fine dining establishments should avoid charm pricing as it’s associated with bargains rather than quality. Instead, opt for whole-dollar amounts like $30 instead of $29.99. Whole numbers are associated with high quality and good service. Oh, and feel free to ditch the dollar sign, too.

2. Price anchoring

Price anchoring sets high and low price points on the menu to set customer expectations. A high-priced anchor item like a $50 steak makes other menu items seem like a bargain by comparison. Conversely, a low-priced anchor item like a $12 chicken sandwich raises the perceived value of low-end items, encouraging sales of more profitable items.

Best for: Most restaurant types, all the way from casual to upscale dining 

In casual restaurants, anchoring balances affordability with profitability by making mid-range items look like good deals.

In upscale settings, high anchors like premium wine drive the perception of luxury—and allow customers who want to spend money to do so. At the same time, low anchors make budget-conscious customers feel like they’re still getting a good value.

3. Bundling

Bundling combines multiple menu items into a single menu offering. In the fast food world, this often takes the form of a combo, like a burger, fries, and drink. In higher-brow establishments, it looks like a prix fixe menu, or a multi-course menu with an appetizer, entree, drink, and dessert, as suggested by the chef. Combos and prix fixe menus drive higher overall check sizes, leading to a solid bottom line.

Best for: All kinds of restaurants 

Quick-service restaurants live on combos, as their customers are looking for value and convenience.

Fine dining restaurants can increase their perceived value with prix fixe menus, attracting cost-conscious customers who want to know exactly how much they’ll spend before they make a reservation.

Casual restaurants can offer family deals or daily specials to attract groups.

4. Tiered pricing

Tiered pricing, or decoy pricing, offers items at different price points to sway customer choices. This looks like offering a “decoy” item, one that’s less attractive, to make another look better.

For example, a menu might offer a small pizza for $12, a medium for $18, and a large for $20. Most customers will skip the medium and head for the large, since it’s a better deal.

Best for: Casual and mid-brow restaurants 

Decoy-pricing menu items works well in these establishments since customers compare options closely and may be interested in different portion sizes.

Fine dining can use tiered pricing, but it needs to be subtle—for example, on a wine list with both discount and premium pricing.

Quick-service restaurants can use tiered pricing to upsell larger portions or add-ons.

5. Competitive pricing

Competitive pricing is just what it sounds like—setting prices in line with local or national competitors to avoid looking too cheap or too expensive. Successful restaurants will scour their competitors’ menus to see what “normal” is in their area. They will also look through customer reviews that discuss price.

Best for: Casual and mid-brow restaurants

Competitive pricing works best with cost-sensitive customers. Being too cheap means customers will wonder about your quality, whereas high prices will drive them to your competitors.

Fine dining restaurants rarely rely on competitive pricing, since the goal is luxury and unique experiences.

6. Perceived value pricing

Perceived value pricing sets prices based on customer expectations rather than its actual costs. This can be an exceptionally valuable menu pricing strategy for premium, high-profit menu items like high-end wines, liquors, or signature entrees.

In some cases, customers will choose prestige menu items because they’re the most expensive on the menu. These premium items can be marked up significantly—perhaps another 30-50% over the 3X model because customers associate higher costs with higher quality.

Track what customers say about your pricing on review sites like Yelp. They’ll tell you a lot about the perceived value of your menu if you read between the lines.

Best for: Upscale and fine-dining restaurants, where customers expect and even look forward to higher prices as part of the experience

Casual restaurants can use this for a small number of high-end items like a specialty cocktail but should avoid it for perishable items that can clog up inventory and go to waste due to slow sales.

7. Demand pricing

Demand pricing adjusts prices based on fluctuating demand, like the time of day, day of the week, or seasonal availability. Offering happy hour discounts is a classic example of demand pricing, which can drive sales during slow periods. Similarly, limited-time specials or a seasonal menu can take advantage of high demand for a unique offering during a certain time of year.

Best for: All restaurant types

However, it’s most effective for casual and quick-service restaurants with clear peak and off-peak times, like happy hour or the mid-afternoon lull. Fine dining restaurants can tap into restaurant seasonality for special menus or events, charging a premium for holidays or offering special prix fixe menus.

8. Loss leaders

Loss leaders are simply items that are very popular but you don’t make much money on—they’re great for advertising to get customers in the door. You’ve likely heard this term attached to grocery stores before, but restaurants can use it too.

Traditionally, these will be items that make less than the 3X cost formula. Loss leaders work especially well as temporary specials—for example, as a way to get rid of inventory that’s close to its expiration date.

Bests for: Quick-service and mid-range restaurants looking to drive sales during a slow sales period

The goal is to get new customers in the door and make them familiar with your establishment. High-end restaurants would be wise to avoid loss leaders to prevent brand reputation damage.

What pricing strategy works best in a casual restaurant?

Most of the menu pricing strategies work well for a casual restaurant, including charm pricing, price anchoring, bundling, tiered pricing, competitive pricing, demand pricing, and loss leaders.

You don’t have to pick just one strategy. For example, you might use charm pricing across your menu, demand pricing for a happy hour, tiered pricing for a certain food category, and bundling for a family meal deal on Tuesday nights.

How often should I update my menu prices?

Take a cue from nature and adjust your menus and prices quarterly. Look at the current data from your POS and management platforms as well as metrics like food cost percentages, labor costs, and sales trends to see where menu adjustments need to be made.

If ingredient costs rise sharply for one item, for example, consider raising your costs to keep at least a 30-35% profit margin. If that’s not possible, it may be wise to axe the item from your menu or make up for the rising costs across multiple items to keep the price increase more modest.

How do I raise prices without upsetting regulars?

In order to raise prices and keep your loyal customers happy:

• Test your adjustments: Implement small price changes of 5-10% on select items. Then, follow sales trends and customer responses before rolling out any broader changes. Your point-of-sale (POS) data will show which items are underperforming and which could support increased prices. You can also watch customer reviews for any complaints that prices have gotten too high for the perceived value.
• Adjust portion sizes: Controlling portion sizes on popular items could help you keep the prices the same while lowering food costs. This works well for dishes most people don’t finish and lead to food waste.
• Consider menu redesigns: Some subtle menu design tweaks via menu engineering can influence customer perceptions and drive sales.
• Start a loyalty program: Let regulars earn discounts or free food items for being such loyal patrons.

Choose the right menu pricing strategies

The cost-plus strategy has been one that’s worked for ages, but it’s no longer adequate to navigate the complex and ever-changing market restaurants are in now. Use it as your mental benchmark, but try out some of the different menu pricing strategies above. Tap into customer psychology, and get clever with perception. Part of your strategizing process will be to look at your current data to help you make smart decisions.

Yelp Guest Manager, the best front-of-house management software in the business, can help. It syncs with all the best POS systems and more. Combine that with a platform that empowers your staff to do their best work while automating most of your reservation and waitlist management, and you’ve got a powerful ally that makes life easier.

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