5 Ways your Menu Pricing Strategy is Hurting your Profit

Formulating a Return on Investment (ROI) advertising plan in your restaurant must be an ongoing method for managing your hospitality business. However, establishing accurate recipe ingredient costs and sharing profitable menu items information with your team is an essential component for the outcome to have positive results and sustainable deliverables. While there are elasticity issues, nearby competition, and your principal clientele to consider in menu pricing, having a price on your menu you know is correct can help bring in more profits especially when everyone on your team is on board and knows how to react to your promotions successfully.

1: Pricing Based on the Competition
If your competitors have lower menu pricing and you kneejerk react to reduce your pricing accordingly the results can be devastating, especially if your food and beverage costs are higher. Alternatively, the raising of your prices along with your competition or just to generate more profits can equally hurt your business when public opinion differs upon each establishment and you become overpriced as a result. All too often foodservice businesses use competitors menu prices around them to price their own menus, and this is such a bad idea. If you have no idea what your product is worth in cost, value, and perceptually, you cannot price your food and beverage just to keep in line with the location down the block. Prices placed on menus that are random make no sense at all and not having knowledge of your costs and the comparison between each menu item profitability can restrict business growth and can certainly reduce profits.

2: Selling Blind on Social Media
With the rise and simplicity of social media usage restaurateurs often perform their own advertising strategies using Instagram and Facebook to lure in new customers with pretty pictures of their food & beverages and they forgo the necessity of proper planning or considering the downsides of their actions when the lack thereof is occurring. Social media has become saturated by every food service establishment, and this form of marketing without forward thinking strategies and in-house staff preparations will only lead to profit loss disappointment.
Blind Practices Include:

1. Poor results by randomly posting promotional pictures along with no considerations to the photo quality.
2. No advance training in staff preparedness or knowledge with the items being displayed.
3. Posting the most popular items on the menu regardless of kitchen or bar preparation timing or presentation concerns.
4. Not calculating out menu item costs and blindly and unknowingly promoting the lowest profit items.
5. Assuming higher guest check averages from promotions are delivering more profits, especially when this indicator is not reliable without a clear understanding of the items that are actually delivering higher profits.

When your managers do not understand the promotion you are trying to achieve or fail to have information on the most profitable items on the menu and this information is also not available to the FOH employees, your team is misguided and not selling to make you a profit. They are selling blindly.

3: Staff Knowledge not Aligned with Marketing Efforts
Misdirected promotional strategies combined with lack of knowledge by staff all too often can gain short term customers but can end in a loss of profits on items sold. Because of Menu Mix (MM), Cost of Goods Sold (COGS), and other factors management has no ROI strategy to understand if their efforts are delivering. Very often customers see the pictures and visit the location one time never to return because the service orientation and training was not supportive of the marketing efforts. End of month reports indicate a rise in customers or higher check averages only to result in lower profits because the specials sold or the popular menu items recommended by staff were lower profit producers.

Higher check averages does not mean higher profits unless the items sold are higher contribution margin contributors from their alternative menu items, which is a menu mix strategy.

MM and COGS analysis is necessary knowledge to promote or suggest the selling of higher profit menu items. Owners that I encounter often do not know what items on their menus produce the highest contribution to profits; therefore, promotion of these items on social media fails them when low profit producers are sold over other higher profit menu offerings. Owners are asking management to explain profit reductions only to hear excuses that have nothing to do with the real truth. If you do not know the reasons why you have low profits and possibly losing your business you can start by knowing your costs.

4: Not Training Front of House Team
Pricing out ingredient costs is one essential method to having reports that can be understood and evaluated. After you have established all your costs and menu prices you need to place the higher contributors on your menu where they will sell more often. Then you have to train your team on selling the higher contributors whenever possible. If you follow these basic steps you will receive higher profits and have an upper hand with your social media and marketing efforts, and on your competition.
1.       Price out all menu items and know the true menu stars that add the most to profits.
2.       Offer this information to FOH staff so that they can promote intelligently.
3.       Feel confident that advertising efforts are generating the results desired when everyone is knowledgeable, ready for the promotion and on board with the efforts.

5: Selling Based off Food Cost and Not Contribution Margin
​A full itemized report of your entire menu is necessary to know how much each recipe generates in profits.  Each day of sales will result with a different menu sales mix and varying profits based on the items sold each day. This is important to know because you want to know what items need to sell more often to improve profits, and this must be clearly delivered to your service team. A Chicken Saltimbocca meal may have a lower 32% food cost but only generate a $10.00 contribution to profits; whereas, the Prime Rib has a higher 40% food cost and generated $17.00 to profits. All too often food cost is the measurement management uses to discuss profits with the chef; however it is the contribution margin amount that is more essential in the management toolbox.

Use of Social Media benefits a well-organized company using effective employee training and cost measuring methods placed ahead of random advertising. Having a full understanding of recipe costs, providing staff with the essential tools they need to sell your most profitable items and placing higher contributors to profits in locations on the menu that generate more interest is critical in the establishment of a profitable business.