How to price a menu, and the mistakes that cost independents money

Price your menu from your own costs, not from the place across the street. Work out what every dish really costs you, including the garnish, the oil, and the time it takes to make; remove the VAT before you judge the margin; price the cheaper dishes on a percentage and the expensive ones on the cash they leave; and review it every quarter, in small steps. Most independents who are busy and still short of money are making at least one of the seven mistakes below.

Busy is not the same as profitable

I have watched owners work themselves into the ground, serving hundreds of covers a week, and still find the bank balance stubbornly low. Often the service is good, the food is good, and the team is working hard. The problem is the prices. A menu is a commercial document, not just a list, and if it was priced on anxiety or guesswork, the business will feel it every month.

1. Copying the competition

A chain opens round the corner, or the local Wetherspoons cuts its prices, and within days the independent owner down the road is at the kitchen table, wondering how to match them.

Don't. A chain buys in such volume that its cost of a pint can be lower than your wholesale price, and it has central distribution and kitchens designed for speed. Match it, and you are not being competitive; you are giving away the margin that pays your staff and keeps the building standing. The same goes for the independent next door. Unless you share their rent, their suppliers, their wages, and their energy bill, copying their price is guesswork dressed up as a strategy.

Your price should come from your own four walls.

2. Costing the main ingredient and guessing the rest

Many dishes are costed on the protein and a rough allowance for everything else. The garnish, the butter for basting, the oil, the good salt, and the bread that comes with it each seem trivial. Together they can take several points off your margin.

Cost every dish line by line, from your latest invoices, and allow for waste and staff meals. If it is not written down, you are guessing.

3. Forgetting the time it takes

A dish with cheap ingredients can still be expensive if it takes a skilled chef an hour of prep. If half a shift goes on a starter you sell for six pounds, the ingredient cost is the least of it.

Look at your most complicated dishes and ask whether the price pays for the work. If it does not, either charge for it or simplify the dish.

4. Judging the margin before VAT comes off

A thousand pounds in the till is not a thousand pounds of sales. At 20%, one pound in every six belongs to HMRC. Always work out your margin on the price before VAT, or you will think you are making more than you are.

5. Discounting when trade is slow

"Two for one" or "20% off Tuesdays" may fill the room, but it fills it with people who came for the discount and will leave for the next one. It also tells everyone else that your food is not worth its full price.

If you want to offer value, add something rather than take something away: a glass of wine with the set menu, or a side on the house for regulars. Your price stays intact, and the guest still feels looked after.

6. Pricing on a feeling

Many owners price by what sounds right, or by what they would pay themselves. Usually that is anxiety talking. Take a burger that costs you £5. At £14, about 43% of the price before VAT goes on the ingredients. At £12, it is half. If your overheads are high, the cheaper price is a slow way to close.

If the numbers say a dish needs to cost more, either raise the price or change the dish.

7. Leaving prices alone for too long

Supplier prices, energy, and wages move every year, but many menus stay the same for a year or more. By the time anyone notices, the margin has gone, and the only fix is a sudden jump that guests do notice.

Review your costs every quarter and make small, regular changes. Regulars notice a sudden rise far more than a steady one. Hold the price of the dishes people compare, and raise it on the ones they choose for the experience. A new dish at a new price reads as value.

Price the top of the menu on cash

Pricing everything to the same percentage works at the cheap end of the menu and costs you money at the top. Your expensive dishes and bottles should be priced on the cash they leave, not the share of the price they keep: that is what pays the bills. I explain how in "What is cash margin?".

Let the menu do some selling

Once the prices are right, the menu itself can help. Put the dishes that sell well and earn well where the eye lands first. Describe them as you would to a guest at the table, plainly and with appetite. Then make sure the team knows which dishes to recommend, and why. A menu is the one piece of marketing every guest reads.

Where to start

Take your ten best sellers. Cost each one properly, remove the VAT, and work out what it leaves in pounds and as a percentage. If what you find is uncomfortable, a Hospitality Health Check will go through the rest of the menu with you, and show you what to change first.