How to Price Food to Sell: A Practical Guide for Restaurant and Food Business Operators

A Guide on How to Price Food to Sell

An effective pricing strategy is essential for any food business's long-term success. While the basic concept may seem straightforward — charge more than your costs to make a profit — the reality of food pricing is far more complex. With restaurant profit margins typically ranging from 3% to 5%, even small pricing missteps can significantly impact the bottom line. Since food and labor costs each account for approximately 33% of total sales, strategic pricing is crucial to balancing expenses while remaining competitive. 

A well-crafted strategy requires a deep understanding of costs, market trends, customer expectations, and competitive positioning. This guide walks you through the key factors that influence pricing, helping you develop a strategy that ensures profitability while maintaining customer satisfaction and a strong market presence.

Understanding your costs

Before setting menu prices, you need a rock-solid understanding of all of the costs involved in running your business. Many operators focus solely on food cost, but a profitable pricing strategy must consider every expense — from raw ingredients to overhead and labor.

Pricing isn’t just about covering costs; it’s about ensuring profitability while remaining competitive in your market.

Direct costs: Breaking down food cost

Your food cost is the foundation of your pricing strategy. To determine it accurately, you must break down every ingredient cost per dish.

Key food cost components

Account for these essential costs:

• Raw ingredients: The cost of each ingredient that makes up a dish.

• Seasonings & garnishes: Even small items like fresh herbs or truffle oil add up.

• Cooking oils & consumables: Think of frying oil, butter, or stock used in cooking.

• Waste factor: Ingredients shrink, spill, and require trimming (3% to 7% waste, depending on the ingredient).

Portion size & prep waste

Food shrinkage and trimming waste can drastically impact your costs. For example:

• A 10-ounce steak may require purchasing a 12-ounce cut due to trimming and cooking loss.

• Vegetables & seafood may lose weight during prep and cooking, affecting final portion size.

Pro Tip: Track portion sizes consistently to avoid unintentional over-serving, which cuts into profits.

Indirect costs: The hidden expenses behind every plate

While food cost is the foundation of pricing, it’s only part of the equation. Your menu prices must also account for the indirect costs of running your restaurant — expenses that don’t show up directly on the plate but impact your bottom line.

Key indirect costs to factor in

These indirect expenses play a crucial role in your overall pricing strategy:

• Labor costs: This includes wages, payroll taxes, benefits, overtime, and insurance for your staff. Skilled kitchen staff and front-of-house employees are essential, but their costs can add up quickly.

• Utilities: Electricity, gas, water, and internet costs affect your restaurant’s operating budget. Energy-intensive equipment like ovens and refrigerators can drive up expenses.

• Rent or property costs: Whether leasing or owning your space, rent, property taxes, and maintenance fees are significant ongoing expenses.

• Equipment maintenance: From ovens to espresso machines, regular upkeep prevents costly breakdowns and ensures smooth operations.

• Marketing & advertising: Investing in promotions, social media, and local outreach brings in customers and keeps your brand top of mind.

• Administrative costs: Software subscriptions, bookkeeping, and business operations tools all contribute to overhead.

• Insurance: Liability, workers’ compensation, and property insurance are essential for protecting your business from unforeseen risks.

• Debt service: If you’ve taken out loans for equipment, renovations, or startup costs, your pricing must factor in repayments.

Why indirect costs matter in pricing

Many operators set menu prices based only on food cost and profit margin — but failing to factor in these indirect costs can quickly eat away at profitability.

Calculating your base price

The most common starting point for menu pricing is the food cost percentage method. This traditional approach ensures that your menu items generate enough revenue to cover costs and maintain profitability.

Industry standard food cost percentages

Industry standard percentages help guide pricing decisions by ensuring food costs stay within a sustainable range for profitability:

• Fine dining: 28% to 32% – Higher-quality ingredients and elevated service allow for premium pricing.

• Casual dining: 32% to 36% – A balance of quality and affordability, with moderate portion sizes and diverse menu offerings.

• Quick service: 28% to 32% – Lower labor costs and high-volume sales help offset tighter margins.

• Catering: 25% to 30% – Bulk purchasing and pre-planned menus allow for lower food costs and higher overall margins.

How to calculate your base price

Use this simple formula:

Base Price = Total Food Cost / Target Food Cost Percentage 

For example, if a dish costs $4 to make and your target food cost is 30%, the base price would be $13.33 ($4 ÷ 0.30).

A well-known benchmark for food cost is McDonald's cheeseburger, where the total ingredient cost is around $0.77 (including bun, beef, cheese, pickles, condiments). If McDonald's targets a 30% food cost, the base price should be around $2.57 ($0.77 ÷ 0.30). However, menu prices also consider labor, rent, and perceived value, leading to a retail price closer to $3.50 to $4.00 depending on the market.

However, this is just your starting point. Modern pricing strategy requires considering additional factors.

Strategic pricing considerations

Setting menu prices isn’t just about covering costs — it’s about maximizing revenue while remaining competitive. Strategic pricing ensures that your restaurant attracts the right customers, remains profitable, and stands out in the market.

Market research

Understanding your market is crucial to setting effective prices. Pricing should reflect both your costs and the expectations of your target audience. Keep in mind:

• Analyze competitor pricing: Research similar restaurants in your area to understand the price range for comparable dishes. While you shouldn't simply match competitors, knowing the market rate helps ensure your prices align with customer expectations.

• Consider location and demographics: An upscale neighborhood may support premium pricing, while a college town may require more budget-conscious options. Understanding customer price sensitivity and perceived value is essential.

Menu engineering

Modern menu engineering categorizes dishes based on popularity and profitability, helping restaurants make data-driven pricing and menu design decisions. Categories include:

• Stars (high popularity, high profit margin): These are your best-sellers and most profitable items. Feature them prominently on the menu and use pricing strategies that maximize revenue while maintaining strong demand.

• Workhorses (high popularity, lower profit margin): These items drive sales but generate lower profits. Look for ways to reduce costs or gradually increase prices without impacting demand.

• Puzzles (low popularity, high profit margin): These dishes have strong margins but don’t sell well. Test different menu placements, descriptions, or marketing strategies to increase interest, or consider adjusting the recipe or pricing.

• Dogs (low popularity, low profit margin): These items are typically underperforming. Unless they serve a specific purpose, consider removing them from the menu to streamline operations and reduce waste.

Panera strategically pairs high-margin add-ons with lower-margin items. For example, a soup-and-sandwich combo ($10.99) has a lower margin, but adding a $1.50 baguette or $3.99 drink increases profitability. This "menu psychology" helps boost per-ticket sales without customers feeling overcharged.

Value perception

Price isn’t just about numbers — it’s about how customers perceive the value of your food and experience. Small changes in presentation, portioning, and service can influence how much customers are willing to pay. Consider these factors:

• Presentation: Thoughtful plating, garnishing, and dish aesthetics can justify higher prices.

• Portion size: Ensure portion sizes align with customer expectations and the price point.

• Quality indicators: Highlight premium ingredients, sourcing (e.g., organic, locally sourced), or unique preparation techniques to reinforce value.

• Service level: Exceptional service, ambiance, and overall dining experience can support premium pricing.

Delivering value through quality

When food costs are higher, customers must feel they are getting their money’s worth. This means pricing alone isn’t enough — quality, presentation, and service must reinforce the value of a dish. Higher prices can be justified through premium ingredients, expert preparation, and an outstanding dining experience.

Garrett Benedict, chef and owner of G-Love, a vegetable-forward restaurant in Portland, Oregon, emphasized the importance of delivering on quality to support higher pricing. He said, “Our check averages are usually between $60 and $70 per person. Our labor costs are about 38 percent, all of our costs are really within industry standards. But our food is on the expensive side. To me, that means we have to deliver on quality 100 percent of the time; that’s what will set us apart and create value.”

This highlights a key pricing principle: customers are willing to pay more if they perceive higher value. A well-crafted pricing strategy goes beyond covering costs — it ensures that every element of the dining experience supports the price, making guests feel their meal is worth it.

Pricing strategies

Effective pricing is about maximizing revenue, influencing customer perception, and strategically positioning your menu items. The right pricing approach can boost profitability while shaping how guests perceive value.

Premium pricing

Signature dishes, premium ingredients, and unique offerings warrant higher price points. Customers often associate higher prices with better quality, so don’t hesitate to charge accordingly — as long as the experience supports the price. To justify premium pricing, focus on these key factors:

• Ensure that presentation, plating, and portioning reflect the premium price.

• Highlight exclusive ingredients (e.g., dry-aged beef, truffle, imported seafood) to justify the cost.

• Reinforce value through exceptional service, ambiance, and branding.

Premium pricing works best for chef’s specials, seasonal items, or limited-availability dishes that create a sense of exclusivity.

Restaurants use premium pricing for Japanese A5 Wagyu beef, which costs $50 to $100 per pound, compared to $10 to $15 per pound for a USDA Choice ribeye. To justify a $100 to $200 menu price, they highlight exclusivity (e.g., "Imported Japanese A5 Wagyu"), enhance presentation (e.g., searing tableside), and pair it with luxury ingredients like truffle butter. The rarity and perceived value allow for significantly higher pricing while maintaining strong customer appeal.

Price anchoring

Introducing higher-priced items on your menu can make mid-tier items seem like a better deal by comparison. For example:

• A $60 steak makes a $40 steak feel like a great value.

• A chef’s tasting menu at $120 makes a $75 entrée seem more reasonable.

Many seafood restaurants use price anchoring with extravagant seafood towers. A three-tiered seafood tower featuring lobster, oysters, caviar, and king crab might be priced at $150 to $200, while a smaller seafood platter with shrimp and oysters is $60 to $80. 

Even if few customers order the largest option, its presence makes the mid-tier platter seem like a better value, encouraging more sales while maintaining profitability.

Psychological pricing

Subtle pricing techniques influence customer spending habits. Consider these proven strategies:

• Prices ending in 9 or 5 suggest value (e.g., $19.95 feels like a bargain compared to $20).

• Round numbers appear more premium (e.g., $20 looks more refined than $19.99).

• Removing dollar signs can increase spending by reducing the mental connection to cost ($12 vs. 12).

• Price clustering guides customers toward certain choices (grouping similar items at $12, $14, and $16).

The way prices are displayed can significantly impact customer behavior, so small adjustments can lead to noticeable revenue gains.

Cost-plus pricing

While simple cost-plus pricing (marking up food cost by a set percentage) is common, it's often too simplistic. Consider variable markup based on:

• Preparation complexity

• Storage requirements

• Shelf life

• Competition

• Menu category

Traditional cost-plus pricing applies a flat markup to food costs (e.g., doubling the food cost to determine the price). While simple, this method often fails to account for key variables such as:

• Preparation complexity: Labor-intensive dishes should have a higher markup.

• Storage requirements: Items requiring special storage (e.g., fresh seafood, dry-aged meats) need higher margins.

• Shelf life: Perishable ingredients should be priced higher to reduce waste risks.

• Competition: Adjust pricing based on what similar restaurants in your market charge.

• Menu category: Some categories (e.g., alcohol, appetizers) often allow for higher markups than entrées.

Cost-plus pricing provides a baseline but should be adjusted for market conditions and menu strategy.

Implementing price changes

Raising prices is a necessary part of running a profitable restaurant, but how you implement those changes can impact customer perception and retention. A well-planned approach ensures a smooth transition without alienating loyal guests.

Timing your changes

Strategic timing helps minimize resistance to price increases. Instead of abrupt or frequent adjustments, consider a gradual and structured approach:

• Implement changes gradually: Small, incremental increases are less noticeable to customers.

• Avoid multiple increases in short periods: Frequent price hikes can create frustration and drive customers away.

• Consider seasonal adjustments: Ingredient costs fluctuate throughout the year, making seasonal pricing a natural adjustment.

• Time increases with menu updates: Introduce new menu designs, updated offerings, or improved plating alongside price changes to soften the impact.

When price increases are framed as part of an overall menu refresh or quality improvement, customers are more likely to accept them.

Restaurants like The French Laundry adjust pricing seasonally based on ingredient costs. In the truffle season (November–January), dishes featuring black truffles may increase in price due to market fluctuations. This allows fine-dining restaurants to maintain margins without sudden, unpredictable pricing changes.

Communication

How you communicate price changes — both internally and externally — affects customer perception and staff confidence. Some suggestions are:

• Train staff to explain changes if asked: Equip employees with clear, positive messaging about quality improvements, rising ingredient costs, or better wages for staff.

• Update all menu platforms simultaneously: Ensure consistency across physical menus, websites, delivery apps, and online listings to prevent confusion.

• Consider offering new items or improvements: Pairing a price increase with added value, such as larger portions, upgraded ingredients, or new dishes, helps justify the change.

• Monitor customer feedback: Pay attention to how guests react and be ready to adjust if necessary. A well-executed price increase should not drastically impact customer satisfaction or sales.

By handling price adjustments thoughtfully, restaurants can maintain customer trust, sustain profitability, and continue delivering a high-quality dining experience.

Monitoring and adjusting

Pricing is not a set-it-and-forget-it process. Regular reviews and performance tracking ensure that your pricing remains profitable, competitive, and aligned with customer expectations.

Regular review

Establish a systematic approach to reviewing prices and making necessary adjustments. A structured review schedule helps identify trends and prevent profit erosion. Include:

• Monthly food cost analysis: Track ingredient price fluctuations and adjust pricing or sourcing as needed.

• Quarterly menu engineering review: Analyze which dishes are performing well and which may need adjustments or replacements.

• Annual comprehensive price evaluation: Conduct a full menu pricing review to ensure alignment with business goals and market trends.

• Ongoing competitor monitoring: Keep an eye on local competitors to stay competitive and maintain your market positioning.

Consistent review prevents sudden, drastic price changes and allows for small, incremental adjustments that customers are less likely to notice.

Performance metrics

Tracking key performance indicators (KPIs) helps assess whether your pricing strategy is working effectively. Track:

• Food cost percentage: Ensure your pricing aligns with industry benchmarks and maintains profitability.

• Gross profit margins: Monitor overall profitability and adjust pricing where necessary.

• Sales volume changes: Identify trends in customer purchasing behavior to spot potential pricing issues.

• Customer feedback: Pay attention to comments about pricing, portion sizes, and value perception.

• Item popularity: Use sales data to determine which menu items to highlight, adjust, or remove.

By continuously analyzing data and market conditions, restaurants can refine their pricing strategy to maximize revenue while maintaining customer satisfaction.

Special considerations

Pricing strategies must be flexible to accommodate different sales channels and special circumstances. Delivery, catering, and seasonal events require tailored approaches to maintain profitability while meeting customer expectations.

Delivery and takeout

As delivery and takeout continue to grow, restaurants must account for the additional costs associated with these services. A strategic pricing approach ensures that off-premise sales remain profitable. Strategies include:

• Higher prices for delivery menu items: Third-party delivery services charge high commission fees, often 20% to 30%. To offset these costs, consider slightly higher prices on delivery menus.

• Simplified menu for delivery efficiency: Limit delivery offerings to high-margin, travel-friendly items that maintain quality in transit.

• Packaging costs in pricing: Factor in the cost of to-go containers, utensils, and branded packaging. Premium packaging may justify slightly higher prices.

• Different pricing for different platforms: Some restaurants adjust pricing based on the platform (in-house online ordering vs. third-party apps) to maximize profits and drive direct sales.

Chipotle adds an 8% to 15% price markup on third-party delivery platforms (Uber Eats, DoorDash) to offset fees. A $9.50 burrito in-store may cost $10.99 to $11.50 on delivery apps, helping maintain profit margins despite high commission rates from these platforms.

Balancing convenience, cost, and customer expectations ensures a sustainable and profitable delivery and takeout operation.

Special events and catering

Restaurants offering private dining, holiday specials, or catering services need customized pricing strategies to account for unique costs and demand fluctuations. Consider:

• Private events: Pricing should reflect additional labor, customized menus, and exclusive venue use. Consider package pricing for simplicity.

• Holiday menus: Seasonal pricing can take advantage of high demand while covering increased labor and ingredient costs. Limited-time offerings also create urgency and boost sales.

• Catering services: Factor in bulk ingredient costs, staffing, delivery, and setup fees. Pricing should be structured to encourage higher-order values.

• Special promotions: Discounts or bundled deals should maintain profitability while driving traffic. Use these strategically to fill slow periods or introduce new menu items.

By adapting pricing to different service models, restaurants can optimize revenue and maximize profitability across all sales channels.

Moving forward with your pricing strategy

Successful restaurant pricing is not a one-time decision — it’s an ongoing process that requires monitoring, adaptation, and strategic refinement. To maintain profitability and remain competitive, stay proactive in evaluating your pricing strategy.

Key factors to monitor

Regularly tracking these factors ensures profitable and competitive pricing:

• Market trends: Consumer dining habits, ingredient trends, and industry innovations can influence pricing expectations.

• Cost changes: Fluctuations in food, labor, and operational costs should be factored into regular pricing adjustments.

• Customer preferences: Monitor sales data and feedback to understand what guests value most and adjust pricing accordingly.

• Competition: Keep an eye on how similar restaurants in your market are pricing their menus and responding to industry shifts.

• Economic conditions: Inflation, supply chain disruptions, and regional economic factors impact restaurant costs and customer spending habits.

Pricing for growth

Remember that pricing is both an art and a science. While calculations and formulas provide a foundation, successful pricing also requires a deep understanding of your market, your customers, and your brand position.

The most successful operators regularly review and adjust their pricing strategies, balancing profitability with customer satisfaction and market competitiveness. Don't be afraid to make changes when needed, but do so thoughtfully and strategically to maintain your business’s long-term success.

Keep detailed records of your pricing decisions and their impacts. This data will be invaluable as you continue refining and improving your pricing strategy. The goal is not just to set prices, but to develop a sustainable pricing model that supports your restaurant’s growth and profitability over time.