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10 Restaurant Pricing Strategies to Build a Profitable Menu

One of the most overlooked details of restaurant management is menu pricing. No matter how great your concept and how excellent your food is, it won’t matter much if your customers don’t think your menu prices are worth paying.

While it’s only natural that you want your prices to be profitable, being too aggressive with your pricing strategy can scare customers away. On the other hand, being too meek can make you lose out on valuable profits.

In other words, your pricing strategy is something that you shouldn’t neglect. Small details can go a long way to encourage your customers to spend more without feeling forced.

In this article, we will discuss restaurant pricing strategies that will boost your sales and keep your customers happy at the same time.

Table of Contents

1. Don’t Put Currency Signs

2. write the description first, price last, 3. increase value with charm pricing, 4. employ cost-plus pricing, 5. present your menu with relative pricing, 6. increase sales with bundle pricing, 7. increase accessibility with portion pricing, 8. generate interest with special pricing, 9. add more variety with the rule of three pricing, 10. create a perception of luxury with premium pricing, implementing the best restaurant pricing strategies.

Perhaps the most basic yet impactful restaurant pricing strategy you can try out is not placing a currency sign next to your prices.

A currency sign is a subconscious reminder for customers that they are spending money. In 2009, one study showed that customers actually spend around 8.15% less when they see a currency sign on the menu. 

Even if they genuinely want the food, seeing the currency sign makes them subconsciously think about how much they might end up spending on their meal, which makes them more hesitant to spend money.  Removing the currency sign will remove this psychological hindrance.

An exception to this restaurant pricing strategy is if your restaurant caters to foreign guests who use other currencies. In these situations, not having a currency sign next to your prices might cause confusion and should be avoided.

Written descriptions of your dishes are essential for all choices in your menu.

Descriptions are there to enhance the appeal of your food. By writing about ingredients, cooking methods, and other background information about the dish, the customers will get a vivid idea of how they might experience it themselves.

The description must be the first thing that the customers notice after the name, way before the price. Doing so will build up the customer’s appetite and expectations, which will result in them not minding the price as much when they finally read it after the description, preferably in smaller font size .

Do you ever wonder why you see uneven prices everywhere, such as $9.99 or $19.99? It’s actually a time-tested pricing strategy called charm pricing, also known as psychological pricing.

Charm pricing utilizes a useful psychological phenomenon common in all humans: automatically deciphering information and attaching meaning even without our conscious thought. This kind of works like a shortcut for the human mind to reduce our mental burden. After all, it would simply be too exhausting to consciously think of everything all the time.

In other words, when people see the first number in a price, their brains automatically attach value to it and assume the value for the rest of the numbers. Brains don’t see $29.99 as $30 minus one cent. Instead, they see it as $20-something. 

Cost-plus pricing is one of the most common pricing strategies around. This strategy provides a solid guideline for how you price your food items, and it’s very easy to do, too.

All you have to do is to compute all the expenses that go into making a dish and add the desired profit margins.

The list of expenses should include fixed costs, such as rent, utility, and the wages paid to the cooks and other staff, in addition to the prices of the ingredients. Once calculated, simply divide the cost among all of the dishes served in your restaurant. You can then add your preferred markup percentage to this amount to get the final price.

For example, let’s say the cost of a certain dish is $10, and 30% is your preferred markup percentage. 30% of $10 is $3, so the price of your dish should be at least $13. 

Cost of dish = $10.00

Markup percentage = 30%

Markup price = $10 x (30/100) = $3

Cost + markup = $10 + $3

Final price = $13

For best results, you can even combine this strategy with other strategies, like charm pricing. The final menu price will be $12.99, which is more attractive to customers than $13.00.

Relative pricing is when you create a distinct contrast between two items to tilt the customer’s perception of a product.

This is best employed by placing expensive food items next to cheaper but more high-profit food items. When customers see the stark price difference between the two, they are more likely to opt for the more affordable items, even if they are actually more high-profit for your restaurant.

Bar and Restaurant KPI Excel Spreadsheet

Download this restaurant KPI spreadsheet in Excel format to calculate key metrics such as gross profit, inventory turnover, variance, and more.

You may be familiar with this pricing strategy because marketers and business owners everywhere also use it to price their items.

Bundle pricing is when you combine several products into one prepackaged set. This pricing strategy not only introduces your customers to multiple products at once, but it also increases the sales of related food items. 

To make it more attractive, some items may only exist as a unique addition to that particular bundle. You can also offer the bundle at a special discounted rate.

One of the best examples of this can be found in the fast-food industry. Fast food restaurants are notorious for offering all kinds of bundles, such as burger-and-fries combos. Customers might not initially want fries with their burger, but when they’re sold as a set, they’re more likely to consider the deal too good to pass up and end up buying anyway.

Portion pricing, or pricing by portion, refers to the practice of adding different size options to your menu.

This restaurant pricing strategy makes your menu more accessible to a broader pool of people, including new customers who may be more hesitant to try out your food. It also makes small eaters more likely to order food items that they don’t normally get in fear of not finishing the entire thing.

To maximize its advantages, make sure to charge a higher profit margin for the smaller portion. For instance, you can charge 70% of the full-size price to the half-size version of the same dish.

Full-size (100%) price = $10 (100% of the full-size price)

Half-size (50%) price = $7 (70% of the full-size price)

This is a win-win for your restaurant for three reasons: one, it gives people an option to buy a smaller portion if they wish; two, most people are more likely to purchase the full-size option due to the minimal difference in price; and three, if they do purchase the half-size option, the restaurant actually gains more profit.

Make dishes seem more special by adding unique ingredients to your recipe and highlighting them in your menu.

For example, you can mix exotic herbs to your house curry or add vegetables to your burgers for a special flair. Don’t forget to mention these in your description to whet your customers’ appetites.

Plus, by adding new ingredients to a dish, you’re essentially creating a unique offering for your restaurant. Now that it’s considered a ‘special’ order, you can charge premium prices or even make it your restaurant’s signature dish.

There’s something about the number 3 that makes it more appealing to the mind. It can be applied in all aspects of life, from statistics to economics .

Unsurprisingly, you can also apply it to restaurant pricing, sometimes referred to as the Good-Better-Best pricing strategy.

When creating your menu, try to come up with three different variations of the same dish. For example, you can make the basic dish as the first choice, add some extras to the second, and add even more extras to the third.

For example, the first choice could be a basic pasta with premade in-house sauce, the second choice could be an upgraded pasta with locally sourced fresh ingredients, while the third choice could have various vegetables and meat options.

You can also use this strategy in combination with the bundle pricing strategy. Serve the basic meal and one drink for the ‘good’ option. Add an appetizer for the ‘better’ choice, and then add a dessert for the ‘best’ one.

One thing to note is that the middle option is typically the best-selling one since most customers consider it the best value for money. So make sure to keep that in mind when creating your dish variations.

This strategy focuses on creating perceived value by putting a high price tag on items. Due to this, it’s also known as ‘luxury pricing’ or ‘prestige pricing.’

This strategy is often used by well-known brands and is usually employed when a brand has already established itself as a provider of high-quality items and premium services. 

With the increased perception of luxury, customers will see your menu as even more exclusive and luxurious. Due to this, they will be more drawn to your restaurant and will want to eat there more in order to be associated with your brand.

However, there are some caveats when it comes to pulling off this strategy. First of all, you have to consider the public perception of your brand. If your restaurant has been around for some time and is already seen by customers as affordable and cost-effective, suddenly marketing your menu as premium might not go well.

That’s why this pricing strategy works best for new or soon-to-open restaurants. Right from the start, you can already market your product in a certain way to create a sense of luxury, such as controlling supply, driving up demand, and attaching your brand to other influences such as popular actors or events.

Second, be careful not to go overboard when pricing for luxury perception. Studies have shown that there are acceptable price ranges for premium pricing in restaurants. Anything beyond that can be seen as excessive and might even turn off your customers.

It goes to say that there are a lot more things that go into pricing than just these tips and tricks.

Remember, crafting your menu prices is not a one-and-done affair but rather an ever-evolving process that takes plenty of real-world factors into account. Before employing restaurant pricing strategies to boost your sales, you need to assess production costs, competitors, and customer demand, just to name a few.

Nonetheless, we guarantee that these best restaurant pricing strategies, when coupled with proper market research, can help you make your menu not just more appealing to customers but more profitable as well.

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Blog / April 11, 2023

How to Create a Restaurant Menu Pricing Strategy

With inflation rising at unprecedented rates , many restaurants have been increasing menu prices to combat higher operating costs. According to the National Restaurant Association, menu prices increased 8.2% between January 2022 and January 2023. 

If you’ve been adjusting menu prices haphazardly — or haven’t increased them at all — it might be time to create formal menu pricing strategies for your restaurant to ensure profitability.

This guide to menu pricing strategies will help you create a game plan that considers food costs, perceived value and demand. 

Table of contents:

Importance of Implementing a Restaurant Menu Pricing Strategy

• How to Determine Your Menu Prices
• Factors that Influence Menu Pricing
• Most Effective Menu Pricing Strategies to Drive Revenue

While hospitality is the focus of the restaurant industry, a restaurant is first and foremost a business — following your gut or doing things the way grandma used to do them won’t cut it when it comes to making decisions. When pricing menu items, restaurateurs should base prices on data to guarantee they profit from each menu item. 

Restaurant profit margins are notoriously slim: between 3% and 5% for a full-service restaurant and 6% to 9% for a quick-service restaurant. Developing menu pricing strategies can help cushion these margins to weather storms in challenging times and grow during prosperous times. You can implement these pricing strategies across the board, including new items you introduce. 

The bottom line: Menu pricing strategies help you make smarter decisions, earn more money and save time.

How to Determine Your Menu Prices [With Examples]

While there are a number of strategies for pricing menu items, using the food cost percentage menu pricing strategy is a good place to start because it ensures you generate a profit from each item. We suggest mastering food-cost-percentage-based pricing, before moving on to the other strategies we list at the end of this guide.

1. Calculate Your Food Costs

Use your inventory management system or POS system to determine how much each dish or beverage costs your restaurant to make. To manually calculate the cost of goods sold (COGS) per serving, divide the bulk inventory costs of the raw materials in each dish by the number of servings you can make out of it. Finally, add up the cost per serving for each ingredient in a dish to get your cost per plate.

Example: Calculating the Costs of a Cheese Pizza at a Pizza Parlor

A 50lb bag of flour costs $50. If each bag yields 100 cups and you need 4 cups to make one pizza, you’re spending $2 per serving of flour. After repeating this process for the remaining ingredients in the recipe, you discover it costs your restaurant $3 to make one pizza.

2. Understand Your Operating Costs

The next step in creating a menu pricing strategy is calculating non-food overhead costs. Check your balance sheet or POS reports and note how much you spend on labor, rent, utilities, technology, professional services, paper goods and other expenses.

Example: Restaurant Operating Costs

According to your restaurant’s balance sheet, you spend $20,000 per month, on average, on non-food operating costs, including labor, rent, utilities and other miscellaneous expenses.

3. Determine Your Desired Food Cost Percentage

Food cost percentage (FCP) indicates how much menu items cost your restaurant to make relative to how much you sell them for. To calculate food cost percentage (i.e., whether you’re earning a profit on items sold), add up your non-food operating costs, divide that figure by your sales, subtract the result from one, then multiply that figure by 100.

Food Cost Percentage = [1 – (Sum of Operating Costs/Revenue)]*100

Food Cost Percentage Benchmark: The average food cost percentage for restaurants ranges between 25% and 40%. Fast food establishments spend less on food, and can have food costs as low as 20%, while fine dining restaurants have FCPs closer to 40%.

Example: Pizza Parlor Food Cost Percentage

From the previous example, your monthly non-food operating costs are $20,000 and your average monthly revenue is $26,666. Using the FCP formula, you learn that your FCP is 25%. If this percentage feels too high, you might consider raising your menu prices.

FCP = [1 – ($20,000/$26,666)]*100=[1-.75]*100=.25*100=25%

4. Set Prices

Use your food cost percentage to establish the minimum you can charge for each item to make a profit. Do this by dividing the cost of each serving to your restaurant (from step one) by your desired FCP (from step three).

Minimum Price = Food Cost Per Serving/Food Cost Percentage

Example: Pizza Parlor Menu Price

If it costs $3 to make a pizza, and your FCP is 25%, you’ll need to charge at least $12 for a cheese pizza.

Minimum Price = $3/25%=$12 

Factors That Influence Menu Pricing

While food and operating costs should be the basis for your menu pricing strategy, the following factors can also impact prices:

• Competition : How you differentiate your restaurant from others like it determines how much you can charge. The opposite is also true: if your competitors charge more for similar menu items, consider raising your prices.
• Demand : If your restaurant is booked solid for weeks in advance, you can likely command higher prices — or charge more for items during peak times, like dinner or brunch. Conversely, you can offer discounts during off-peak times to generate demand, such as happy hour deals or a lunch special. For example, Mina’s Fish House, a Mina Group restaurant, offers discounted drinks and appetizers during happy hour to draw crowds. Their Zona Rosa cocktail costs $9 instead of the usual $18.

• Perceived value : If your customers believe the food and dining experience you offer is worth a premium, they’ll pay for it. For example, the right branding and design can make customers feel like your restaurant is worth spending more on. 

FYI: The more guest data you can collect, the better you can understand what they’re willing to pay. SevenRooms’ Hospitality CRM can help you gather guest preferences and demographic information to inform your menu pricing strategies.

The Most Effective Menu Pricing Strategies to Drive Revenue

After setting minimum prices based on the food cost percentage pricing formula, you can tweak price tags by experimenting with these other pricing methods:

Fixed Pricing

Rather than pricing every item on your menu individually, you can offer a prix fixe menu or all-you-can-eat meal for a fixed price. A limited menu can reduce decision fatigue for guests, while an unlimited option makes them feel like they’re getting a great deal. Once again, leverage your costs and customer data to determine a high-profit fixed price that appeals to your clientele.

Good, Better, Best Pricing

Instead of pricing menu items based on a consistent ideal food cost percentage, you can price complementary items to encourage upselling and cross-selling . 

The trick is to engineer your menu . Here’s how it works:

If you sell multiple sizes of the same item, price the largest size with the highest profit margin. Then, price the smaller sizes so that they still earn a profit, but don’t seem like as good a deal to customers to encourage them to buy the biggest size.

For example, a movie theater might sell a large popcorn for $8, a medium for $7 and a small for $6. Customers will likely opt for the large bag, which is only $1 more than the “better” deal and $2 more than the “good” deal.

This menu pricing strategy also works well when you sell combo meals. Set the “best” price based on the cost of an entree, beverage and side. Then set a “better” price based on customers purchasing an entree and one add-on item and a “good” price based on just the entree.

Use Data to Drive Your Menu Pricing Strategies

The more you know about your restaurant and its customers, the better you can optimize your prices. The menu pricing strategies in this guide are good starting points, but the best decisions are backed by data. Equip your restaurant with tools that collect information about your customers and their choices.

SevenRooms is a restaurant guest experience platform that makes it easier to understand your customers at scale. Book a demo today.

FAQs About Menu Pricing Strategies

1. what are menu pricing strategies.

Menu pricing strategies are tactics restaurants use to set prices for their menu items. Examples of strategies include food-cost-percentage-based pricing, fixed pricing, and good, better and best pricing.

2. What is the First Step in Menu Pricing?

The first step in menu pricing is knowing your restaurant’s food costs. You need to understand how much each item on your menu costs your restaurant to make to set profitable prices.

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Proven restaurant pricing strategies for business success

Achieving succe­ss in restaurant entrepreneurship involves more­ than just delicious food. Strategic decisions about menu design, customer de­mographics, and pricing strategies also play critical roles. By unde­rstanding effective pricing strate­gies, restaurants can achieve a sustainable balance betwe­en profitability and memorable customer experience.

In this comprehe­nsive guide, we will explore successful restaurant pricing strategies that can help you devise a revenue plan for your restaurant business. By understanding the art and scie­nce behind setting price­s, you can ensure your bottom line is viable while­ your cuisine delights customers and entices them to return.

Introduction to restaurant pricing strategies

Setting the­ right prices for your restaurant involves conside­ring factors such as competition, location, food and labor costs, and the dining e­xperience you want to provide­. Finding the right pricing strategy and setting the right prices for your restaurant can help ensure success in this highly competitive field.

How to calculate food costs

To successfully price­ your restaurant menu and ensure­ profitable margins, it’s essential to have­ a clear understanding of how to calculate food costs. Failing to accurate­ly assess e­xpenses can make it challe­nging to devise menus with appropriate pricing that ge­nerates adequate profit.

Calculating the cost of ingredients

To establish your me­nu pricing formula, the initial step is to calculate the­ cost of ingredients. You need to consider items used in e­very dish, including main ingredients such as meat or vegetable­s as well as spices and garnishes.

A few simple steps to follow are:

• Write down every ingredient needed for each menu item
• Outline the necessary amount per component
• Determine the total cost for each ingredient based on the amounts used

Calculating labor costs

Labor costs also play a significant role in ove­rall expenses and should be­ incorporated into your restaurant’s pricing strategie­s.

To arrive at an accurate labor-cost-per-serving measure, you need to determine the hourly wage rates of everyone involved and calculate how long different team members spend on specific tasks. You need to consider all the steps that your team members have to go through, including everything from chopping vegetables to checking inventory.

To calculate labor costs pe­r plate, add up the expe­nses and then divide by the­ number of servings create­d during that period. For example­, if two cooks were paid $10 per hour and spe­nt three hours making 100 servings ($60 in total), your labor costs would average out at 60 ce­nts per plate.

If you want to learn how to handle revenue management and asses costs and pricing strategies for a hospitality business like a restaurant, there are plenty of great courses you can take.

Learn from the best in the business and master restaurant pricing strategies along with all other facets of running an exceptional venue.

Factors that influence menu prices

When devising your restaurant’s menu, several factors come into play. Let’s explore in more depth some vital elements influencing the decision-making process around pricing strategies.

Competition

What surrounds a restaurant can significantly affect its menu prices. For example, you wouldn’t charge premium rates if your restaurant is a casual eatery situated among fast food services in a shopping mall.

Carrying out a thorough analysis of competitors’ pricing can shed light on a suitable price range for what you offer. Look at restaurants with similar formats and menus in your locality and establishments targeting the same customer demographic. This will provide insight into what consumers are willing to pay for similar items.

Similarly, location plays a key role in determining menu prices. It can dictate foot traffic and set consumer expectations regarding costs.

For instance, upscale localities often attract diners seeking higher-end dining experiences and more expensive offerings, while restaurants with breathtaking views can also command premiums. If you’re tucked away in a nondescript alleyway or located next to budget-friendly eateries, you may not attract the clientele willing to pay top-end prices.

Customer demographics

Identifying the consumer groups who come to your establishment, such as families with children, business professionals, or seniors, can provide key information on spending patterns and preferences.

Younger crowds may be more open to experimental cuisine but have less to spend. Customers in higher income brackets may have more conservative tastes, but have the means to splurge on luxury dining experiences. Meeting and exceeding diners’ expectations is key to building customer loyalty , which can ensure long-term success and can help you increase prices in the long term.

Menu pricing strategies

When setting pricing strategies for restaurants, the­re are four main approaches that stand out:

• cost plus pricing
• good, be­tter, best pricing
• fixed pricing
• de­mand driven pricing

Each strategy has its own advantages and conside­rations to ensure effe­ctive implementation. We’ll look at the characteristics of them below.

Cost plus pricing

This involves calculating the expe­nses associated with preparing a dish, such as ingre­dients and utilities, then adding a de­sired profit margin. For example, if the­ total food costs for a burger equal $3 and you want to include a profit margin of 30%, you would se­t your menu price at approximately $4.

Good, better, best pricing

This encourages customers to compare­ various items from your own offerings rathe­r than focusing on comparing prices with competitors.

You would provide thre­e versions of a product (good, bette­r, best) at different price­ points. The ‘best’ option should include additional fe­atures that justify its higher price while­ still appearing reasonable whe­n compared to the ‘good’ option.

Fixed pricing

The fixe­d price approach is commonly seen in pre­-set menus or tasting courses whe­re multiple items are­ included for a single price. Custome­rs often appreciate this method as the­y perceive it to offe­r more value. It caters to diverse palate pre­ferences while providing an easily unde­rstandable total cost, eliminating the ne­ed to calculate­ individual component prices.

Howeve­r, it’s important to regularly review fixe­d-price arrangements, e­specially when input costs can vary, such as seasonal ingre­dients or those subject to price fluctuations such as seafood.

Demand driven pricing

This means adjusting prices base­d on the patterns of customer de­mand. Popular items can be priced highe­r to capture their value, while­ less popular items can be compe­titively priced to encourage­ customers to try them, espe­cially during slower times or off-peak se­asons.

Learning how to handle different pricing strategies can be difficult. Studying a hospitality degree can help you get familiar with pricing and revenue management, as well as marketing and other skills to help build success.

Develop essential skills including restaurant pricing while benefiting from networking opportunities and practical real-world internships in our comprehensive program.

Using data to drive menu prices

In the age­ of big data, making informed decisions based on statistical analysis is be­coming increasingly commonplace. Surprisingly, even re­staurant menu pricing can benefit from this approach. By using available data, restaurants can fine-tune­ food pricing models to improve profitability.

Understanding customer behavior

More diners are taking the time­ to research menus online­ before choosing a restaurant. A study by TouchBistro shows 84% of diners now evaluate menus be­forehand , a significant increase from 59% in 2017. To effe­ctively use data, start by understanding your custome­rs’ behaviors and prefere­nces. This can involve analyzing popular orders, peak hours for specific ite­ms or how different customers re­act to pricing. The goal is to use this information to make fle­xible adjustments in your menu price­s and achieve price optimization.

Leveraging market research

When de­termining the ideal pricing for a re­staurant menu, market rese­arch can play a key role. Keeping an e­ye on your competition and what they charge­ for similar dishes is valuable in understanding industry tre­nds and standards. This knowledge helps mitigate­ risks associated with setting prices that are­ either too ambitious or too low.

Analyzing cost breakdowns

Data specifically about cost breakdowns is vital when devising effective pricing strategies. Determine fixed and variable costs related directly or indirectly to each dish. These include ingredient costs, labor charges and utilities, among other overheads.

Implementing dynamic pricing

Dynamic pricing is a modern approach that re­places traditional fixed pricing methods. It take­s into account factors such as seasonality and supply chain disruptions, which can cause price­s to fluctuate. By analyzing historical data and predicting future tre­nds, businesses can adopt a flexible­ pricing model based on market de­mand.

Using data-drive­n insights can significantly increase accuracy in setting appropriate prices to maximize profit margins.

Menu psychology and design tips for maximum profits

The art of setting menu food prices goes beyond mathematics. It also taps into psychology, aesthetics and even neurology. Understanding the underlying principles can help improve your restaurant pricing strategies.

Using photos, descriptions and boxes

High-quality photographs showcasing the appeal of a dish can capitalize on our primal hunger instinct, making items more tempting.

Equally crucial are articulate menu descriptions. Painting an appealing picture using sensory-filled language or detailed ingredient descriptions can sway diners towards these items.

Then there are boxes, also known as eye magnets. Placing an item in a box physically sets it apart from others and grabs attention quickly. Keep your boxes minimal – reserve them only for higher-margin dishes and remember this technique may not be appropriate in a sophisticated setting.

Using eye movement charts

Eye movement charts illuminate how diners navigate through menus, offering insights into strategically positioning items. The golden triangle rule in menu design is built around the following observations:

• Diners typically scan menus much like they read books — starting at the top left corner
• Their gaze then moves across to the top right
• It finally drifts down towards the center of the page

Placing your most profitable items strategically within this triangle improves visibility and can  boost sales.

Common misconceptions about menu pricing

As with many strategies, there are a few misconceptions about menu pricing in the restaurant business. We debunk a few of the more common myths below.

Higher prices mean more profits

One of the most prevalent misconceptions is associating sheer high pricing with maximum profits. While higher menu food prices can increase revenue per dish sold, if your prices are astronomic compared to competitors’, it may drive customers away. It’s crucial to find the right balance between cost recuperation and customer attraction when setting up a menu price formula.

Low food costs justify lower menu prices

Some restaurant owners believe low food costs should reflect equally low menu prices immediately. This isn’t always viable, as it disregards other pivotal elements such as overheads, labor expenses and future inflation. A well thought-out restaurant menu pricing strategy accounts for all these factors along with the food costs to establish sustainable rates.

Price adjustment leads to customer loss

Many fear adjusting their menu prices will result in losing loyal customers. However, relaying increased costs to customers is an operational necessity rather than a choice in many cases. Transparent communication about why there has been an increase, such as due to ingredient scarcity or wage hikes, can help build and maintain trust between you and patrons.

Menu pricing tools

With so many factors to consider, embarking on the process of pricing your restaurant’s menu can seem a daunting task. One option to simplify this is using professional menu pricing tools. Some of the more prominent menu pricing software options include:

• MenuCalc: a popular choice among restaurateurs, it offers features that help analyze food costs and track nutritional information to determine optimal menu prices
• Recipe Costing Software : this platform provides detailed insights into restaurant food costs while focusing on inventory control
• PeachWorks : best known for its analytical approach, it can help streamline food costing in tune with market trends

Benefits of implementing a restaurant menu pricing strategy

Implementing a successful menu pricing strategy in your restaurant can have numerous advantages, such as:

• Profit maximization
• Enhanced customer experience
• Effective food cost management
• Insights into preferences
• Heightened competitive edge

If you want to learn how to implement pricing strategies for hospitality, you should focus on getting real-world experience along with focused studies in the industry. A hospitality degree course can help you bring all these benefits to your business.

Enhance your skills and open doors to a world of hospitality opportunities with our program that offers exclusive placements and mentorship with industry-leading professionals.

FAQs about menu pricing strategies

Let’s address some­ common inquiries that may help clarify any doubts you may have about restaurant pricing strategies.

Is demand driven pricing suitable for all restaurants?

It depe­nds. Demand-driven pricing is a strategy that involve­s adjusting menu prices based on change­s in demand or popularity. This approach works best for restaurants that have­ the flexibility and access to data ne­eded to regularly modify food price­s in response to market conditions.

How do customer demographics influence menu pricing?

Having a de­ep understanding of demographic elements such as age group, income leve­ls, and lifestyle choices e­nables restaurateurs to more accurately gauge­ customers’ potential willingne­ss to pay. This insights-driven approach allows you to offer dishe­s at prices that are attractive and to maximize patronage.

What determines restaurant food costs?

Restaurant food costs are typically influenced by factors including, but not limited to, the cost of ingredients, labor costs involved in preparation and serving, waste management expenses, and related overheads such as rent and utilities.

Successfully managing re­staurant pricing strategies is critical to achieving success, whether you want to open your own restaurant or work in some of the top hospitality companies of the world. It’s important to note that these­ tactics are not fixed and nee­d to be regularly adjusted and monitore­d to align with changing market conditions, food costs, and customer prefe­rences.

Ultimately, whe­ther you own an upscale fine dining e­stablishment or a casual family bistro, the key to achieving a robust business lies in implementing cre­ative yet practical pricing strategie­s for your restaurant menu. These­ approaches should aim to enhance custome­r appeal while also maintaining healthy profit margins.

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Most Lucrative Restaurant Pricing Strategies for 2022

Apart from your beautiful restaurant’s ambiance and customer service, the menu you hand to your diners is one of the first few things they experience at your establishment. Hence, it must conform with the style and quality of your restaurant, follow your theme, and most importantly, make it easy for customers to choose what they want to eat.

That’s not all; your menu is your most powerful tool to advertise your restaurant and make profits. After all, you need to make money to stay in business. A menu is the embodiment of your restaurant pricing strategy. Yes, choosing the correct menu prices is important, but presenting them the right way is essential.

Read on to find out all about choosing the right restaurant pricing strategy to make handsome profits. You’ll also get some bonus tips on designing a menu that pleases the eye and stimulates the appetite!

Design Restaurant Menu Now!

Top 5 Restaurant Menu Pricing Strategies For 2022

Getting your restaurant pricing strategy right means the difference between a profitable business and one that’s not doing very well. It should be an integral part of your restaurant management . Apart from following textbook menu pricing strategies, you’re recommended to research to determine the most suitable profit-making prices.

Evaluate competitor prices, the customer demographic you serve, and how popular your restaurant is at the moment to make the right decision.

Cost-Plus Pricing

This is one of the most straightforward, tried-and-tested restaurant pricing strategies that restaurateurs have been using for a long time. If you want a quick solution for your prices, go for this one. Yes, it will take some time to calculate tentative costs and set profit margins, but the cost-based approach in this strategy makes things simple and reasonable.

In this pricing strategy, your prices depend primarily on your costs for delivering a service. These include the cost of raw materials, labor, seating, décor, maintenance, and other miscellaneous expenses. This covers essentially everything that goes into providing the restaurant service to customers.

The next step is to add your profit margin. The profit margin is a percentage of the actual cost of a dish, so the profit you earn on one dish depends on what that dish costs. The profit margin is higher for high-end restaurants and lesser for quick-service cafés.

Once you’ve determined a fair estimate of how much it costs to serve a particular dish, add your profit margin to it, and you’ll have a reasonable price you could put on your menu.

Try Out Triple Pricing

Triple pricing strategy has remained the old, reliable, and profitable pricing method for restaurants and other businesses. This involves marking the price for one product and pricing better versions at a higher price.

Also known as “good, better, best” pricing, this strategy involves arranging products in trios with the ‘good’ being the cheapest and the ‘best’ being the highest-priced with complementary side dishes or drinks.

Here comes an essential piece of customer psychology, it has been reported that the middle price or ‘better’ option always sells more than the other two. To capitalize on this, you ought to make the profit margin for it the heaviest of the three.

Explore Price List & Menu Templates

Charge Less for More Quantity

If there’s a lot of competition for the type of food you offer in your area, you might want to gain a competitive advantage by providing more food for less money. This pricing strategy focuses on the amount of food you serve to your customers. It should be your go-to if you are not a premium restaurant and offer everyday food.

A majority of your customers probably come to you looking for value. If you succeed in winning their hearts by serving more food than a competitor for the same price, they will become regular visitors. And therein lie your profits. So rather than earning a more significant profit once, this pricing strategy allows you to earn a lesser profit but multiple times from the same customers.

Charge More for Special Cuisines

The type of food your restaurant offers is a cornerstone of your menu pricing strategy. For example, if you’re marketing a fast food , your average customer is someone who’s looking for something tasty to fill up their tummy and something that’s light on the pocket. Hence, fast food restaurants should always cost less.

On the other hand, if you’re offering an exotic cuisine like Palestinian or gourmet Italian food, you are a premium restaurant and should charge accordingly. Don’t make the mistake of following a cheap pricing strategy for a premium quality restaurant. High prices reassure your customer that you’re serving them food made by gourmet chefs with the highest quality ingredients.

Add a Chef’s Special on Each Page

Customers are always looking for something unique and exclusive that they can’t have at any other restaurant. Adding a Chef’s Special Dish on each page or section of the menu will motivate them to spend a bit extra to try out one of the best dishes in the house.

Don’t add the words ‘Chef’s Special’ before any dish and start charging higher for it. It would help if you made it look and taste better, too, so customers receive the value for the money they pay.

3 Ways to Design a Profit-making Restaurant Menu

Prices are mere numbers. You need much more than that to develop a profitable menu for your restaurant. For example, you need to learn how to help a customer absorb the information as efficiently as possible as they scan your menu, and you do that with colors, design, and creativity.

With the following tips, you don’t need to hire anyone to create a menu for you. Instead, you can do so online with Desygner and choose the colors, design, font, and formatting yourself for the best results.

1. The Lasting Impression

Use a bold, statement-making cover for your menu. The cover and the first few pages tend to make a lasting impression on the customer’s mind. Moreover, the first and last few dishes on every page are bestsellers. Take advantage of this by placing your high-profit dishes in these positions.

2. Don’t use currency symbols

Unless your customers need to know what currency you use (for instance, if your restaurant is at an airport), you should stay away from placing currency signs next to prices. Putting a $ or a £ next to the price makes customers focus more on the price, making them more likely to purchase cheaper items.

3. Mention price after the dish description

A well-written description is a short window you have to convince your clientele to buy even the most expensive dishes you offer. However, if the description manages to make their mouth water, customers are very likely to purchase, no matter the price. Hence, place prices at the end of the description so that a high price doesn’t dissuade a customer.

  Design Restaurant Menu Now

The Bottom Line

You can find some pretty amazing price lists and menu templates on Desygner. If one of these fits your restaurant style, you can prepare your bespoke menu in just a matter of minutes. Of course, you can always tweak the colors or fonts to make it a perfect fit.

Creating a good enough restaurant pricing strategy and menu can seem like a pretty daunting task initially. But now that you’ve read this guide, you’re ready to create a stellar menu that will start making you profits right away!

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How to Write a Restaurant Business Plan in 2024 (Step by Step Guide with Templates)

A comprehensive restaurant business plan is a framework that guides you to plan and forecast every element of restaurant management and operations.

This includes anything from your restaurant's menu design, location, financials, employee training, and a lot more.

Crafting a solid business plan is important, as it helps:

• Transform your restaurant ideas into reality.
• Boosts entrepreneurial success by 16% (Harvard Business Study) .
• Equips you to navigate challenges before they arise.
• Attracts potential investors.

“You have to show any potential investor that you have an actual plan, you know what you’re talking about, it looks professional, and you’re not just screwing around.” - Charles Bililies, owner of Souvla

Planning is key to restaurant success. Without a plan, you're more likely to join the 26% of restaurants that fail within a year.

Create a business plan to set yourself up for success.

Here's how to get started. 

A step-by-step guide to writing a restaurant business plan

Embarking on a restaurant venture is an exciting prospect filled with endless possibilities.

However, the key to transforming your culinary dreams into reality lies in the foundation of a well-crafted restaurant business plan.

This guide will walk you through creating a winning restaurant business plan , from defining your niche to seeking expert advice.

So, are you ready to cook up some success?  Let's get started. 

Essential components of a restaurant business plan

A well-structured restaurant business plan typically consists of the following key components:

• Executive Summary

Company Description

• Market Analysis
• Restaurant Design
• Market Overview
• External help
• Financial Analysis

Delving into each section

Now, let's take a closer look at each section of your restaurant business plan and explore the key elements to consider:

1. Executive summary

A restaurant business plan should always begin with an executive summary. Why?

• 80% of venture capitalists say they read the executive summary first.
• 62% of investors say they would not continue reading a business plan if the executive summary did not capture their interest.
• A strong executive summary can increase the likelihood of securing funding by up to 40%.

An executive summary not only acts as the introduction to your restaurant business plan samples but also as a summary of the entire idea.

The main aim of an executive summary is to draw the reader (oftentimes an investor) into the rest of your business plan.

The executive summary also helps you envision the identity of your restaurant which essentially shapes the customer experience and sets you apart from competitors.

To establish a distinct identity, you need to focus on c ommon elements of an executive summary, including:

• A mission statement  
• Proposed concept development
• Cuisine selection
• The overall execution
• The potential costs
• Expected return on investments (ROI)

Let's take a more in-depth look at the concept development, cuisine selection, and mission statement.

Further reading

• How to write a restaurant executive summary

Concept Development

Selecting the type of restaurant, service style, and atmosphere is the first step towards creating a unique dining experience. Whether you envision a sample menu for a:

• cozy, intimate bistro
• bustling quick-service deli
• fast-casual restaurant
• fine dining establishment

Your concept should reflect your passion and expertise in the industry.

With a broad range of options, it’s critical to scrutinize your target market and pinpoint the most suitable choice considering their preferences and your capabilities.

When planning your restaurant design, keep in mind that it should effectively complement your chosen theme and cuisine.

Additionally, consider the potential for patio seating and the involvement of your management team in making these critical decisions.

A well-thought-out concept will not only set the stage for an unforgettable dining experience but also pique the interest of potential investors.

Cuisine Selection

The cuisine you select for your restaurant can significantly influence its success.

Choosing the appropriate cuisine is vital for distinguishing your establishment from competitors and attracting your target market.

To make an informed decision, consider factors such as:

• Market demand
• Expertise and passion
• Ingredient availability
• Competition
• Profitability
• Cultural fit
• Seasonality

Dietary restrictions and trends

In the highly competitive restaurant industry, keeping track of current and emerging cuisine trends can be a significant advantage.

From regional delicacies to innovative fusion dishes, understanding what’s popular and in demand can help you tailor your offerings to the desires of your target audience.

By thoroughly analyzing the market and adapting to evolving tastes, your restaurant can remain relevant and successful in the long run.

Crafting a mission statement

A well-constructed mission statement communicates the purpose, values, and goals of your restaurant to potential investors and customers alike.

A mission statement serves as a guiding light for decision-makers and employees, fueling their efforts to achieve your restaurant’s objectives.

To create an impactful mission statement, consider the following steps:

• Identify the purpose of the restaurant.
• Contemplate the brand’s image.
• Account for the target audience.
• Incorporate company values.
• Ensure brevity and comprehensiveness.

Related content:  How to Write a Restaurant Mission Statement  

Remember, your mission statement should not only differentiate your restaurant from competitors but also resonate with your target market.

By articulating your restaurant’s unique values and vision, you’ll create a strong foundation upon which to build a thriving and successful business.

2. Company description

This is the part of the restaurant business plan where you fully introduce the company.

Start this section with the name of the restaurant you are opening along with the location, contacts, and other relevant information. 

Also, include the owner’s details and a brief overview or description of their experience.

The second part of the company description should highlight the legal standing of the restaurant and outline the restaurant’s short and long-term goals.

Provide a brief market study showing that you understand the trends in the regional food industry and why the most independent restaurant investors will succeed in this market.

Here's an example of the page layout:  

Restaurant Name: [Restaurant Name]

Location: [Restaurant Address]

Contact: [Restaurant Phone Number] | [Restaurant Email Address]

Owner: [Owner Name]

Experience: [Owner Name] has over [Number] years of experience in the restaurant industry. They have worked in various roles, including [List of Roles]. They are passionate about food and creating a memorable dining experience for their guests.

Legal Standing: [Restaurant Name] is a [Type of Legal Entity] registered in [State/Province].

Short-term Goals:

• Generate [Amount] in revenue within the first year of operation.
• Achieve a [Percentage] customer satisfaction rating within the first six months of operation.

Long-term Goals:

• Expand to a second location within five years.
• Become a recognized leader in the regional food industry.

Market Study:

The regional food industry is experiencing a number of trends, including:

• An increasing demand for fresh,  local ingredients.
• A growing interest in ethnic cuisine.
• A preference for casual dining experiences.

3. Market analysis

The market analysis portion of the restaurant business plan is typically divided into three parts.

3.1 Industry analysis

What is your target market? What demographics will your restaurant cater to?

This section aims to explain your target market to investors and why you believe guests will choose your restaurant over others.

Comprehending your target market is key to customizing your restaurant offerings to their preferences and needs.

By diving into demographics, preferences, dining habits, and trends, you can fine-tune your concept and marketing strategy to reach and appeal to your target audience effectively.

An example of analyzing your target market

  Comprehending your target market is key to customizing your restaurant offerings to their preferences and needs.

Demographics and preferences

Identifying your primary target market involves considering factors such as:

For example, a neighborhood with a high concentration of families might prefer a family-friendly restaurant with a diverse menu catering to various age groups and dietary preferences.

Conversely, a trendy urban area with a predominantly young and affluent population may gravitate towards upscale dining experiences and innovative cuisine.

Cultural and ethnic backgrounds also have a significant impact on restaurant preferences, with people from different backgrounds having distinctive tastes and customs that influence their dining choices.

By thoroughly understanding the demographics and preferences of your target market, you’ll be better equipped to create a restaurant concept that resonates with them and ultimately drives success.

Dining habits and trends

As the restaurant industry continues to evolve, staying informed about dining habits and trends is crucial for adapting your offerings and attracting customers.

For example, the rise of online ordering and delivery services has significantly influenced dining habits, with many consumers seeking the convenience of having their meals delivered to their doorstep.

Health trends have also had an impact on dining habits, with an increasing number of individuals seeking healthier options when dining out.

By staying abreast of current habits and trends, you can anticipate the needs and desires of your target market and tailor your restaurant’s offerings accordingly.

This forward-thinking approach will not only help you stay competitive but also foster long-term success in the ever-changing restaurant landscape.

• How to find your restaurant's target market

3.2 Competition analysis

It's easy to assume that everyone will visit your new restaurant first, so it is important to research your competition to make this a reality.

What restaurants have already established a customer base in the area?

Take note of everything from their prices, hours, and service style to menu design to the restaurant interior.

Then explain to your investors how your restaurant will be different.

3.3 Marketing analysis

Your investors are going to want to know how you plan to market your restaurant. How will your marketing campaigns differ from what is already being done by others in the restaurant industry?

How do you plan on securing your target market? What kind of offers will you provide your guests? Make sure to list everything.

The most important element to launching a successful restaurant is the menu . Without it, your restaurant has nothing to serve.

At this point, you probably don’t have a final version, but for a restaurant business plan, you should at least try to have a mock-up.

Add your logo to the mock-up and choose a design that you can see yourself actually using. If you are having trouble coming up with a menu design or don’t want to pay a designer, there are plenty of resources online to help.

The key element of your sample menu though should be pricing. Your prices should reflect the cost analysis you’ve done for investors. This will give them a better understanding of your restaurant’s target price point. You'll quickly see how important menu engineering can be, even early on.

5. Employees

The company description section of the restaurant business plan briefly introduces the owners of the restaurant with some information about each. This section should fully flesh out the restaurant's business plan and management team.

The investors don’t expect you to have your entire team selected at this point, but you should at least have a couple of people on board. Use the talent you have chosen thus far to highlight the combined work experience everyone is bringing to the table.

6. Restaurant design

The design portion of your restaurant business plan is where you can really show off your thoughts and ideas to the investors. If you don’t have professional mock-ups of your restaurant rendered, that’s fine.

Instead, put together a mood board to get your vision across. Find pictures of a similar aesthetic to what you are looking for in your restaurant.

The restaurant design extends beyond aesthetics alone and should include everything from restaurant software to kitchen equipment. 

7. Location

The location you settle on for your restaurant should be well aligned with your target market (making it easier to cater to your ideal customer) and with your business plans.

At this stage in the process, its not uncommon to not have a specific location in mind - but you should at the very least have a few options to narrow down.

Tip: When you approach your investors about potential locations, make sure to include as much information as possible about each venue and why it would be ideal for your brand. Go into as much detail as possible - including everything from square footage to the demographics of the area.

Example for choosing an ideal location

Choosing the ideal location for your restaurant is a pivotal decision that can greatly influence your success. 

To make the best choice, consider factors such as foot traffic, accessibility, and neighborhood demographics.

By carefully evaluating these factors, you’ll be better equipped to maximize visibility and attract your target market.

Foot traffic and accessibility

Foot traffic and accessibility are essential factors in selecting a location that will attract customers and ensure convenience.

A high-traffic area with ample parking and public transportation options can greatly increase the likelihood of drawing in potential customers.

Additionally, making your restaurant accessible to individuals with disabilities can further broaden your customer base and promote inclusivity.

It’s also important to consider the competition in the area and assess whether your restaurant can stand out among existing establishments.

By choosing a location with strong foot traffic and accessibility, you’ll be well on your way to creating a thriving restaurant that appeals to your target market.

Neighborhood demographics

Analyzing neighborhood demographics can help you determine if your restaurant’s concept and cuisine will appeal to the local population.

Factors such as income levels, family structures, and cultural diversity can all influence dining preferences and habits.

By understanding the unique characteristics of the neighborhood, you can tailor your offerings and marketing efforts to resonate with the local community.

Conducting a market analysis can be a valuable step in this process.

To gather demographic data for a particular neighborhood, you can utilize resources such as the U.S. Census Bureau’s American Community Survey and reference maps.

Armed with this information, you can make informed decisions about your restaurant’s concept, menu, and pricing, ensuring that your establishment is well-positioned for success within the community.

Conducting market research will further strengthen your understanding of the local demographic.

8. Market overview

The market overview section is heavily related to the market research and analysis portion of the restaurant business plan. In this section, go into detail about both the micro and macro conditions in the area you want to set up your restaurant.

Discuss the current economic conditions that could make opening a restaurant difficult, and how you aim to counteract that. Mention all the other restaurants that could prove to be competition and what your strategy is to set yourself apart.

9. Marketing

With restaurants opening left and ride nowadays, investors are going to want to know how you will get word of your restaurant to the world.

The next marketing strategy and publicity section should go into detail on how you plan to market your restaurant before and after opening. As well as any plans you may have to bring a PR company on board to help spread the word.

Read more: How to write a restaurant marketing plan from scratch

10. External help

To make your restaurant a reality, you are going to need a lot of help. List any external companies or software you plan on hiring to get your restaurant up and running.

This includes everything from accountants and designers to suppliers that help your restaurant perform better, like POS systems and restaurant reservation systems .

Explain to your other potential investors about the importance of each and what they will be doing for your restaurant.

11. Financial analysis

The most important part of your restaurant business plan is the financial section . We would recommend hiring professional help for this given its importance.

Hiring a trained accountant will not only help you get your own financial projections and estimates in order but also give you a realistic insight into owning a restaurant.

You should have some information prepared to make this step easier for the accountant.

He/she will want to know how many seats your restaurant has, what the check average per table will be, and how many guests you plan on seating per day.

In addition to this, doing rough food cost calculations for various menu items can help estimate your profit margin per dish. This can be achieved easily with a free food cost calculator. 

• Important restaurant metrics to track

A well-crafted restaurant business plan serves as a roadmap to success, guiding every aspect of the venture from menu design to employee training.

By carefully considering each component of the plan, aspiring restaurateurs can increase their chances of securing funding, attracting customers, and achieving their long-term goals.

Remember, a restaurant business plan is not just a document to satisfy investors; it is a living tool that should be revisited and updated regularly as the business grows and evolves.

By staying committed to the plan and adapting it as needed, restaurateurs can ensure that their culinary dreams have a solid foundation for success.

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Saif Alnasur used to work in his family restaurant, but now he is a food influencer and writes about the restaurant industry for Eat App.

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6 restaurant pricing strategies to maximize profits

Discover pricing strategies that will increase restaurant sales and lower costs.

Sep 29, 2022 - 4 min read

Hospitality operators are always looking for ways to improve their bottom line and maximize restaurant profits.

While raising prices may seem like an easy solution to increase restaurant revenue, business owners need to think strategically before committing to any price changes. Will the move be consistent with the restaurant brand identity and will it help create a better dining experience for your customers?

Recalibration of prices needs a multilayered approach. A solid menu should be able to help upsell the other extras in the restaurant to truly drive sustainable business profit.

Aside from pricing methods, restaurants should also take additional actions to generate revenue. They must also be ready to weather rough times when inflation is high, or when ingredients and labor costs skyrocket due to supply chain disruption.

Clearly, to drive profit back to the business, a restaurant needs to employ a blend of cutting-edge tools and tried-and-true methods.

1. Find out which category best describes the restaurant and who the customers are

Restaurants can be divided into approximately 11 categories. Let's investigate what these are:

Fine Dining 

Casual Dining

Contemporary Casual 

Family Style 

Fast Casual

Food trucks and concession stands

Pop-Up Restaurant 

Ghost Restaurant/Cloud Kitchens 

An establishment's pricing strategy is heavily influenced by the group to which it belongs and the characteristics of its target market.

To further comprehend this idea, let's look at a few examples. A fine dining establishment is likely to spend a lot of money on interior design, ambiance, staff, premium ingredients, tableware, etc. The menu would need to be expensive to generate a worthy return on investment. The target market, however, determines how expensive the prices are. Are city dwellers willing to spend $100 on an upscale dinner for four? Or is it a little town where even the more affluent visitors are probably going to pass at $80?

Contrarily, consider the situation of a fast food or QSR restaurant, which concentrates on providing food quickly and affordably. Their focus would be on delivering wholesome meals at reasonable prices while keeping costs under control. 

2. Managing prime costs and recipe costs

There are two costs that are essential to cost management: recipe cost and prime cost. Recipe cost is a concept whereby a restaurant sticks to a single recipe and sets the cost. This is how it would work:

List all the ingredients that go into a dish.

Measure how much the ingredients cost in a single dish by the amount used.

Sum up the cost of the ingredients as well as take into consideration labor costs.

Meanwhile, the prime cost is the sum total of the cost of goods sold plus labor costs. This includes the cost of goods sold refers to the cost of ingredients, kitchen supplies, restaurant supplies like napkins, etc.—basically any cost that is incurred on a regular basis. Labor costs refer to the cost of labor and insurance.

To bring down prime costs, a restaurant can take the following steps:

Step 1: Monitor and track prime costs regularly

The first step in cost reduction or cost management is to identify each and every expense the establishment incurs on a regular basis. Churn out expenses that seem frivolous or that don’t have a lasting impact on the restaurant’s branding and day-to-day operations.

Step 2: Recalibrate menu

Restaurants should reevaluate their menu to maximize sales without compromising taste or patron expectations. A restaurant can employ several different menu techniques. As an example, if a restaurant's sales are slow during a season, it can choose to decrease serving portions for the same price.

Step 3: Define recipe costs

Another way of controlling costs is through recipe management. Basically, the restaurant should stick to one recipe and determine its cost. The process would be:

Sum up the cost of the ingredients as well as take into consideration labor costs

Step 4: Set a target for controlling Prime Costs

Having a set goal in mind aids in methodical and numerical cost-cutting. A clear objective also makes sure that management is motivated to operate responsibly. If a restaurant, let's say Cafe Insomnia, was routinely incurring $2000 in prime expenses each month, it should consider a new target prime cost of $1500 for example, after recalibrating the menu and applying other tactics.

3. Leveraging exotic dishes and seasonal menus

When it comes to exotic dishes, food cooked with rare, and imported ingredients needs to be priced at a premium. There are two reasons why: The first rational explanation is that most exotic ingredients are quite expensive, and the second reason is that customers anticipate paying a higher price for things that contain unique ingredients. Therefore, including exotic items on the menu that are priced at the upper end may actually help the business achieve larger profit margins.

Another great menu strategy is creating a special seasonal menu. Seasonal menus help keep costs down. Seasonal products are cheap when purchased in bulk and are readily available at grocery stores, farmers' markets, and also via local suppliers, so incorporating seasonal ingredients in the kitchen pantry also eliminates the need for restaurants to spend a fortune on shipping and imports. There's also the fact that seasonal dishes are always a hit with customers. The delectable seasonal treat would draw customers looking to indulge in the season's strawberries and boost the cafe’s sales.  For instance, when strawberries are in season, it's a good idea for restaurants to provide desserts that feature strawberries. The seasonal treats will bring in customers who are wanting to take advantage of the season's harvest, which will increase the restaurant's profits.

4. Executing promos and deals

So often restaurants find themselves having to increase the prices of dishes, reduce portions or use less expensive ingredients, just to keep their margins at bay. However, there are measures that restaurants can take to satisfy customers by giving them discounts and deals that offset the premium pricing or cost reductions. These are some of the things that a restaurant could do:

Promote happy hours to provide patrons with an opportunity to buy more food and drink for the same price.

Organize themed events to spice up the usual fare and ambiance.

Add combos to the menu that will help diners save money and will also help the establishment sell more food.

Incentivize huge purchases with a complimentary sweet. If a table spends over $100, for instance, make them eligible for a complimentary dessert.

5. Competitor research

It is critical to research competitors, especially if the hospitality operator is in the fast food or casual dining business. This type of restaurant often focuses on providing good value for money because that is what its target market expects. To encourage return visits from guests, such restaurants must ensure that they serve more food at a lower price than competitors.

As an illustration, consider a fast food business, let's call it Zoey's, that has four competitors within a 200-meter radius. Assume that the chicken burgers at the competing fast food chains cost around $5. Then, Zoey's chooses to reduce the price of its burgers to $4 while also including a complimentary hash brown and cookie. Naturally, customers seeking a deal on a meal would swarm to Zoey's.

6. Michelin restaurants

A Michelin-starred restaurant, or any restaurant operating at the same level of sophistication, might follow in the footsteps of these legendary establishments and maintain a set menu with a different price head for lunch and dinner. Michelin-starred restaurants typically have significant overheads and strive for perfection on a regular basis. They stick to predetermined menus to keep costs under control while wowing guests at every meal. These set menus are an excellent cost-controlling technique. More often than not, the recipe is consistent, which aids in controlling and meeting cost requirements.

RELATED: What can you learn from Michelin-starred restaurants and iconic establishments?

The use of technology

While pricing methods are one way to preserve profit margins, restaurants also need to be more receptive to integrating new technologies into their operations in order to boost their overall profitability and control costs. It can take the shape of QR menu cards, food delivery apps/plug-ins, or the utilization of social media to generate excitement about the restaurant.

Apart from that, there are booking platforms like TableCheck that let businesses manage reservations and keep track of important customer data to enhance the dining experience of guests and encourage repeat visits. In addition to aiding the restaurant in food sales, client data can be used in a variety of other ways. Utilizing technology to reduce food waste in restaurants exemplifies the proper application of technology. Using guest data , restaurants can figure out how their customers eat and keep their stock levels in line with consumption trends, thus reducing waste. 

Embracing technology can enable restaurants to achieve a range of goals, with the aforementioned illustration highlighting just one of its numerous benefits.  RELATED : Engage guests – Make the perfect dining experience come to life using guest data

Let TableCheck manage your restaurant while you focus on growing your business and delivering what you do best – creating magical moments for your guests.

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The Art of Pricing in Restaurants: Unveiling the Secrets of an Effective Pricing Strategy

Performance

Elizabeth Norton

In this article

Menu costing, understanding pricing strategies in restaurants, when and how to evaluate pricing strategies.

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Figuring out how to price your restaurant’s menu may seem simple at first, but when you factor in spiralling costs, inflation and consumer outlook, pricing strategy becomes a real challenge. 

Tenzo recently produced a report looking at how much prices have risen in the last twelve months, and while the overall price increases averaged out at 9.23%, every business has approached their strategy differently. 

In a recent webinar , Maddie Pellico, Customer Success Lead at Tenzo, pointed out that ‘instead of raising the whole menu by 10%, Tenzo customers are really focusing on different aspects of that menu, like looking at wet vs dry. We work with a brewery that’s kept their food all at the same cost but has raised their beer prices by about 10%. And we’re seeing the opposite in some other businesses.’

So what are the elements you need to consider when reviewing your pricing strategy? 

The first port of call is figuring out exactly how much it costs to produce each menu item. To measure the cost of goods for every menu item in your restaurant, you need to start by calculating the cost of the ingredients used in the dish. This can be done by keeping track of the quantity and price of each ingredient used in a recipe in your inventory management platform . 

If you don’t have a platform to automate this, you’ll need to work out the cost of each amount of ingredient that goes into the dish. Eg if a portion of chips requires 200g of potatoes and you buy potatoes at £1 per kilo, then the cost of potatoes for that dish is 20p. 

Ideally, your cost of goods should be around 30% to 35% of your revenue although this does depend on the type of restaurant. QSRs will have a lower cost of goods than Fine Dining establishments due to the quality and variety of ingredients needed. 

Once you understand exactly how much each item costs to make, you can start looking at pricing strategies to implement. 

Pricing strategy is the method used by restaurants to determine the prices of their menu items. It plays a crucial role in the overall performance of a restaurant, as it directly affects revenue and profitability. By setting the right prices, restaurants can attract customers, cover costs, and generate profits.

There are several potential pricing strategies out there, including: 

• Triple pricing 
• Dynamic pricing
• Promotion-based

Cost-Plus Pricing Strategy

Cost-plus pricing is a straightforward strategy that involves taking your cost of goods, adding your overheads and then adding the appropriate margin for profit. 

Overheads would include any other costs incurred while making a dish including fixed costs like rent and electricity as well as other variable costs like labour. The simplest way to calculate your overheads per dish is to take a week’s worth of costs and divide them by the number of dishes you served in that week. 

Unfortunately, this does mean that you’re averaging out your variable costs and if this was a week with a lower labour spend then you might underestimate costs. The best way to avoid this is to use a Restaurant PerformanceOps platform to keep track of variable costs like labour so you always know where you stand. 

Once you have calculated the cost of making a dish, the advantage of a cost-plus strategy is that it’s simple and you are in complete control of your margins. 

The problem is that it doesn’t take any external factors into account. Competition, economic environment and popularity all affect how much customers are willing to pay for items so having a set margin on every dish can be burdensome. 

Triple Pricing strategy

Another effective strategy is triple pricing. This involves offering three different price points for customers to choose from. It is also often called the ‘good, better, best’ strategy. 

The idea is to have a premium item – ‘best’ – which provides the highest margin, while also having a ‘better’ and ‘good’ option that have slightly lower margins.

A common example is ice cream: one scoop costs £4, two scoops £5, and three scoops £6.

Psychologically, three scoops seem like the best deal because it’s only £2 more expensive than one scoop, but there are also options for more price-sensitive customers. 

This strategy can work well for QSRs or Casual Dining businesses that naturally have tiers on their menu (usually sizes or combo options) but is not ideal for fine dining establishments.

Dynamic Pricing Strategy

Dynamic pricing is a hot topic in the industry right now. It’s a strategy that allows restaurants to adjust their prices in real time based on various factors such as demand, time of day, and even weather conditions.

One of the main benefits of dynamic pricing for restaurants is the ability to optimise revenue on a daily basis. By adjusting prices based on demand, restaurants can charge higher prices during peak times when there is high demand, and lower prices during off-peak times to attract more customers. 

To successfully implement dynamic pricing, you need to have a real-time view of your sales data as well as accurate forecasts to make pricing decisions – both of which Tenzo can help with.  

However, do consider that it can also leave a bad taste in customers’ mouths if they feel they are being overcharged for items they’re used to getting at a lower price point. Just think about how you feel when there’s a significant surge price for an Uber – it’s not always pleasant and can lead to customers finding alternatives that they deem better value. 

A great example of dynamic pricing though is Wall Street Wednesdays at The 411 in London: drinks go up and down in price depending on demand – just like the stock market. It’s a fun concept that brings the customer into the action by being totally transparent.   

Promotion-based Pricing Strategy

Promotion-based pricing is an approach that involves offering discounts, deals, or promotions to attract customers and increase sales, often used to drive customer traffic during slow periods or to generate buzz around a new menu item. 

This type of pricing also allows restaurants to differentiate themselves from competitors and create a sense of urgency among customers. By offering exclusive promotions or discounts, restaurants can make customers feel like they are getting a special deal that they can’t find elsewhere. 

This is a common strategy in the QSR game – the hype around celebrity favourite meals at McDonald’s , or the queues for vegan nuggets at KFC prove how successful they can be – but it’s important to factor the promotion into your overall margins by considering how many of your usual guests will opt for a promotion over a full-price item and whether the increase in traffic thanks to the promotion will cover these losses.

Unfortunately, the work doesn’t end once you’ve decided on your strategy. Regularly evaluating prices is essential for restaurants to help control rising costs. Prices should be reviewed quarterly as well as when any significant cost increases occur.

According to Sam Benson, Enterprise Implementation Consultant at Tenzo, ‘I’d say prices should be reviewed as a quarterly exercise, but that being said, if there are significant changes in costs, prices need to be considered. For example, if the cost of steak goes up by 20% then it’s time to re-engineer the menu item or increase the price. Another out-of-cycle but relevant time is when the Government Budgets are announced and changes are implemented eg. alcohol duty changes, or minimum wage increases.’

It’s important to analyse your menu as a whole to identify where margins can be increased. Using menu engineering tactics, market research and tracking competitors will all help find efficiencies. 

Menu Engineering

Menu engineering is incredibly important when it comes to generating the best margins while still giving customers confidence that they’re getting value. 

Use menu item engineering to soften price rises. Blend price increases across the menu to ensure the real price rises actually flow through to your bottom line rather than raising prices on low-volume dishes or causing customers to trade down to cheaper items with a lower margin.  

Consider the menu engineering matrix when you do this, evaluating your stars, plow horses, dogs and puzzles to establish where price changes will make the most impact.

Every business is unique, so the areas that will drive margins will differ. We’ve seen some businesses choose to increase the price of their alcoholic drinks as these drive the most revenue, but keep food prices stable. For more food-led businesses, some have increased the price of mains but kept add-on price changes to a minimum, whereas others have taken the opposite approach and only increased prices of sides, appetisers and desserts. 

What this shows is that it’s important to dive into your own data to understand where price increases will be tolerated and flow through to your bottom line and where they will potentially put off customers. 

Market Research

To understand where your customer sentiment stands, consider conducting market research to identify customer preferences and their willingness to pay. 

For example, Tenzo research has revealed that despite the cost of living crisis in the UK, customers have been willing to engage with increased prices. We’ve seen the number of transactions remain constant year-over-year despite a nearly 10% increase in prices. 

Industry reports like these will help you understand the general sentiment across the industry, but getting insights on your own customers is most valuable. Consider implementing surveys on your contactless payment or customer experience platforms or tracking mentions on social media to understand your own customers’ feelings toward the value you provide. 

This type of market research helps you understand your target market’s willingness to pay by gathering information about their spending habits and price sensitivity. This allows you to set a price that is both competitive and profitable, ensuring that you are not underpricing or overpricing your offering.

Tracking Competitor Pricing

Tracking competitor pricing is key. It allows you to stay competitive and ensure that your prices are in line with what other restaurants in your category are offering. Thankfully, now that all menus are typically available online, you save yourself from making regular rounds of all your competitors like Tenzo co-founder Christian Mouysset did back when he was running Hummus Bros. 

‘We always needed to be aware of what our competitors were charging. Being a go-to for lunch, we knew what the other options were charging, whether that was a sandwich from Pret or a salad from Tossed, so that we could be in line with the market, but we also knew our own value and placed a premium on that.’ 

Tracking competitor pricing helps you identify trends and patterns in the market. Eg if chips are increasing across all your competitors it might be worth considering raising your own prices, although having the lowest-priced chips could also be a competitive advantage for your business if your margins can handle it. This type of differentiation can help you stand out in a crowded market and attract new customers who are looking for better value.

In conclusion, having an effective pricing strategy and reviewing it on a regular basis is crucial for restaurant operators. It allows you to maximise profits, attract customers, and stay competitive in a market faced with rising inflation and constantly increasing costs . 

By understanding different pricing strategies and identifying opportunities for price increases, restaurant owners can make informed decisions that benefit their business.

If you’re looking for a tool to help find inefficiencies and optimise the performance of your restaurant business, Tenzo can help. From labour productivity to menu item profitability, we can reveal the areas of your business that need improvement as well as where you’re thriving. Get in touch today to find out more. 

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The Ultimate Guide to Pricing Strategies & Models

Discover how to properly price your products, services, or events so you can drive both revenue and profit.

FREE SALES PRICING CALCULATOR

Determine the best pricing strategy for your business with this free calculator and template.

Updated: 08/16/23

Published: 08/16/23

Pricing your products and services can be tough. Set prices too high, and you miss out on valuable sales. Set them too low, and you miss out on valuable revenue.

Thankfully, pricing doesn’t have to be a sacrifice or a shot in the dark. There are dozens of pricing models and strategies that can help you better understand how to set the right prices for your audience and revenue goals.

That’s why we’ve created this guide.

Whether you’re a business beginner or a pricing pro, the tactics and strategies in this guide will get you comfortable with pricing your products. Bookmark this guide for later and use the chapter links to jump around to sections of interest.

Pricing Strategy

Types of pricing strategies, how to create a pricing strategy, pricing models based on industry or business.

Conducting a Pricing Analysis

Pricing Strategy Examples

A pricing strategy is a model or method used to establish the best price for a product or service. It helps you choose prices to maximize profits and shareholder value while considering consumer and market demand.

If only pricing was as simple as its definition — there’s a lot that goes into the process.

Pricing strategies account for many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.

It’s not uncommon for entrepreneurs and business owners to skim over pricing. They often look at the cost of their products (COGS) , consider their competitor’s rates, and tweak their own selling price by a few dollars. While your COGS and competitors are important, they shouldn’t be at the center of your pricing strategy.

The best pricing strategy maximizes your profit and revenue.

Before we talk about pricing strategies, let’s review an important pricing concept that will apply regardless of what strategies you use.

Free Sales Pricing Strategy Calculator

• Cost-Plus Pricing
• Skimming Strategy
• Value-Based Pricing

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Determine the Best Pricing Strategy For Your Business

Fill out this form to access the free template., price elasticity of demand.

Price elasticity of demand is used to determine how a change in price affects consumer demand.

If consumers still purchase a product despite a price increase (such as cigarettes and fuel) that product is considered inelastic .

On the other hand, elastic products suffer from pricing fluctuations (such as cable TV and movie tickets).

You can calculate price elasticity using the formula:

% Change in Quantity ÷ % Change in Price = Price Elasticity of Demand

The concept of price elasticity helps you understand whether your product or service is sensitive to price fluctuations. Ideally, you want your product to be inelastic — so that demand remains stable if prices do fluctuate.

Cost, Margin, & Markup in Pricing

To choose a pricing strategy, it’s also essential to understand the role of cost, margin, and markup — especially if you’d like your pricing to be cost-based . Let’s dive into the definition for each.

Cost refers to the fees you incur from manufacturing, sourcing, or creating the product you sell. That includes the materials themselves, the cost of labor, the fees paid to suppliers, and even the losses. Cost doesn’t include overhead and operational expenses such as marketing, advertising, maintenance, or bills.

Margin (in this case, gross margin) refers to the amount your business earns after you subtract manufacturing costs.

Markup refers to the additional amount you charge for your product over the production and manufacturing fees.

Now, let’s cover some common pricing strategies. As we do so, it’s important to note that these aren’t necessarily standalone strategies — many can be combined when setting prices for your products and services.

• Competition-Based Pricing
• Dynamic Pricing
• High-Low Pricing
• Penetration Pricing
• Skimming Pricing
• Psychological Pricing
• Geographic Pricing

Now, let's dive into the descriptions of each pricing strategy — many of which are included in the template below — so you can learn about what makes each of them unique.

Discover how much your business can earn using different pricing strategies with HubSpot's free sales pricing calculator so you can choose the best pricing model for your business.

Download Template

1. competition-based pricing strategy.

Competition-based pricing is also known as competitive pricing or competitor-based pricing. This pricing strategy focuses on the existing market rate (or going rate ) for a company’s product or service; it doesn’t take into account the cost of their product or consumer demand.

Instead, a competition-based pricing strategy uses the competitors’ prices as a benchmark. Businesses who compete in a highly saturated space may choose this strategy since a slight price difference may be the deciding factor for customers.

With competition-based pricing , you can price your products slightly below your competition, the same as your competition, or slightly above your competition. For example, if you sold marketing automation software , and your competitors’ prices ranged from $19.99 per month to $39.99 per month, you’d choose a price between those two numbers.

Whichever price you choose, competitive pricing is one way to stay on top of the competition and keep your pricing dynamic.

Competition-Based Pricing Strategy in Marketing

Consumers are primarily looking for the best value which isn’t always the same as the lowest price. Pricing your products and services competitively in the market can put your brand in a better position to win a customer’s business. Competitive pricing works especially well when your business offers something the competition doesn’t — like exceptional customer service, a generous return policy, or access to exclusive loyalty benefits .

2. Cost-Plus Pricing Strategy

A cost-plus pricing strategy focuses solely on the cost of producing your product or service, or your COGS . It’s also known as markup pricing since businesses who use this strategy “markup” their products based on how much they’d like to profit.

To apply the cost-plus method, add a fixed percentage to your product production cost. For example, let’s say you sold shoes. The shoes cost $25 to make, and you want to make a $25 profit on each sale. You’d set a price of $50, which is a markup of 100%.

Cost-plus pricing is typically used by retailers who sell physical products. This strategy isn’t the best fit for service-based or SaaS companies as their products typically offer far greater value than the cost to create them.

Cost-Plus Pricing Strategy in Marketing

Cost-plus pricing works well when the competition is pricing using the same model. It won’t help you attract new customers if your competition is working to acquire customers rather than growing profits. Before executing this strategy, complete a pricing analysis that includes your closest competitors to make sure this strategy will help you meet your goals.

3. Dynamic Pricing Strategy

Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. It’s a flexible pricing strategy where prices fluctuate based on market and customer demand.

Hotels, airlines, event venues, and utility companies use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors. These algorithms allow companies to shift prices to match when and what the customer is willing to pay at the exact moment they’re ready to make a purchase.

Dynamic Pricing Strategy in Marketing

Dynamic pricing can help keep your marketing plans on track. Your team can plan for promotions in advance and configure the pricing algorithm you use to launch the promotion price at the perfect time. You can even A/B test dynamic pricing in real-time to maximize your profits.

4. High-Low Pricing Strategy

A high-low pricing strategy is when a company initially sells a product at a high price but lowers that price when the product drops in novelty or relevance. Discounts, clearance sections, and year-end sales are examples of high-low pricing in action — hence the reason why this strategy may also be called a discount pricing strategy.

High-low pricing is commonly used by retail firms that sell seasonal items or products that change often, such as clothing, decor, and furniture. What makes a high/low pricing strategy appealing to sellers? Consumers enjoy anticipating sales and discounts, hence why Black Friday and other universal discount days are so popular.

High-Low Pricing Strategy in Marketing

If you want to keep the foot traffic steady in your stores year-round, a high-low pricing strategy can help. By evaluating the popularity of your products during particular periods throughout the year, you can leverage low pricing to increase sales during traditionally slow months.

5. Penetration Pricing Strategy

Contrasted with skimming pricing, a penetration pricing strategy is when companies enter the market with an extremely low price, effectively drawing attention (and revenue) away from higher-priced competitors. Penetration pricing isn’t sustainable in the long run, however, and is typically applied for a short time.

This pricing method works best for brand new businesses looking for customers or for businesses that are breaking into an existing, competitive market. The strategy is all about disruption and temporary loss … and hoping that your initial customers stick around as you eventually raise prices.

(Another tangential strategy is loss leader pricing , where retailers attract customers with intentionally low-priced items in hopes that they’ll buy other, higher-priced products, too. This is precisely how stores like Target get you — and me.)

Penetration Pricing Strategy in Marketing

Penetration pricing has similar implications as freemium pricing — the money won’t come in overnight. But with enough value and a great product or service, you could continue to make money and scale your business as you increase prices. One tip for this pricing strategy is to market the value of the products you sell and let price be a secondary point.

6. Skimming Pricing Strategy

A skimming pricing strategy is when companies charge the highest possible price for a new product and then lower the price over time as the product becomes less and less popular. Skimming is different from high-low pricing in that prices are lowered gradually over time.

Technology products, such as DVD players, video game consoles, and smartphones, are typically priced using this strategy as they become less relevant over time. A skimming pricing strategy helps recover sunk costs and sell products well beyond their novelty, but the strategy can also annoy consumers who bought at full price and attract competitors who recognize the “fake” pricing margin as prices are lowered.

Skimming Pricing Strategy in Marketing

Skimming pricing strategy can work well if you sell products that have products with varying life cycle lengths. One product may come in and out of popularity quickly so you have a short time to skim your profits in the beginning stages of the life cycle. On the flip side, a product that has a longer life cycle can stay at a higher price for more time. You’ll be able to maintain your marketing efforts for each product more effectively without constantly adjusting your pricing across every product you sell.

7. Value-Based Pricing Strategy

A value-based pricing strategy is when companies price their products or services based on what the customer is willing to pay. Even if it can charge more for a product, the company decides to set its prices based on customer interest and data.

If used accurately, value-based pricing can boost your customer sentiment and loyalty. It can also help you prioritize your customers in other facets of your business, like marketing and service.

On the flip side, value-based pricing requires you to constantly be in tune with your various customer profiles and buyer personas and possibly vary your prices based on those differences.

Value-Based Pricing Strategy in Marketing

Marketing to your customers should always lead with value, so having a value-based pricing model should help strengthen the demand for your products and services. Just be sure that your audiences are distinct enough in what they’re willing to pay for — you don’t want to run into trouble by charging more or less based on off-limits criteria .

8. Psychological Pricing Strategy

Psychological pricing is what it sounds like — it targets human psychology to boost your sales.

For example, according to the " 9-digit effect ", even though a product that costs $99.99 is essentially $100, customers may see this as a good deal simply because of the "9" in the price.

Another way to use psychological pricing would be to place a more expensive item directly next to (either, in-store or online) the one you're most focused on selling . Or offer a "buy one, get one 50% off (or free)" deal that makes customers feel as though the circumstances are too good to pass up on.

And lastly, changing the font, size, and color of your pricing information on and around your products has also been proven, in various instances, to boost sales.

Psychological Pricing Strategy in Marketing

Psychological pricing strategy requires an intimate understanding of your target market to yield the best results. If your customers are inclined to discounts and coupons, appealing to this desire through your marketing can help this product meet their psychological need to save money. If paying for quality is important to your audience, having the lowest price on the shelf might not help you reach your sales goals. Regardless of the motivations your customers have for paying a certain price for a product, your pricing and marketing should appeal to those motivations.

9. Geographic Pricing Strategy

Geographic pricing is when products or services are priced differently depending on geographical location or market.

This strategy may be used if a customer from another country is making a purchase or if there are disparities in factors like the economy or wages (from the location in which you're selling a good to the location of the person it is being sold to).

Geographic Pricing Strategy in Marketing

Marketing a geographically priced product or service is easy thanks to paid social media advertising. Segmenting by zip code, city, or even region can be accomplished at a low cost with accurate results. Even as specific customers travel or permanently move, your pricing model will remain the same which helps you maintain your marketing costs.

Download our free guide to creating buyer personas to easily organize your audience segments and make your marketing stronger.

Like we said above, these strategies aren’t necessarily meant to stand alone. We encourage you to mix and match these methods as needed.

Below, we cover more specific pricing models for individual products.

Pricing Models

While your pricing strategy may determine how your company sets fees for its offerings overall , the below pricing models can help you set prices for specific product lines. Let's take a look.

1. Freemium

A combination of the words “free” and “premium,” freemium pricing is when companies offer a basic version of their product hoping that users will eventually pay to upgrade or access more features.

Unlike cost-plus, freemium is a pricing model commonly used by SaaS and other software companies. They choose this model because free trials and limited memberships offer a peek into a software’s full functionality — and also build trust with a potential customer before purchase.

With freemium, a company’s prices must be a function of the perceived value of their products. For example, companies that offer a free version of their software can’t ask users to pay $100 to transition to the paid version. Prices must present a low barrier to entry and grow incrementally as customers are offered more features and benefits.

Freemium Pricing in Marketing

Freemium pricing may not make your business a lot of money on the initial acquisition of a customer, but it gives you access to the customer which is just as valuable. With access to their email inboxes, phone number, and any other contact information you gather in exchange for the free product, you can nurture the customer into a brand loyal advocate with a worthwhile LTV .

2. Premium Pricing

Also known as prestige pricing and luxury pricing, a premium pricing model is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost.

Prestige pricing is a direct function of brand awareness and brand perception. Brands that apply this pricing method are known for providing value and status through their products — which is why they’re priced higher than other competitors. Fashion and technology are often priced using this model because they can be marketed as luxurious, exclusive, and rare.

Premium Pricing in Marketing

Premium pricing is quite dependent upon the perception of your product within the market. There are a few ways to market your product in order to influence a premium perception of it including using influencers, controlling supply, and driving up demand.

3. Hourly Pricing

Hourly pricing, also known as rate-based pricing, is commonly used by consultants, freelancers, contractors, and other individuals or laborers who provide business services. Hourly pricing is essentially trading time for money. Some clients are hesitant to honor this pricing strategy as it can reward labor instead of efficiency.

Hourly Pricing in Marketing

If your business thrives on quick, high-volume projects, hourly pricing can be just the incentive for customers to work with you. By breaking down your prices into hourly chunks, customers can make the decision to work with you based on a low price point rather than finding room in their budget for an expensive project-based commitment.

4. Bundle Pricing

Bundle pricing is when you offer (or "bundle") two or more complementary products or services together and sell them for a single price. You may choose to sell your bundled products or services only as part of a bundle, or sell them as both components of bundles and individual products.

This is a great way to add value through your offerings to customers who are willing to pay extra upfront for more than one product. It can also help you get your customers hooked on more than one of your products faster.

Bundle Pricing in Marketing

Marketing bundle deals can help you sell more products than you would otherwise sell individually. It’s a smart way to upsell and cross-sell your offerings in a way that is beneficial for the customer and your revenue goals.

5. Project-Based Pricing

Project-based pricing is the opposite of hourly pricing — this approach charges a flat fee per project instead of a direct exchange of money for time. It is also used by consultants, freelancers, contractors, and other individuals or laborers who provide business services.

Project-based pricing may be estimated based on the value of the project deliverables. Those who choose this pricing model may also create a flat fee from the estimated time of the project.

Project-Based Pricing in Marketing

Leading with the benefits a customer will derive from working with your business on a project can make project-based pricing more appealing. Although the cost of the project may be steep, the one-time investment can be worth it. Your clients will know that they’ll be able to work with you until the project is completed rather than until their allotted hours are depleted.

6. Subscription Pricing

Subscription pricing is a common pricing model at SaaS companies, online retailers, and even agencies who offer subscription packages for their services.

Whether you offer flat rate subscriptions or tiered subscriptions, the benefits of this model are endless. For one, you have all but guaranteed monthly recurring revenue (MRR) and yearly recurring revenue. That makes it simpler to calculate your profits on a monthly basis. It also often leads to higher customer lifetime values .

The one thing to be wary of when it comes to subscription pricing is the high potential for customer churn . People cancel subscriptions all the time, so it's essential to have a customer retention strategy in place to ensure clients keep their subscriptions active.

Subscription Pricing in Marketing

When marketing your subscription products, it's essential to create buyer personas for each tier. That way, you know which features to include and what will appeal to each buyer. A general subscription that appeals to everyone won't pull in anyone.

Even Amazon, which offers flat-rate pricing for its Prime subscription, includes a membership for students. That allows them to market the original Prime more effectively by creating a sense of differentiation.

Now, let’s discuss how to build a pricing strategy of your own liking.

1. Evaluate pricing potential.

You want to make a strategy that is optimal for your unique business. To begin, you need to evaluate your pricing potential. This is the approximate product or service pricing your business can potentially achieve in regard to cost, demand, and more.

Some factors that can affect your pricing potential include:

• Geographical market specifics
• Operating costs
• Inventories
• Demand fluctuations
• Competitive advantages and concerns
• Demographic data

We’ll dive deeper into demographic data in the next step.

2. Determine your buyer personas.

You have to price your product on the type of buyer persona that’s looking for it. When you look at your ideal customer, you’ll have to look at their:

• Customer Lifetime Value
• Willingness to Pay
• Customer Pain Points

To aid in this process, interview customers and prospects to see what they do and like, and ask for your sales team’s feedback on the best leads and their characteristics.

3. Analyze historical data.

Take a look at your previous pricing strategies. You can calculate the difference in closed deals, churn data , or sold product on different pricing strategies that your business has worked with before and look at which were the most successful.

4. Strike a balance between value and business goals.

When developing your pricing strategy, you want to make sure the price is good to your bottom line and your buyer personas. This compromise will better help your business and customer pool, with the intentions of:

• Increasing profitability
• Improving cash flow
• Market penetration
• Expanding market share

5. Look at competitor pricing.

You can’t make a pricing strategy without conducting research on your competitors’ offerings. You’ll have to decide between two main choices when you see the price difference for your same product or service:

• Beat your competitors’ price - If a competitor is charging more for the same offering as your brand, then make the price more affordable.
• Beat your competitors’ value - Also known as value-based pricing , you can potentially price your offering higher than your competitors if the value provided to the customer is greater.

To see the competition’s full product or service offering, conduct a full competitive analysis so you can see their strengths and weaknesses, and make your pricing strategy accordingly.

So we’ve gone over how to create a pricing strategy, now let’s discuss how to apply these steps to different businesses and industries.

Not every pricing strategy is applicable to every business. Some strategies are better suited for physical products whereas others work best for SaaS companies. Here are examples of some common pricing models based on industry and business.

Product Pricing Model

Unlike digital products or services, physical products incur hard costs (like shipping, production, and storage) that can influence pricing. A product pricing strategy should consider these costs and set a price that maximizes profit, supports research and development, and stands up against competitors.

👉🏼 We recommend these pricing strategies when pricing physical products : cost-plus pricing, competitive pricing, prestige pricing, and value-based pricing.

Digital Product Pricing Model

Digital products, like software, online courses, and digital books, require a different approach to pricing because there’s no tangible offering or unit economics (production cost) involved. Instead, prices should reflect your brand, industry, and overall value of your product.

👉🏼 We recommend using these pricing strategies when pricing digital products: competition-based pricing, freemium pricing, and value-based pricing.

Restaurant Pricing Model

Restaurant pricing is unique in that physical costs, overhead costs, and service costs are all involved. You must also consider your customer base, overall market trends for your location and cuisine, and the cost of food — as all of these can fluctuate.

👉🏼 We recommend using these pricing strategies when pricing at restaurants: cost-plus pricing, premium pricing, and value-based pricing.

Event Pricing Model

Events can’t be accurately measured by production cost (not unlike the digital products we discussed above). Instead, event value is determined by the cost of marketing and organizing the event as well as the speakers, entertainers, networking, and the overall experience — and the ticket prices should reflect these factors.

👉🏼 We recommend using these pricing strategies when pricing live events: competition-based pricing, dynamic pricing, and value-based pricing.

Services Pricing Model

Business services can be hard to price due to their intangibility and lack of direct production cost. Much of the service value comes from the service provider’s ability to deliver and the assumed caliber of their work. Freelancers and contractors , in particular, must adhere to a services pricing strategy.

👉🏼 We recommend using these pricing strategies when pricing services: hourly pricing, project-based pricing, and value-based pricing.

Nonprofit Pricing Model

Nonprofits need pricing strategies, too — a pricing strategy can help nonprofits optimize all processes so they’re successful over an extended period of time.

A nonprofit pricing strategy should consider current spending and expenses, the breakeven number for their operation, ideal profit margin, and how the strategy will be communicated to volunteers, licensees, and anyone else who needs to be informed. A nonprofit pricing strategy is unique because it often calls for a combination of elements that come from a few pricing strategies.

👉🏼 We recommend using these pricing strategies when pricing nonprofits: competitive pricing, cost-plus pricing, demand pricing, and hourly pricing.

Education Pricing Model

Education encompasses a wide range of costs that are important to consider depending on the level of education, private or public education, and education program/ discipline.

Specific costs to consider in an education pricing strategy are tuition, scholarships, additional fees (labs, books, housing, meals, etc.). Other important factors to note are competition among similar schools, demand (number of student applications), number and costs of professors/ teachers, and attendance rates.

👉🏼 We recommend using these pricing strategies when pricing education: competitive pricing, cost-based pricing, and premium pricing.

Real Estate Pricing Model

Real estate encompasses home value estimates, market competition, housing demand, and cost of living. There are other factors that play a role in real estate pricing models including potential bidding wars, housing estimates and benchmarks (which are available through real estate agents but also through free online resources like Zillow ), and seasonal shifts in the real estate market.

👉🏼 We recommend using these pricing strategies when pricing real estate: competitive pricing, dynamic pricing, premium pricing, and value-based pricing.

Agency Pricing Model

Agency pricing models impact your profitability, retention rates, customer happiness, and how you market and sell your agency. When developing and evolving your agency’s pricing model, it’s important to take into consideration different ways to optimize it so you can determine the best way to boost the business's profits.

👉🏼 We recommend using these pricing strategies when pricing agencies: hourly pricing, project-based pricing, and value-based pricing.

Manufacturing Pricing Model

The manufacturing industry is complex — there are a number of moving parts and your manufacturing pricing model is no different. Consider product evolution, demand, production cost, sale price, unit sales volume, and any other costs related to your process and product. Another key part to a manufacturing pricing strategy is understanding the maximum amount the market will pay for your specific product to allow for the greatest profit.

👉🏼 We recommend using these pricing strategies when pricing manufacturing: competitive pricing, cost-plus pricing, and value-based pricing.

Ecommerce Pricing Model

Ecommerce pricing models are how you determine the price at which you’ll sell your online products and what it'll cost you to do so. Meaning, you must think about what your customers are willing to pay for your online products and what those products cost you to purchase and/or create. You might also factor in your online campaigns to promote these products as well as how easy it is for your customers to find similar products to yours on the ecommerce sites of your competitors.

👉🏼 We recommend using these pricing strategies when pricing ecommerce: competitive pricing, cost-based pricing, dynamic pricing, freemium pricing, penetration pricing, and value-based pricing.

Pricing Analysis

Pricing analysis is a process of evaluating your current pricing strategy against market demand. Generally, pricing analysis examines price independently of cost. The goal of a pricing analysis is to identify opportunities for pricing changes and improvements.

You typically conduct a pricing analysis when considering new product ideas, developing your positioning strategy, or running marketing tests. It's also wise to run a price analysis once every year or two to evaluate your pricing against competitors and consumer expectations — doing so preemptively avoids having to wait for poor product performance.

How to Conduct a Pricing Analysis

1. determine the true cost of your product or service..

To calculate the true cost of a product or service that you sell, you’ll want to recognize all of your expenses including both fixed and variable costs. Once you’ve determined these costs, subtract them from the price you’ve already set or plan to set for your product or service.

2. Understand how your target market and customer base respond to the pricing structure.

Surveys, focus groups, or questionnaires can be helpful in determining how the market responds to your pricing model. You’ll get a glimpse into what your target customers value and how much they’re willing to pay for the value your product or service provides.

3. Analyze the prices set by your competitors.

There are two types of competitors to consider when conducting a pricing analysis: direct and indirect.

Direct competitors are those who sell the exact same product that you sell. These types of competitors are likely to compete on price so they should be a priority to review in your pricing analysis.

Indirect competitors are those who sell alternative products that are comparable to what you sell. If a customer is looking for your product, but it’s out of stock or it’s out of their price range, they may go to an indirect competitor to get a similar product.

4. Review any legal or ethical constraints to cost and price.

There’s a fine line between competing on price and falling into legal and ethical trouble. You’ll want to have a firm understanding of price-fixing and predatory pricing while doing your pricing analysis in order to steer clear of these practices.

Analyzing your current pricing model is necessary to determine a new (and better!) pricing strategy. This applies whether you're developing a new product, upgrading your current one, or simply repositioning your marketing strategy.

Next, let’s look at some examples of pricing strategies that you can use for your own business.

Dynamic Pricing Strategy: Chicago Cubs Freemium Pricing Strategy: HubSpot Penetration Pricing Strategy: Netflix Premium Pricing: AWAY Competitive Pricing Strategy: Shopify Project-Based Pricing Strategy: Courtney Samuel Events Value-Based Pricing Strategy: INBOUND Bundle Pricing: State Farm Geographic Pricing: Gasoline

Pricing models can be hard to visualize. Below, we’ve pulled together a list of examples of pricing strategies as they’ve been applied to everyday situations or businesses.

1. Dynamic Pricing Strategy: Chicago Cubs

I live in Chicago five blocks away from Wrigley Field, and my friends and I love going to Cubs games. Finding tickets is always interesting, though, because every time we check prices, they’ve fluctuated a bit from the last time. Purchasing tickets six weeks in advance is always a different process than purchasing them six days prior — and even more sox pricing at the gate.

This is an example of dynamic pricing — pricing that varies based on market and customer demand. Prices for Cubs games are always more expensive on holidays, too, when more people are visiting the city and are likely to go to a game.

(Another prime example of dynamic pricing is INBOUND , for which tickets get more expensive as the event nears.)

2. Freemium Pricing Strategy: HubSpot

HubSpot is an example of freemium pricing at work. There's a free version of the CRM for scaling businesses as well as paid plans for the businesses using the CRM platform that need a wider range of features .

Moreover, within those marketing tools, HubSpot provides limited access to specific features. This type of pricing strategy allows customers to acquaint themselves with HubSpot and for HubSpot to establish trust with customers before asking them to pay for additional access.

3. Penetration Pricing Strategy: Netflix

Netflix is a classic example of penetration pricing : entering the market at a low price (does anyone remember when it was $7.99?) and increasing prices over time. Since I joined a couple of years ago, I’ve seen a few price increase notices come through my own inbox.

Despite their increases, Netflix continues to retain — and gain — customers. Sure, Netflix only increases their subscription fee by $1 or $2 each time, but they do so consistently. Who knows what the fees will be in five or ten years?

4. Premium Pricing: AWAY

There are lots of examples of premium pricing strategies … Rolex, Tesla, Nike — you name it. One that I thought of immediately was AWAY luggage .

Does luggage need to be almost $500? I’d say no, especially since I recently purchased a two-piece Samsonite set for one-third the cost. However, AWAY has still been very successful even though they charge a high price for their luggage. This is because when you purchase AWAY, you’re purchasing an experience. The unique branding and the image AWAY portrays for customers make the value of the luggage match the purchase price.

5. Competitive Pricing Strategy: Shopify

Shopify is an ecommerce platform that helps businesses manage their stores and sell their products online. Shopify — which integrates with HubSpot — has a competitive pricing strategy.

There are a number of ecommerce software options on the market today — Shopify differentiates itself by the features they provide users and the price at which they offer them. They have three thoughtfully-priced versions of their product for customers to choose from with a number of customizable and flexible features.

With these extensive options tailored to any ecommerce business' needs, the cost of Shopify is highly competitive and is often the same as or lower than other ecommerce platforms on the market today.

6. Project-Based Pricing Strategy: Courtney Samuel Events

Anyone who's planned a wedding knows how costly they can be. I'm in the midst of planning my own, and I've found that the bundled, project-based fees are the easiest to manage. For example, my wedding coordinator Courtney charges one flat fee for her services. This pricing approach focuses on the value of the outcome (e.g., an organized and stressless wedding day) instead of the value of the time spent on calls, projects, or meetings.

Because vendors like Courtney typically deliver a variety of services — wedding planning, day-of coordination, physical meetings, etc. — in addition to spending time answering questions and providing thoughtful suggestions, a project-based fee better captures the value of her work. Project-based pricing is also helpful for clients and companies who'd rather pay a flat fee or monthly retainer than deal with tracked hours or weekly invoices.

7. Value-Based Pricing Strategy: INBOUND

While INBOUND doesn't leave the ultimate ticket price up to its attendees, it does provide a range of tickets from which customers can choose. By offering multiple ticket "levels," customers can choose what experience they want to have based on how they value the event.

INBOUND tickets change with time, however, meaning this pricing strategy could also be considered dynamic (like the Cubs example above). As the INBOUND event gets closer, tickets tend to rise in price.

8. Bundle Pricing: State Farm

State Farm is known for its tongue-in-cheek advertisements and its bundle deals for home and auto insurance. You can receive a quote on one or the other, but getting a quote on both can save you money on your premiums.

State Farm benefits from bundle pricing by selling more policies, and consumers benefit by paying less than they normally would if they used two different insurance providers for home and auto coverage.

9. Geographic Pricing: Gasoline

Gasoline is notorious for having a wide range of prices around the world, but even within the United States, prices can vary by several dollars depending on the state you live in. In California for example, gas prices have consistently hovered around $3 in the summer months for the past 10 years. On the other hand, gas prices in Indiana have been in the $2 range during the same time period. Laws, environmental factors, and production cost all influence the price of gasoline in California which causes the geographic disparity in the cost of the fuel.

Get Your Pricing Strategy Right

Thinking about everything that goes into pricing can make your head spin: competitors, production costs, customer demand, industry needs, profit margins … the list is endless. Thankfully, you don’t have to master all of these factors at once.

Simply sit down, calculate some numbers (like your COGS and profit goals), and figure out what’s most important for your business. Start with what you need, and this will help you pinpoint the right kind of pricing strategy to use.

More than anything, though, remember pricing is an iterative process. It’s highly unlikely that you’ll set the right prices right away — it might take a couple of tries (and lots of research), and that’s OK.

Editor's note: This post was originally published in March 2019 and has been updated for comprehensiveness.

Don't forget to share this post!

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Determine the best pricing strategy for your business with this free calculator.

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👀 Curious about the state of the restaurant industry? Get exclusive insights from our latest report 📖 →

Restaurant Menu Pricing Strategies, Tactics & Tips [& The Single Most Profitable Pricing Strategy Smart Operators Use to Drive Profits Through the Roof]

As an F&B manager in a large multi-outlet operation [or a hotel chain], you’re used to focusing on the cost side of things. Shaving a percentage point off food costs here… eking out a few extra pennies by tightening up inventory procedures… stomping out waste.

Every little bit adds up, right?

But… there’s another side to the restaurant profitability equation — menu pricing .

What is menu pricing?

Menu pricing is the process of assigning a sales price to your menu items. This process should use predetermined restaurant KPIs (revenue goals, costs and other data) to optimise pricing, with profit maximisation being the end goal.

Unfortunately, in its strive for efficiency and leanness, the restaurant industry is still sleeping on data-driven menu pricing. A vast majority of operators either follow the leader in their market or, worse, price on intuition… leaving oodles of money on the table.

But, there’s an upside to this haphazard approach. And that upside is that the road to profit maximisation that much easier for savvy operators… like yourself.

In this post, we’ll talk about F&B pricing strategies [i.e. how you set your prices with restaurant KPIs and other data in mind] and menu pricing tactics [i.e. how you make those choices work in day-to-day operation]. 

TABLE OF CONTENTS:

• Food cost percentage pricing

Cost plus markup pricing

Value-based pricing.

• Competition-based pricing
• Choosing the right menu model for your operation
• Menu engineering your way to healthy profit margins
• Why [sometimes] you MUST change your pricing
• Your bag of psychological menu-pricing tricks
• Experimenting with experiential offers — when & why
• 3 tips on menu pricing for ghost kitchens

Whether you’re putting together a brand new menu or updating menu pricing across your organisation, the following steps will help you do so confidently and accurately. The best part? You won’t be basing your prices on guesswork and hunches.

4 F&B Menu Pricing Strategies 

There are several different strategies you can opt for when setting your restaurant’s menu prices. 

However, only one strategy — the food cost percentage pricing strategy — puts you in the driver’s seat of your operation. Other strategies, such as competition and value-based, don’t give you the same level of control and manoeuvrability on your road to maximising profits. 

I’ll list out the pros and cons for each of these so you can make an informed decision. But first, let’s take a look at the one strategy that’s almost guaranteed to increase your restaurant’s profitability.

Food cost percentage pricing wins the day

This menu pricing strategy gives you the ultimate control over your operation.

You’re anchoring your prices to your ideal food cost percentage — the portion of sales you want to spend on ingredients and other raw materials. This number can vary wildly [between 15 to 35 per cent, depending on the type of restaurant operation you’re running], but you set it yourself. 

The better you control your food cost variance — keeping to your ideal percentage or even getting below it — the better your net profit.

Here’s how to set your prices with this in mind:

• Decide on your ideal food cost percentage — choose a percentage point that will work for you based on your revenue goals. Stay realistic — if you’re running a string of fine dining restaurants, setting ideal food costs at 25% is frustrating… and unattainable. But, setting them at 32% [as opposed to 35%] gives you something to work towards.
• Cost out your menu items — determine the cost of your ingredients for each item on the menu. For example, for a salmon sandwich, you would factor in the salmon cut, bread, dressing, spices, and every other ingredient. Then you’d drill down to that item’s ideal food cost, also called the portion cost.
• Calculate prices for menu items — the formula here is simple: PRICE = PORTION PRICE OF AN ITEM / IDEAL FOOD COST PERCENTAGE. For demo purposes, let’s say your ideal food cost target is 31%, and your portion cost is $7.50. The recommended price would come out to $24.20 [Price $24.20 = Portion Cost $7.50 / Ideal Food Cost Percentage 0.31]. An expensive sandwich? Sure. But it’s priced just right.

When using this strategy, you need to dial in your menu costing first and keep your food cost variance at a minimum, or you won’t hit your target.

But don’t worry — instead of frantically crunching up the numbers every day to see if anything’s changed on the cost side of things, you can use Apicbase. Once set up, Apicbase can keep tabs on the cost of every item that leaves your kitchen in real-time. And when major fluctuations happen — such as market price hikes or vendors changing their pricing or packaging — the system will warn you so you can adjust your course-correct without taking a major hit.

Recommended reading: Restaurant Menu Costing — Automating Recipe Calculations with Apicbase

With this method, you’re adding a markup to your Cost of Goods Sold. It’s straightforward, which is why a lot of operators use it. The idea is for the markup to cover your direct costs [like food costs and labour costs] and indirect costs and overhead expenses, and what’s left after is your net profit.

With this pricing strategy, you tie your prices to the value you provide, without necessarily looking at the cost side of the equation. This is primarily a high-end strategy reserved for fine-dining restaurants and premium hotel chains. Value-based pricing hinges on three things: strong marketing pull [Michelin stars, brand name, premium location], an exceptional experience, and access to the right customer base.

Competition-based pricing…

… is also dubbed ‘the lazy operator’s shortcut to restaurant menu pricing’. Execution is simple — get your hands on 10 menus from competitors near your locations, and use their numbers to formulate your prices. Not the most accurate of pricing strategies, but still relatively on point provided your competitors run a similar type of restaurant.

[COB] Get #1 Back of House Software : Manage Recipes, Purchasing, Inventory and Analytics All in One Place. Apicbase gives your teams the tools and data to reduce food costs and drive operational excellence across your restaurants.

5 Menu Pricing Tactics You Can Use to Drive Profitability

Now that you’ve decided on how you’re going to price your food menus, it’s time to pick up some tools that will help you: 

• ‘sell’ those prices to your customer, and 
• absorb any cost-side turbulence you run into.

Here are 5 restaurant menu pricing tactics that will serve you well in both those cases.

#1 Pick the right menu model for your operation

There are several different ways you can present your physical and/or digital menus. Depending on your goals and pricing strategy, you’ll want to make sure you choose the right one. Some of your options include promotion-based, upscale, limited, prix fixe, and menus organised by cuisine.

Figure out what’s most in line with what your brand stands for, and ensure that your menu design communicates that. For example, an upscale minimalistic menu is a right choice for a fine-dining establishment. For a fast-casual chain, you can’t go wrong with a promotion-heavy menu design.

#2 Use menu engineering to offset ingredient price fluctuations… 

There’s nothing in the ‘running a restaurant operation’ rulebook that says you can’t change your prices every day. You can. Equally true, though, is that your customers can just choose to dine somewhere else if you pull the rug from under them too often.

To avoid giving people a whiplash injury every time they check the menu, play the ingredient balancing game called menu engineering. Mix higher-priced mains with cheap-to-make appetisers, side dishes, and desserts. When the price of prime meat cuts, fish, or poultry goes up, you won’t take a brutal hit because the other ingredients will keep the average cost palatable. 

#3 … But don’t be afraid to re-evaluate your pricing as needed

I’m knowingly putting my foot in my mouth here, but…

… sometimes, you’re left with no choice but to adjust your selling prices. 

While an increase in CoGS often comes down to excessive food waste or poor portion control [things that you can influence], this isn’t always true. When your menu cost is affected by outside things such as market fluctuations and vendor price hacks, a price change is often the only option left.

Word of advice here — stick to competitive and reasonable prices. Also, if your customer base is mostly regulars,  have your servers explain the reason behind menu price changes.

#4 Leverage pricing design psychology

There are many menu psychology ‘tricks’ you can use when creating menu layouts — tricks that can complement your F&B pricing strategy and net you more sales. I won’t list all of them, but here are a few that will work regardless of the type of your F&B operation:

• Use price anchoring — add a few higher-priced dishes to your menu. Their hefty price will make everything else on there look like a sweet deal in comparison.
• Nest prices behind each menu item — add an item’s menu price in brackets right after the description. That way, the focus is on the food and the experience. Avoid trailing dash lines because they shift the focus from the food to the price tag.
• Use the golden triangle placement method — top left, middle, and bottom right are your menu’s sweet spots. It’s where you want to place all your highly profitable items because those are the places where people’s eyes go when they crack open a menu.
• Limit choices — ever heard of analysis paralysis? It’s that thing most people suffer from when faced with an abundance of choices. Nip it in the bud by focusing your offer and limiting to it 15 – 20 items. There’s one big caveat to this, though — people expect fast-casual restaurants to have a huge selection, so keep that in mind.
• ‘Humanise’ your menu items — use dish naming conventions and descriptions to make people feel something… to remember something. Studies show that customers will often go for a slice of ‘Grandma Alice’s Apple Pie’ even if they think it’s not going to be nearly as good as the ‘Tinned Peach Souffle with Ganache Filling’. Tap into that sentimentality

Your best bet here is partnering with a pricing psychology expert. Getting someone on board for even two hours could save you from costly menu design mistakes, especially in a multi-unit operation.

#5 Experiment with experiential offers

Some of your most expensive menu items might be an integral part of your offer — the thing you’re known for — but still be a tough sell. If you make a business decision to keep them, add a twist by turning them into an experience. Perhaps they come with a built-in sommelier? Tickets to an adjacent nightclub you run? Or happy hour prices at the bar? Add-ons like these can turn menu mysteries into menu starts by making the final price seem more palatable.

Tips on Menu Pricing for Ghost Kitchens

If you’re a ghost kitchen operator, your pricing is a different ballgame. You’ll find many tips on running a profitable ghost kitchen in this post on menu engineering for delivery app orders . But, I still want to leave you with 3 pricing tips that might tip the scales in your favour… especially now that the ghost kitchen landscape is rapidly shifting.

• Adjust pricing to offset delivery costs — while there’s good value in using food aggregator apps, it’s still true that most of them eat 20 to 30 per cent into your bottom line. Delivery is a service, so you should think about adjusting your base price to absorb some of that additional cost. Around 5 to 10 per cent is a good amount since that is still less than what the customer would tip had they gone out to eat.
• Create multiple virtual brands — this makes it easier to compete on price with other venues offering similar items. You can price anchor your sandwiches without that beef Stroganoff looking ridiculous on the list. Another upside of having multiple virtual brands is that you automatically increase your discoverability on apps such as Uber Eats and Deliveroo.
• Adopt the ‘good-better-best’ pricing method — unbundle your food menus when listing them. For example, let’s say you offer a sandwich with a side of fries and a soft drink. Your first tier offer is only the sandwich. The next step up is adding the fries for a small surcharge. And the third tier offer is sandwich + fries + drink. This way, the customers can choose the right deal for them… without checking out your competition.

Recommended reading: 6 Different Types of Ghost Kitchen Restaurants

Fix More Than Menu Pricing with Apicbase

Not having the ‘just right’ menu pricing strategy will rarely sink an F&B operation.

That extra 0.5 to 2 per cent in net profit that is lost? A few restaurants might go under because of it, but most will carry on, oblivious to the money they’re leaving on the table.

You don’t want to be in the oblivious group.

Those few percentage points could mean the difference between raising salaries for your staff… expanding to a new market… or finally pulling the trigger and turning your brand into a franchise.

Take menu pricing as seriously as you take cost control.

And if you want help with that — or any other facet of running your restaurant business — Apicabase is the only all-in-one platform for an airtight back-of-house.

Check out Apicbase modules here , and then set up your demo to see how we can make your job easier.

Free Resources

• Guide: How To Franchise A Restaurant — Step By Step Playbook
• Guide: Ultimate Guide to Digital Transformation in F&B
• Template: Food Cost Calculator
• Template: Free Menu Engineering Worksheet For Excel & Google Sheets
• Webinar: Data In Restaurants – Build Up Competitive Advantage By Reducing Change Deficit

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How to Write a Restaurant Business Plan

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

When starting a business—no matter what type of business that may be—a business plan is essential to map out your intentions and direction. That’s the same for a restaurant business plan, which will help you figure out where you fit in the landscape, how you’re going to differ from other establishments around you, how you’ll market your business, and even what you’re going to serve. A business plan for your restaurant can also help you later if you choose to apply for a business loan .

While opening a restaurant isn’t as risky as you’ve likely heard, you still want to ensure that you’re putting thought and research into your business venture to set it up for success. And that’s where a restaurant business plan comes in.

We’ll go through how to create a business plan for a restaurant and a few reasons why it’s so important. After you review the categories and the restaurant business plan examples, you can use the categories to make a restaurant business plan template and start your journey.

Why you shouldn’t skip a restaurant business plan

First-time restaurateurs and industry veterans alike all need to create a business plan when opening a new restaurant . That’s because, even if you deeply understand your business and its nuances (say, seasonal menu planning or how to order correct quantities), a restaurant is more than its operations. There’s marketing, financing, the competitive landscape, and more—and each of these things is unique to each door you open.

That’s why it’s so crucial to understand how to create a business plan for a restaurant. All of these things and more will be addressed in the document—which should run about 20 or 30 pages—so you’ll not only have a go-to-market strategy, but you’ll also likely figure out some things about your business that you haven’t even thought of yet.

Additionally, if you’re planning to apply for business funding down the line, some loans—including the highly desirable SBA loan —actually require you to submit your business plan to gain approval. In other words: Don’t skip this step!

How much do you need?

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

How to write a restaurant business plan: Step by step

There’s no absolute format for a restaurant business plan that you can’t stray from—some of these sections might be more important than others, for example, or you might find that there’s a logical order that makes more sense than the one in the restaurant business plan example below. However, this business plan outline will serve as a good foundation, and you can use it as a restaurant business plan template for when you write your own.

Executive summary

Your executive summary is one to two pages that kick off your business plan and explain your vision. Even though this might seem like an introduction that no one will read, that isn’t the case. In fact, some investors only ask for the executive summary. So, you’ll want to spend a lot of time perfecting it.

Your restaurant business plan executive summary should include information on:

Mission statement: Your goals and objectives

General company information: Include your founding date, team roles (i.e. executive chef, sous chefs, sommeliers), and locations

Category and offerings: What category your restaurant fits into, what you’re planning to serve (i.e. farm-to-table or Korean), and why

Context for success: Any past success you’ve had, or any current financial data that’ll support that you are on the path to success

Financial requests: If you’re searching for investment or financing, include your plans and goals here and any financing you’ve raised or borrowed thus far

Future plans: Your vision for where you’re going in the next year, three years, and five years

When you’re done with your executive summary, you should feel like you’ve provided a bird’s eye view of your entire business plan. In fact, even though this section is first, you will likely write it last so you can take the highlights from each of the subsequent sections.

And once you’re done, read it on its own: Does it give a comprehensive, high-level overview of your restaurant, its current state, and your vision for the future? Remember, this may be the only part of your business plan potential investors or partners will read, so it should be able to stand on its own and be interesting enough to make them want to read the rest of your plan.

Company overview

This is where you’ll dive into the specifics of your company, detailing the kind of restaurant you’re looking to create, who’s helping you do it, and how you’re prepared to accomplish it.

Your restaurant business plan company overview should include:

Purpose: The type of restaurant you’re opening (fine dining, fast-casual, pop-up, etc.), type of food you’re serving, goals you have, and the niche you hope to fill in the market

Area: Information on the area in which you’re opening

Customers: Whom you’re hoping to target, their demographic information

Legal structure: Your business entity (i.e. LLC, LLP, etc.) and how many owners you have

Similar to your executive summary, you won’t be going into major detail here as the sections below will get into the nitty-gritty. You’ll want to look at this as an extended tear sheet that gives someone a good grip on your restaurant or concept, where it fits into the market, and why you’re starting it.

Team and management

Barely anything is as important for a restaurant as the team that runs it. You’ll want to create a section dedicated to the members of your staff—even the ones that aren’t yet hired. This will provide a sense of who is taking care of what, and how you need to structure and build out the team to get your restaurant operating at full steam.

Your restaurant business plan team and management section should have:

Management overview: Who is running the restaurant, what their experience and qualifications are, and what duties they’ll be responsible for

Staff: Other employees you’ve brought on and their bios, as well as other spots you anticipate needing to hire for

Ownership percentage: Which individuals own what percentage of the restaurant, or if you are an employee-owned establishment

Be sure to update this section with more information as your business changes and you continue to share this business plan—especially because who is on your team will change both your business and the way people look at it.

Sample menu

You’ll also want to include a sample menu in your restaurant business plan so readers have a sense of what they can expect from your operations, as well as what your diners can expect from you when they sit down. This will also force you to consider exactly what you want to serve your diners and how your menu will stand out from similar restaurants in the area. Although a sample menu is in some ways self-explanatory, consider the following:

Service : If your brunch is as important as your dinner, provide both menus; you also might want to consider including both a-la-carte and prix fixe menus if you plan to offer them.

Beverage/wine service: If you’ll have an emphasis on specialty beverages or wine, a separate drinks list could be important.

Seasonality: If you’re a highly seasonal restaurant, you might want to consider providing menus for multiple seasons to demonstrate how your dishes (and subsequent purchasing) will change.

Market analysis

This is where you’ll begin to dive deeper. Although you’ve likely mentioned your market and the whitespace you hope to address, the market analysis section will enable you to prove your hypotheses.

Your restaurant business plan market analysis should include:

Industry information: Include a description of the restaurant industry, its size, growth trends, and other trends regarding things such as tastes, trends, demographics, structures, etc.

Target market: Zoom in on the area and neighborhood in which you’re opening your restaurant as well as the type of cuisine you’re serving.

Target market characteristics: Describe your customers and their needs, how/if their needs are currently being served, other important pieces about your specific location and customers.

Target market size and growth: Include a data-driven section on the size of your market, trends in its growth, how your target market fits into the industry as a whole, projected growth of your market, etc.

Market share potential: Share how much potential there is in the market, how much your presence will change the market, and how much your specific restaurant or restaurant locations can own of the open market; also touch on any barriers to growth or entry you might see.

Market pricing: Explain how you’ll be pricing your menu and where you’ll fall relative to your competitors or other restaurants in the market.

Competitive research: Include research on your closest competitors, how they are both succeeding and failing, how customers view them, etc.

If this section seems like it might be long, it should—it’s going to outline one of the most important parts of your strategy, and should feel comprehensive. Lack of demand is the number one reason why new businesses fail, so the goal of this section should be to prove that there is demand for your restaurant and show how you’ll capitalize on it.

Additionally, if market research isn’t your forte, don’t be shy to reach out to market research experts to help you compile the data, or at least read deeply on how to conduct effective research.

Marketing and sales

Your marketing and sales section should feel like a logical extension of your market analysis section, since all of the decisions you’ll make in this section should follow the data of the prior section.

The marketing and sales sections of your restaurant business plan should include:

Positioning: How you’ll describe your restaurant to potential customers, the brand identity and visuals you’ll use to do it, and how you’ll stand out in the market based on the brand you’re building

Promotion: The tools, tactics, and platforms you’ll use to market your business

Sales: How you’ll convert on certain items, and who/how you will facilitate any additional revenue streams (i.e. catering)

It’s likely that you’ll only have concepts for some of these elements, especially if you’re not yet open. Still, get to paper all of the ideas you have, and you can (and should) always update them later as your restaurant business becomes more fully formed.

Business operations

The business operations section should get to the heart of how you plan to run your business. It will highlight both internal factors as well as external forces that will dictate how you run the ship.

The business operations section should include:

Management team: Your management structure and hierarchy, and who is responsible for what

Hours: Your hours and days of operation

Location: What’s special about your location that will get people through the door

Relationships: Any advantageous relationships you have with fellow restaurateurs, places for sourcing and buying, business organizations, or consultants on your team

Add here anything you think could be helpful for illustrating how you’re going to do business and what will affect it.

Here, you’ll detail the current state of your business finances and project where you hope to be in a year, three years, and five years. You’ll want to detail what you’ve spent, what you will spend, where you’ll get the money, costs you might incur, and returns you’ll hope to see—including when you can expect to break even and turn a profit.

Financial statements: If you’ve been in business for any amount of time, include existing financial statements (i.e. profit and loss, balance sheet, cash flow, etc.)

Budget: Your current budget or a general startup budget

Projections: Include revenue, cash flow, projected profit and loss, and other costs

Debt: Include liabilities if the business has any outstanding debt or loans

Funding request: If you’re requesting a loan or an investment, lay out how much capital you’re looking for, your company’s valuation (if applicable), and the purpose of the funding

Above all, as you’re putting your financials together, be realistic—even conservative. You want to give any potential investors a realistic picture of your business.

Feel like there are other important components but they don't quite fit in any of the other categories (or make them run too long)? That’s what the restaurant business plan appendix section is for. And although in, say, a book, an appendix can feel like an afterthought, don’t ignore it—this is another opportunity for you to include crucial information that can give anyone reading your plan some context. You may include additional data, graphs, marketing collateral (like logo mockups), and more.

Start Your Dream Business

The bottom line

Whether you’re writing a restaurant business plan for investors, lenders, or simply for yourself and your team, the most important thing to do is make sure your document is comprehensive. A good business plan for a restaurant will take time—and maybe a little sweat—to complete fully and correctly.

One other crucial thing to remember: a business plan is not a document set in stone. You should often look to it to make sure you’re keeping your vision and mission on track, but you should also feel prepared to update its components as you learn more about your business and individual restaurant.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

On a similar note...

Restaurant Food Pricing Strategies

• Small Business
• Business Planning & Strategy
• Pricing Strategy
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Ice Cream Pricing Strategy

How to increase business at a small town bar & grill, important financial reports for a restaurant business.

• Food Pricing Strategies
• How Restaurant Branding Affects Business

All of these factors will not only inform the menu pricing strategies you should go for but also what kind of profit margin would make the most sense.

The Cost-Plus Pricing Strategy

the profit margin is then added on top, based on what the restaurant considers a reasonable profit.

Include Everything in Profit

appropriate profit percentage should be over the overheads.

is going to survive.

as well as ensured a healthy profit margin to take care of other things.

Make Considerations for Market Fluctuations

a bit of a dilemma. How do you keep the price of the end product stable when the prices of its raw materials are constantly changing like the tides?

be able to absorb the unfortunate fluctuations while still giving you a profit, no matter how small. The idea is to set your restaurant menu prices such that your restaurant never goes at a loss so big as to warrant the closing down of the restaurant.

Consider Your Clientele

employ . As a restaurant owner, it is your responsibility to know which type of customer likes to frequent your restaurant.

giving that avatar a name and trying to guess what type of school they went to.

Get detailed here. The more detailed the picture you can draw of your avatar, the better your ability to fine tune your restaurant’s products and services to cater to that avatar. You will know how to structure your marketing strategy to appeal to them most. You will also know how to price your menu based on the avatar you have drawn up.

Fast Food Example

fast food restaurant are probably trying to look for a cheap place to eat where they won’t have to spend a lot of money. That means you cannot have the same prices as a fancy restaurant.

Triple Pricing Strategies

no more than a hamburger, the better a hamburger, fries, and a salad, while the best option would be all the three plus a large soda and dessert.

How to Capitalize on Triple Pricing 

quite often the case that the mid-priced option sells the most while the others sell less, so it would be a good idea to make the profit margin on the mid-priced option the greatest to capitalize on that.

bestseller , the expensive option is still a good idea to have. It allows the restaurant to capitalize on those that have money to spend on something more. As a restaurant owner, you don’t want to miss out on that option, because there will always be a customer who favors the best option.

would be required to buy the mid-priced option or a more expensive choice. Typically, these are customers who want to buy a quick bite to have on their way or these are younger customers who just want a simple lunch. The cheapest option also works as a prop: it makes the other options look attractive, in comparison. It builds the case for the others, so to speak.

• Cleverism: https://www.cleverism.com/pricing-four-ps-marketing-mix/
• Upserve: Menu Pricing Strategies You Need To Know About
• Gourmet Marketing: Costing and Pricing Food in the Restaurant Industry
• Buzztime: 12 Smartest Bar and Restaurant Pricing Strategies
• Toast Tab: How To Create A Restaurant Menu Pricing Strategy in 5 Steps

Nicky is a business writer with nearly two decades of hands-on and publishing experience. She's been published in several business publications, including The Employment Times, Web Hosting Sun and WOW! Women on Writing. She also studied business in college.

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pricing strategy for restaurant

When it comes to running a successful restaurant, having a well-defined pricing strategy is crucial.Pricing plays a significant role in attracting customers, maximizing profits, and ensuring the sustainability of your business.

Melba: restaurant management software

Discover how to optimize the management of your restaurant with melba

When it comes to running a successful restaurant, having a well-defined pricing strategy is crucial. Pricing plays a significant role in attracting customers, maximizing profits, and ensuring the sustainability of your business. In this article, we will explore some effective pricing strategies that restaurant owners can implement to achieve their goals.

Understanding the Basics

Before diving into specific pricing strategies, it's essential to understand a few fundamental concepts.

Cost-Based Pricing

Cost-based pricing is a straightforward approach that involves calculating the cost of producing a dish and adding a desired profit margin. This method ensures that you cover your expenses and generate a reasonable profit. However, it's crucial to consider market demand and competitor pricing to ensure your prices align with customer expectations.

Value-Based Pricing

Value-based pricing focuses on the perceived value of your offerings to customers. This approach involves setting prices based on what customers are willing to pay for the quality, experience, and unique aspects of your restaurant. By emphasizing the value you provide, you can justify higher prices and attract customers who appreciate what you offer.

Effective Pricing Strategies

1. menu engineering.

Menu engineering is a strategic approach to pricing that involves analyzing your menu items based on their popularity and profitability. By categorizing dishes into different segments, such as stars, puzzles, plow horses, and dogs, you can determine the pricing strategy for each category. Popular and profitable dishes can have higher prices, while items that need promotion or improvement can be priced more competitively.

2. Bundle Pricing

Bundle pricing involves offering meal packages or combos at a discounted price compared to purchasing items individually. This strategy encourages customers to try multiple dishes and increases the perceived value of their dining experience. By strategically bundling complementary items or creating special offers, you can boost sales and encourage upselling.

3. Dynamic Pricing

Dynamic pricing is a flexible approach that allows you to adjust prices based on various factors, such as demand, time of day, seasonality, or special events. For example, you can offer lower prices during off-peak hours to attract more customers or increase prices during busy periods. By leveraging technology, such as online reservation systems, you can implement dynamic pricing effectively.

Optimizing Your Pricing Strategy

1. analyze competitor pricing.

Regularly monitor and analyze the pricing strategies of your competitors. This will help you understand the market dynamics and ensure that your prices remain competitive. However, avoid engaging in price wars as it can negatively impact profitability. Instead, focus on differentiating your restaurant through unique offerings and exceptional customer experiences.

2. Conduct Customer Surveys

Gather feedback from your customers through surveys or comment cards to understand their perceptions of your pricing. Ask specific questions about price-value relationships, overall satisfaction, and suggestions for improvement. Use this information to make informed pricing decisions and address any concerns or misconceptions.

3. Monitor Financial Performance

Regularly review your financial performance to evaluate the effectiveness of your pricing strategy. Analyze sales data, profit margins, and revenue trends to identify areas for improvement. Consider investing in restaurant management software that provides detailed reports and analytics to facilitate data-driven decision-making.

Implementing an effective pricing strategy is vital for the success of your restaurant. By understanding the basics of cost-based and value-based pricing, you can choose the approach that aligns with your business goals. Utilizing strategies such as menu engineering, bundle pricing, and dynamic pricing can help optimize your prices to attract customers, maximize profitability, and ensure long-term sustainability.

Remember, adjusting your pricing strategy is an ongoing process. Regularly review and adapt your prices based on market dynamics, customer feedback, and financial performance to stay competitive in the ever-changing restaurant industry.

Take back control over your kitchen

Plan to take your UAE-based business global? These tax strategies will help

When it comes to expanding globally from a UAE base, the complexity of tax regulations across different jurisdictions can pose significant hurdles

In today’s interconnected world, businesses have unprecedented access to international markets. Companies of all sizes can now venture beyond their domestic borders, opening up new avenues for revenue generation and growth opportunities.

However, when it comes to expanding globally from a UAE base, the complexity of tax regulations across different jurisdictions can pose significant hurdles.

Navigating varying corporate tax rates, understanding and complying with local tax laws, and managing the risk of double taxation are all essential to avoid legal pitfalls and unnecessary tax burdens.

So, how can UAE-based businesses manage these tax challenges to unlock the full potential of international markets?

Setting the foundation with corporate domicile

A fundamental step in this process is understanding the concept of corporate domicile, which plays a pivotal role in determining a company’s tax obligations. For UAE-based companies, this is particularly significant.

The UAE offers a favourable tax environment with minimal corporate taxes and strategic tax grouping provisions, making it an attractive hub for businesses aiming to expand globally.

Corporate domicile essentially determines where a company is considered to reside for tax purposes. For businesses in the UAE, achieving the status of a resident entity involves being effectively managed and controlled within the country. This distinction opens the door to substantial tax advantages.

Notably, foreign companies that have significant shareholdings in UAE entities and meet specific residency criteria outlined in the UAE’s corporate tax law can benefit immensely. Such criteria include having UAE residents as directors and key decision-makers and allowing these foreign companies to form a tax group with their UAE subsidiaries. This not only simplifies the tax reporting process but also maximises the benefits stemming from the UAE’s tax-efficient framework.

By laying this groundwork, you can navigate the initial stages of international expansion more effectively, setting the stage for a deeper exploration of tax planning and leveraging international agreements.

Leveraging double tax agreements

The UAE stands out for its tax-friendly regime. Unlike many other countries, it imposes minimal corporate taxes and offers a relatively straightforward tax framework, making it a good choice as an operational base or headquarters. However, ensuring that these benefits extend to your business operations abroad requires an understanding of how the country’s double taxation policies work and how they can be used to your advantage.

The UAE has established double taxation treaties (DTTs) with over a hundred countries worldwide, designed to prevent the same income from being taxed by two different jurisdictions. However, each DTA is unique, with specific provisions regarding the types of income covered and the methods for avoiding double taxation so it’s essential to understand the details of the agreements with countries where you plan to do business.

By structuring investments through jurisdictions that have favourable DTAs with both the UAE and the destination country, or establishing subsidiaries in a manner that leverages benefits offered by DTAs, you can reduce or even eliminate your tax liability on foreign income.

Many multinational corporations operating in the UAE have used this strategy to good effect. Several tech giants and pharmaceutical companies allocate profits to subsidiaries in countries with favourable tax rates. This legal strategy, known as profit shifting, involves setting up operations or intellectual property holdings in these jurisdictions to minimise overall tax liability.

Restructuring supply chains is another way to take advantage of favourable DTAs.

For instance, a company might establish a logistics base in the UAE to serve markets where the UAE has beneficial DTAs, reducing withholding taxes on dividends and interest income from foreign subsidiaries. This can significantly lower the overall tax burden on repatriated profits.

Transfer pricing

Effective transfer pricing strategies are another powerful tool for tax optimisation, enabling businesses to allocate income and expenses in a manner that reflects economic reality while minimising tax liabilities across jurisdictions.

However, this requires a nuanced understanding of the rules and regulations in each country of operation and the ability to document and justify transfer pricing practices to tax authorities.

Given its potential impact on taxable income, transfer pricing is under intense scrutiny from tax authorities worldwide, so adhering to international guidelines, such as those set by the OECD, is essential for you to ensure that your policies are defensible and align with the “arm’s length” principle.

Practically implementing these strategies involves conducting comprehensive transfer pricing studies and maintaining detailed documentation to support your pricing policies. For instance, a UAE-based electronics manufacturer with components sourced from its subsidiary in Malaysia might use a transfer pricing study to set the purchase price of components at market value, ensuring compliance with the arm’s length principle while simultaneously optimising its tax position across both jurisdictions.

Leveraging IP holding structures

Being smart about where you “store” your business’ intellectual property (IP) is also crucial. Considering that IP is not just a legal asset but a significant contributor to a company’s value, managing it wisely is key to optimising tax benefits and protecting against competitive threats.

By establishing a holding company in the UAE and transferring ownership of your intellectual assets to this entity, you can not only leverage the UAE’s tax and legal benefits, potentially reducing taxes on income generated from these assets, but also maximise their value globally.

It’s about considering the rules of different places and using them to benefit your business the most.

In practice, for a tech company, for example, this could mean significant savings on taxes from software licencing fees collected from global customers, or for a manufacturing company, it could protect and efficiently tax the use of patented technologies.

As a UAE-based business reaching across borders, understanding and adhering to the varied legal and tax landscapes of the different jurisdictions you operate in should be a crucial part of your expansion strategy. Compliance is key not only to ensure the smooth operation of international activities but also to avoid potential pitfalls that could lead to financial penalties or legal challenges.

Each country has its unique set of tax laws and regulations, which can change frequently and misunderstanding these laws can result in non-compliance, leading to fines or legal issues. For instance, what qualifies as a deductible expense in one country may not be in another. It’s therefore essential that before entering a new market, you conduct comprehensive research into its tax laws and regulations to understand the tax implications of your particular business structure and operations.

  Different jurisdictions may also have varied reporting requirements, deadlines, and formats so it’s important to stay updated on any changes in the jurisdictions where you operate, regularly review your tax strategies and engage local tax advisors or legal experts who understand the intricacies of tax systems in different countries.

Practical considerations and next steps

It’s important to look at the big picture. How does setting up a subsidiary influence your transfer pricing strategies? Can the way you manage your IP assets in the UAE enhance your global competitiveness? These considerations should work in tandem, informing each decision you make as you venture into new markets.

Since the landscape of international tax is ever-evolving, with regulations that can vary wildly from one jurisdiction to the next, engaging with tax professionals is essential.

The right advisors can offer insights and strategies tailored to your business’s unique situation, ensuring that your international expansion maximises your business’ value and sustainability in the long term.

The writer is the director of Legal and Compliance at the Knightsbridge Group.

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California fast-food workers will get $20 minimum wage, starting Monday

Vanessa Romo

Alina Selyukh

A McDonald's worker hands food to a customer at a drive-thru window in Los Angeles, on Sept. 28. Damian Dovarganes/AP hide caption

A McDonald's worker hands food to a customer at a drive-thru window in Los Angeles, on Sept. 28.

California fast-food workers cooking Big Macs or whipping Frappuccinos will start making a minimum wage of $20 an hour on Monday. For many, this means a 25% raise.

The new state minimum uniquely focuses on a particular segment, fast food, affecting some of the country's biggest chains, including McDonald's, Starbucks, Subway and Pizza Hut.

It's a big win for cooks, cashiers and other fast-food workers – some of the lowest-paid jobs in the U.S. – whose wages have been growing at a faster clip since the pandemic, after decades of stagnation.

California is one of the country's most expensive states; about half a million people are estimated to work in fast food here, mostly women, immigrants and people of color. Many live below the poverty line.

Uber and Lyft threaten to halt operations in Minneapolis over minimum wage law

Sandra Jauregui from Sacramento is counting down the days to her first bigger paycheck in two weeks. After 18 years working at several Jack in the Box franchises, her pay will jump from $17.50 to $20. That means she could be bringing home another $120 each paycheck.

"It's super great," says Jauregui, 52, speaking in Spanish. "At the very least it'll give me some breathing room ... and make it easier to pay the rent and other bills."

Chipotle, McDonald's warn of price hikes, less work

But the dramatic pay raise has also touched off a heated debate about the impact on local businesses. Smaller franchise restaurant owners warn they'll have to raise prices, reduce worker's hours, cut jobs or even close shop.

California's pay hike is a result of a contentious deal struck by labor leaders, including the large Service Employees International Union, and fast-food companies last year. The new wage law applies to fast-food chains with at least 60 locations nationwide, with exemptions for some bakeries and smaller fast-food outposts inside grocery stores, airports and other venues.

Several fast-food executives have suggested prices would go up 2.5% to 3.5% to offset higher wages; Jack in the Box, Starbucks, McDonald's and Chipotle have all warned of upcoming price hikes. That's on top of price increases many restaurants have been rolling out for months. The cost of eating out has stubbornly inched higher even as inflation has cooled elsewhere .

Other chains plan to speed up their use of automation, including kiosks and robots. A major Pizza Hut franchisee cited the wage hike as the reason for layoffs of more than 1,000 delivery drivers this year, in a switch to apps like Uber Eats and DoorDash that pushes more delivery fees onto shoppers.

One big Pizza Hut franchisee in California cited the upcoming wage hike as a reason for laying off more than 1,000 delivery drivers in a shift to delivery apps like Uber Eats and DoorDash. Justin Sullivan/Getty Images hide caption

One big Pizza Hut franchisee in California cited the upcoming wage hike as a reason for laying off more than 1,000 delivery drivers in a shift to delivery apps like Uber Eats and DoorDash.

Franchisees weigh cuts to workers' hours

Many restaurant owners expect workers to be working fewer hours. That was the main side-effect a decade ago, when Seattle hiked its minimum wage to $15, research suggests .

"I am used to being a champion of labor and I'm in this odd position," says Michaela Mendelsohn, a longtime advocate for LGBT workers and also owner of six El Pollo Loco restaurants with about 170 employees.

Her restaurants lost shoppers after a pre-emptive price increase in February, she says. Now, the focus is on cutting costs by simplifying operations, changing how long it takes workers to make sauces, for example, or to close up for the night.

Minimum-wage workers in 22 states will be getting raises on Jan. 1

"We're having to get more efficient," Mendelsohn says. "So really what's left is ... to reduce labor hours. And I hate saying that."

In recent years, the battle for higher minimum wages has increasingly played out at the city, county and state levels as the federal minimum wallows at $7.25 an hour .

Broadly, California often sets the bar for many business decisions that other states later follow. Advocates hope something similar will happen with fast-food pay – spreading to other industries in the state and across the country.

California's minimum previously rose to $16 an hour on Jan. 1.

Workers are thrilled, but also anxious

Employers' warnings have left many workers with mixed feelings about the raise, despite the potential for extra spending power.

The Jack in the Box worker Jauregui, 52, has been cobbling together two salaries, working about 54 hours a week between the restaurant and a laundromat.

She says she's always trying to save a bit to treat her grandchildren – she has custody of three of them – who are constantly growing out of clothes and shoes. And although she marched alongside fellow SEIU members to win the wage increase, she is fearful of the downside.

These millionaires want to tax the rich, and they're lobbying working-class voters

"My boss told me that he won't reduce my hours but that he will cut others' hours," Jauregui said.

All this makes California's wage hike a high-profile case study for how exactly a higher minimum wage reverberates through the local economy.

"This policy is going to be really different in different parts of California," says Jacob Vigdor, professor of public policy and governance at the University of Washington, who has studied the effects of Seattle's 2014 minimum wage hike.

The research found that after the minimum wage rose from $9.47 to $13 – in the early years of the Fight For $15 labor campaign – workers generally didn't lose jobs even though they did lose hours. And they ended up with higher pay.

"The restaurant business is a really tough business," Vigdor says. "Restaurants open and close all the time, even in places where the minimum wage hasn't changed for more than a decade. ... Generally speaking, we found that in the restaurant industry, businesses were able to find ways to adapt to higher wage costs."

KQED's Farida Jhabvala Romero contributed to this report.

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Ronna McDaniel, TV News and the Trump Problem

The former republican national committee chairwoman was hired by nbc and then let go after an outcry..

This transcript was created using speech recognition software. While it has been reviewed by human transcribers, it may contain errors. Please review the episode audio before quoting from this transcript and email [email protected] with any questions.

From “The New York Times,” I’m Michael Barbaro. This is “The Daily.”

[MUSIC PLAYING]

Today, the saga of Ronna McDaniel and NBC and what it reveals about the state of television news headed into the 2024 presidential race. Jim Rutenberg, a “Times” writer at large, is our guest.

It’s Monday, April 1.

Jim, NBC News just went through a very public, a very searing drama over the past week, that we wanted you to make sense of in your unique capacity as a longtime media and political reporter at “The Times.” This is your sweet spot. You were, I believe, born to dissect this story for us.

Oh, brother.

Well, on the one hand, this is a very small moment for a major network like NBC. They hire, as a contributor, not an anchor, not a correspondent, as a contributor, Ronna McDaniel, the former RNC chairwoman. It blows up in a mini scandal at the network.

But to me, it represents a much larger issue that’s been there since that moment Donald J. Trump took his shiny gold escalator down to announce his presidential run in 2015. This struggle by the news media to figure out, especially on television, how do we capture him, cover him for all of his lies, all the challenges he poses to Democratic norms, yet not alienate some 74, 75 million American voters who still follow him, still believe in him, and still want to hear his reality reflected in the news that they’re listening to?

Right. Which is about as gnarly a conundrum as anyone has ever dealt with in the news media.

Well, it’s proven so far unsolvable.

Well, let’s use the story of what actually happened with Ronna McDaniel and NBC to illustrate your point. And I think that means describing precisely what happened in this situation.

The story starts out so simply. It’s such a basic thing that television networks do. As elections get underway, they want people who will reflect the two parties.

They want talking heads. They want insiders. They want them on their payroll so they can rely on them whenever they need them. And they want them to be high level so they can speak with great knowledge about the two major candidates.

Right. And rather than needing to beg these people to come on their show at 6 o’clock, when they might be busy and it’s not their full-time job, they go off and they basically put them on retainer for a bunch of money.

Yeah. And in this case, here’s this perfect scenario because quite recently, Ronna McDaniel, the chairwoman of the Republican National Committee through the Trump era, most of it, is now out on the market. She’s actually recently been forced out of the party. And all the networks are interested because here’s the consummate insider from Trump world ready to get snatched up under contract for the next election and can really represent this movement that they’ve been trying to capture.

So NBC’S key news executives move pretty aggressively, pretty swiftly, and they sign her up for a $300,000 a year contributor’s contract.

Nice money if you can get it.

Not at millions of dollars that they pay their anchors, but a very nice contract. I’ll take it. You’ll take it. In the eyes of NBC execs she was perfect because she can be on “Meet the Press” as a panelist. She can help as they figure out some of their coverage. They have 24 hours a day to fill and here’s an official from the RNC. You can almost imagine the question that would be asked to her. It’s 10:00 PM on election night. Ronna, what are the Trump people thinking right now? They’re looking at the same numbers you are.

That was good, but that’s exactly it. And we all know it, right? This is television in our current era.

So last Friday, NBC makes what should be a routine announcement, but one they’re very proud of, that they’ve hired Ronna McDaniel. And in a statement, they say it couldn’t be a more important moment to have a voice like Ronna’s on the team. So all’s good, right? Except for there’s a fly in the ointment.

Because it turns out that Ronna McDaniel has been slated to appear on “Meet the Press,” not as a paid NBC contributor, but as a former recently ousted RNC chair with the “Meet The Press” host, Kristen Welker, who’s preparing to have a real tough interview with Ronna McDaniel. Because of course, Ronna McDaniel was chair of the party and at Trump’s side as he tried to refuse his election loss. So this was supposed to be a showdown interview.

From NBC News in Washington, the longest-running show in television history. This is “Meet The Press” with Kristen Welker.

And here, all of a sudden, Kristin Welker is thrown for a loop.

In full disclosure to our viewers, this interview was scheduled weeks before it was announced that McDaniel would become a paid NBC News contributor.

Because now, she’s actually interviewing a member of the family who’s on the same payroll.

Right. Suddenly, she’s interviewing a colleague.

This will be a news interview, and I was not involved in her hiring.

So what happens during the interview?

So Welker is prepared for a tough interview, and that’s exactly what she does.

Can you say, as you sit here today, did Joe Biden win the election fair and square?

He won. He’s the legitimate president.

Did he win fair and square?

Fair and square, he won. It’s certified. It’s done.

She presses her on the key question that a lot of Republicans get asked these days — do you accept Joe Biden was the winner of the election?

But, I do think, Kristen —

Ronna, why has it taken you until now to say that? Why has it taken you until now to be able to say that?

I’m going to push back a little.

McDaniel gets defensive at times.

Because I do think it’s fair to say there were problems in 2020. And to say that does not mean he’s not the legitimate president.

But, Ronna, when you say that, it suggests that there was something wrong with the election. And you know that the election was the most heavily scrutinized. Chris Krebs —

It’s a really combative interview.

I want to turn now to your actions in the aftermath of the 2020 election.

And Welker actually really does go deeply into McDaniel’s record in those weeks before January 6.

On November 17, you and Donald Trump were recorded pushing two Republican Michigan election officials not to certify the results of the election. And on the call —

For instance, she presses McDaniel on McDaniel’s role in an attempt to convince a couple county commissioner level canvassers in Michigan to not certify Biden’s victory.

Our call that night was to say, are you OK? Vote your conscience. Not pushing them to do anything.

McDaniel says, look, I was just telling them to vote their conscience. They should do whatever they think is right.

But you said, do not sign it. If you can go home tonight, do not sign it. How can people read that as anything other than a pressure campaign?

And Welker’s not going to just let her off the hook. Welker presses her on Trump’s own comments about January 6 and Trump’s efforts recently to gloss over some of the violence, and to say that those who have been arrested, he’ll free them.

Do you support that?

I want to be very clear. The violence that happened on January 6 is unacceptable.

And this is a frankly fascinating moment because you can hear McDaniel starting to, if not quite reverse some of her positions, though in some cases she does that, at least really soften her language. It’s almost as if she’s switching uniforms from the RNC one to an NBC one or almost like breaking from a role she was playing.

Ronna, why not speak out earlier? Why just speak out about that now?

When you’re the RNC chair, you kind of take one for the whole team, right? Now, I get to be a little bit more myself.

She says, hey, you know what? Sometimes as RNC chair, you just have to take it for the team sometimes.

Right. What she’s really saying is I did things as chairwoman of the Republican National committee that now that I no longer have that job, I can candidly say, I wished I hadn’t done, which is very honest. But it’s also another way of saying I’m two faced, or I was playing a part.

Ronna McDaniel, thank you very much for being here this morning.

Then something extraordinary happens. And I have to say, I’ve never seen a moment like this in decades of watching television news and covering television news.

Welcome back. The panel is here. Chuck Todd, NBC News chief political analyst.

Welker brings her regular panel on, including Chuck Todd, now the senior NBC political analyst.

Chuck, let’s dive right in. What were your takeaways?

And he launches right into what he calls —

Look, let me deal with the elephant in the room.

The elephant being this hiring of McDaniel.

I think our bosses owe you an apology for putting you in this situation.

And he proceeds, on NBC’S air, to lace into management for, as he describes it, putting Welker in this crazy awkward position.

Because I don’t know what to believe. She is now a paid contributor by NBC News. I have no idea whether any answer she gave to you was because she didn’t want to mess up her contract.

And Todd is very hung up on this idea that when she was speaking for the party, she would say one thing. And now that she’s on the payroll at NBC, she’s saying another thing.

She has credibility issues that she still has to deal with. Is she speaking for herself, or is she speaking on behalf of who’s paying her?

Todd is basically saying, how are we supposed to know which one to believe.

What can we believe?

It is important for this network and for always to have a wide aperture. Having ideological diversity on this panel is something I prided myself on.

And what he’s effectively saying is that his bosses should have never hired her in this capacity.

I understand the motivation, but this execution, I think, was poor.

Someone said to me last night we live in complicated times. Thank you guys for being here. I really appreciate it.

Now, let’s just note here, this isn’t just any player at NBC. Chuck Todd is obviously a major news name at the network. And him doing this appears to just open the floodgates across the entire NBC News brand, especially on its sister cable network, MSNBC.

And where I said I’d never seen anything like what I saw on “Meet the Press” that morning, I’d never seen anything like this either. Because now, the entire MSNBC lineup is in open rebellion. I mean, from the minute that the sun comes up. There is Joe Scarborough and Mika Brzezinski.

We weren’t asked our opinion of the hiring. But if we were, we would have strongly objected to it.

They’re on fire over this.

believe NBC News should seek out conservative Republican voices, but it should be conservative Republicans, not a person who used her position of power to be an anti-democracy election denier.

But it rolls out across the entire schedule.

Because Ronna McDaniel has been a major peddler of the big lie.

The fact that Ms. McDaniel is on the payroll at NBC News, to me that is inexplicable. I mean, you wouldn’t hire a mobster to work at a DA’s office.

Rachel Maddow devotes an entire half hour.

It’s not about just being associated with Donald Trump and his time in the Republican Party. It’s not even about lying or not lying. It’s about our system of government.

Thumbing their noses at our bosses and basically accusing them of abetting a traitorous figure in American history. I mean, just extraordinary stuff. It’s television history.

And let’s face it, we journalists, our bosses, we can be seen as crybabies, and we’re paid complaining. Yeah, that’s what we’re paid to do. But in this case, the NBC executives cannot ignore this, because in the outcry, there’s a very clear point that they’re all making. Ronna McDaniel is not just a voice from the other side. She was a fundamental part of Trump’s efforts to deny his election loss.

This is not inviting the other side. This is someone who’s on the wrong side —

Of history.

Of history, of these moments that we’ve covered and are still covering.

And I think it’s fair to say that at this point, everyone understands that Ronna McDaniel’s time at NBC News is going to be very short lived. Yeah, basically, after all this, the executives at NBC have to face facts it’s over. And on Tuesday night, they release a statement to the staff saying as much.

They don’t cite the questions about red lines or what Ronna McDaniel represented or didn’t represent. They just say we need to have a unified newsroom. We want cohesion. This isn’t working.

I think in the end, she was a paid contributor for four days.

Yeah, one of the shortest tenures in television news history. And look, in one respect, by their standards, this is kind of a pretty small contract, a few hundred thousand dollars they may have to pay out. But it was way more costly because they hired her. They brought her on board because they wanted to appeal to these tens of millions of Americans who still love Donald J. Trump.

And what happens now is that this entire thing is blown up in their face, and those very same people now see a network that, in their view, in the view of Republicans across the country, this network will not accept any Republicans. So it becomes more about that. And Fox News, NBC’S longtime rival, goes wall to wall with this.

Now, NBC News just caved to the breathless demands from their far left, frankly, emotionally unhinged host.

I mean, I had it on my desk all day. And every minute I looked at that screen, it was pounding on these liberals at NBC News driving this Republican out.

It’s the shortest tenure in TV history, I think. But why? Well, because she supports Donald Trump, period.

So in a way, this leaves NBC worse off with that Trump Republican audience they had wanted to court than maybe even they were before. It’s like a boomerang with a grenade on it.

Yeah, it completely explodes in their face. And that’s why to me, the whole episode is so representative of this eight-year conundrum for the news media, especially on television. They still haven’t been able to crack the code for how to handle the Trump movement, the Trump candidacy, and what it has wrought on the American political system and American journalism.

We’ll be right back.

Jim, put into context this painful episode of NBC into that larger conundrum you just diagnosed that the media has faced when it comes to Trump.

Well, Michael, it’s been there from the very beginning, from the very beginning of his political rise. The media was on this kind of seesaw. They go back and forth over how to cover him. Sometimes they want to cover him quite aggressively because he’s such a challenging candidate. He was bursting so many norms.

But at other times, there was this instinct to understand his appeal, for the same reason. He’s such an unusual candidate. So there was a great desire to really understand his voters. And frankly, to speak to his voters, because they’re part of the audience. And we all lived it, right?

But just let me take you back anyway because everything’s fresh again with perspective. And so if you go back, let’s look at when he first ran. The networks, if you recall, saw him as almost like a novelty candidate.

He was going to spice up what was expected to be a boring campaign between the usual suspects. And he was a ratings magnet. And the networks, they just couldn’t get enough of it. And they allowed him, at times, to really shatter their own norms.

Welcome back to “Meet the Press,” sir.

Good morning, Chuck.

Good morning. Let me start —

He was able to just call into the studio and riff with the likes of George Stephanopoulos and Chuck Todd.

What does it have to do with Hillary?

She can’t talk about me because nobody respects women more than Donald Trump.

And CNN gave him a lot of unmitigated airtime, if you recall during the campaign. They would run the press conferences.

It’s the largest winery on the East Coast. I own it 100 percent.

And let him promote his Trump steaks and his Trump wine.

Trump steaks. Where are the steaks? Do we have steaks?

I mean, it got that crazy. But again, the ratings were huge. And then he wins. And because they had previously given him all that airtime, they’ve, in retrospect, sort of given him a political gift, and more than that now have a journalistic imperative to really address him in a different way, to cover him as they would have covered any other candidate, which, let’s face it, they weren’t doing initially. So there’s this extra motivation to make up for lost ground and maybe for some journalistic omissions.

Right. Kind of correct for the lack of a rigorous journalistic filter in the campaign.

Exactly. And the big thing that this will be remembered for is we’re going to call a lie a lie.

I don’t want to sugarcoat this because facts matter, and the fact is President Trump lies.

Trump lies. We’re going to say it’s a lie.

And I think we can’t just mince around it because they are lies. And so we need to call them what they are.

We’re no longer going to use euphemisms or looser language we’re. Going to call it for what it is.

Trump lies in tweets. He spreads false information at rallies. He lies when he doesn’t need to. He lies when the truth is more than enough for him.

CNN was running chyrons. They would fact check Trump and call lies lies on the screen while Trump is talking. They were challenging Trump to his face —

One of the statements that you made in the tail end of the campaign in the midterms that —

Here we go.

That — well, if you don’t mind, Mr. President, that this caravan was an invasion.

— in these crazy press conferences —

They’re are hundreds of miles away, though. They’re hundreds and hundreds of miles away. That’s not an invasion.

Honestly, I think you should let me run the country. You run CNN. And if you did it well, your ratings —

Well, let me ask — if I may ask one other question. Mr. President, if I may ask another question. Are you worried —

That’s enough. That’s enough.

And Trump is giving it right back.

I tell you what, CNN should be ashamed of itself having you working for them. You are a rude, terrible person. You shouldn’t be working for CNN.

Very combative.

So this was this incredibly fraught moment for the American press. You’ve got tens of millions of Trump supporters seeing what’s really basic fact checking. These look like attacks to Trump supporters. Trump, in turn, is calling the press, the reporters are enemies of the people. So it’s a terrible dynamic.

And when January 6 happens, it’s so obviously out of control. And what the traditional press that follows, traditional journalistic rules has to do is make it clear that the claims that Trump is making about a stolen election are just so abjectly false that they don’t warrant a single minute of real consideration once the reporting has been done to show how false they are. And I think that American journalism really emerged from that feeling strongly about its own values and its own place in society.

But then there’s still tens of millions of Trump voters, and they don’t feel so good about the coverage. And they don’t agree that January 6 was an insurrection. And so we enter yet another period, where the press is going to have to now maybe rethink some things.

In what way?

Well, there’s a kind of quiet period after January 6. Trump is off of social media. The smoke is literally dissipating from the air in Washington. And news executives are kind of standing there on the proverbial battlefield, taking a new look at their situation.

And they’re seeing that in this clearer light, they’ve got some new problems, perhaps none more important for their entire business models than that their ratings are quickly crashing. And part of that diminishment is that a huge part of the country, that Trump-loving part of the audience, is really now severed from him from their coverage.

They see the press as actually, in some cases, being complicit in stealing an election. And so these news executives, again, especially on television, which is so ratings dependent, they’ve got a problem. So after presumably learning all these lessons about journalism and how to confront power, there’s a first subtle and then much less subtle rethinking.

Maybe we need to pull back from that approach. And maybe we need to take some new lessons and switch it up a little bit and reverse some of what we did. And one of the best examples of this is none other than CNN.

It had come under new management, was being led by a guy named Chris Licht, a veteran of cable news, but also Stephen Colbert’s late night show in his last job. And his new job under this new management is we’re going to recalibrate a little bit. So Chris Licht proceeds to try to bring the network back to the center.

And how does he do that?

Well, we see some key personalities who represented the Trump combat era start losing air time and some of them lose their jobs. There’s talk of, we want more Republicans on the air. There was a famous magazine article about Chris Licht’s balancing act here.

And Chris Licht says to a reporter, Tim Alberta of the “Atlantic” magazine, look, a lot in the media, including at his own network, quote unquote, “put on a jersey, took a side.” They took a side. And he says, I think we understand that jersey cannot go back on him. Because he says in the end of the day, by the way, it didn’t even work. We didn’t change anyone’s mind.

He’s saying that confrontational approach that defined the four years Trump was in office, that was a reaction to the feeling that TV news had failed to properly treat Trump with sufficient skepticism, that that actually was a failure both of journalism and of the TV news business. Is that what he’s saying?

Yeah. On the business side, it’s easier call, right? You want a bigger audience, and you’re not getting the bigger audience. But he’s making a journalistic argument as well that if the job is to convey the truth and take it to the people, and they take that into account as they make their own voting decisions and formulate their own opinions about American politics, if tens of millions of people who do believe that election was stolen are completely tuning you out because now they see you as a political combatant, you’re not achieving your ultimate goal as a journalist.

And what does Licht’s “don’t put a jersey back on” approach look like on CNN for its viewers?

Well, It didn’t look good. People might remember this, but the most glaring example —

Please welcome, the front runner for the Republican nomination for president, Donald Trump.

— was when he held a town hall meeting featuring Donald J. Trump, now candidate Trump, before an audience packed with Trump’s fans.

You look at what happened during that election. Unless you’re a very stupid person, you see what happens. A lot of the people —

Trump let loose a string of falsehoods.

Most people understand what happened. It was a rigged election.

The audience is pro-Trump audience, was cheering him on.

Are you ready? Are you ready? Can I talk?

Yeah, what’s your answer?

Can I? Do you mind?

I would like for you to answer the question.

OK. It’s very simple to answer.

That’s why I asked it.

It’s very simple. You’re a nasty person, I’ll tell you that.

And during, the CNN anchor hosting this, Kaitlan Collins, on CNN’s own air, it was a disaster.

It felt like a callback to the unlearned lessons of 2016.

Yeah. And in this case, CNN’s staff was up in arms.

Big shakeup in the cable news industry as CNN makes another change at the top.

Chris Licht is officially out at CNN after a chaotic run as chairman and CEO.

And Chris Licht didn’t survive it.

The chief executive’s departure comes as he faced criticism in recent weeks after the network hosted a town hall with Donald Trump and the network’s ratings started to drop.

But I want to say that the CNN leadership still, even after that, as they brought new leadership in, said, this is still the path we’re going to go on. Maybe that didn’t work out, but we’re still here. This is still what we have to do.

Right. And this idea is very much in the water of TV news, that this is the right overall direction.

Yeah. This is, by no means, isolated to CNN. This is throughout the traditional news business. These conversations are happening everywhere. But CNN was living it at that point.

And this, of course, is how we get to NBC deciding to hire Ronna McDaniel.

Right. Because they’re picking up — right where that conversation leaves off, they’re having the same conversation. But for NBC, you could argue this tension between journalistic values and audience. It’s even more pressing. Because even though MSNBC is a niche cable network, NBC News is part of an old-fashioned broadcast network. It’s on television stations throughout the country.

And in fact, those networks, they still have 6:30 newscasts. And believe it or not, millions of people still watch those every night. Maybe not as many as they used to, but there’s still some six or seven million people tuning in to nightly news. That’s important.

Right. We should say that kind of number is sometimes double or triple that of the cable news prime time shows that get all the attention.

On their best nights. So this is big business still. And that business is based on broad — it’s called broadcast for a reason. That’s based on broad audiences. So NBC had a business imperative, and they argue they had a journalistic imperative.

So given all of that, Jim, I think the big messy question here is, when it comes to NBC, did they make a tactical error around hiring the wrong Republican which blew up? Or did they make an even larger error in thinking that the way you handle Trump and his supporters is to work this hard to reach them, when they might not even be reachable?

The best way to answer that question is to tell you what they’re saying right now, NBC management. What the management saying is, yes, this was a tactical error. This was clearly the wrong Republican. We get it.

But they’re saying, we are going to — and they said this in their statement, announcing that they were severing ties with McDaniel. They said, we’re going to redouble our efforts to represent a broad spectrum of the American votership. And that’s what they meant was that we’re going to still try to reach these Trump voters with people who can relate to them and they can relate to.

But the question is, how do you even do that when so many of his supporters believe a lie? How is NBC, how is CNN, how are any of these TV networks, if they have decided that this is their mission, how are they supposed to speak to people who believe something fundamentally untrue as a core part of their political identity?

That’s the catch-22. How do you get that Trump movement person who’s also an insider, when the litmus test to be an insider in the Trump movement is to believe in the denialism or at least say you do? So that’s a real journalistic problem. And the thing that we haven’t really touched here is, what are these networks doing day in and day out?

They’re not producing reported pieces, which I think it’s a little easier. You just report the news. You go out into the world. You talk to people, and then you present it to the world as a nuanced portrait of the country. This thing is true. This thing is false. Again, in many cases, pretty straightforward. But their bread and butter is talking heads. It’s live. It’s not edited. It’s not that much reported.

So their whole business model especially, again, on cable, which has 24 hours to fill, is talking heads. And if you want the perspective from the Trump movement, journalistically, especially when it comes to denialism, but when it comes to some other major subjects in American life, you’re walking into a place where they’re going to say things that aren’t true, that don’t pass your journalistic standards, the most basic standards of journalism.

Right. So you’re saying if TV sticks with this model, the kind of low cost, lots of talk approach to news, then they are going to have to solve the riddle of who to bring on, who represents Trump’s America if they want that audience. And now they’ve got this red line that they’ve established, that that person can’t be someone who denies the 2020 election reality. But like you just said, that’s the litmus test for being in Trump’s orbit.

So this doesn’t really look like a conundrum. This looks like a bit of a crisis for TV news because it may end up meaning that they can’t hire that person that they need for this model, which means that perhaps a network like NBC does need to wave goodbye to a big segment of these viewers and these eyeballs who support Trump.

I mean, on the one hand, they are not ready to do that, and they would never concede that that’s something they’re ready to do. The problem is barring some kind of change in their news model, there’s no solution to this.

But why bar changes to their news model, I guess, is the question. Because over the years, it’s gotten more and more expensive to produce news, the news that I’m talking about, like recorded packages and what we refer to as reporting. Just go out and report the news.

Don’t gab about it. Just what’s going on, what’s true, what’s false. That’s actually very expensive in television. And they don’t have the kind of money they used to have. So the talking heads is their way to do programming at a level where they can afford it.

They do some packages. “60 Minutes” still does incredible work. NBC does packages, but the lion’s share of what they do is what we’re talking about. And that’s not going to change because the economics aren’t there.

So then a final option, of course, to borrow something Chris Licht said, is that a network like NBC perhaps doesn’t put a jersey on, but accepts the reality that a lot of the world sees them wearing a jersey.

Yeah. I mean, nobody wants to be seen as wearing a jersey in our business. No one wants to be wearing a jersey on our business. But maybe what they really have to accept is that we’re just sticking to the true facts, and that may look like we’re wearing a jersey, but we’re not. And that may, at times, look like it’s lining up more with the Democrats, but we’re not.

If Trump is lying about a stolen election, that’s not siding against him. That’s siding for the truth, and that’s what we’re doing. Easier said than done. And I don’t think any of these concepts are new.

I think there have been attempts to do that, but it’s the world they’re in. And it’s the only option they really have. We’re going to tell you the truth, even if it means that we’re going to lose a big part of the country.

Well, Jim, thank you very much.

Thank you, Michael.

Here’s what else you need to know today.

[PROTESTERS CHANTING]

Over the weekend, thousands of protesters took to the streets of Tel Aviv and Jerusalem in some of the largest domestic demonstrations against the government of Prime Minister Benjamin Netanyahu since Israel invaded Gaza in the fall.

[NON-ENGLISH SPEECH]

Some of the protesters called on Netanyahu to reach a cease fire deal that would free the hostages taken by Hamas on October 7. Others called for early elections that would remove Netanyahu from office.

During a news conference on Sunday, Netanyahu rejected calls for early elections, saying they would paralyze his government at a crucial moment in the war.

Today’s episode was produced by Rob Szypko, Rikki Novetsky, and Alex Stern, with help from Stella Tan.

It was edited by Brendan Klinkenberg with help from Rachel Quester and Paige Cowett. Contains original music by Marion Lozano, Dan Powell, and Rowan Niemisto and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly.

That’s it for “The Daily.” I’m Michael Barbaro. See you tomorrow.

• April 2, 2024   •   29:32 Kids Are Missing School at an Alarming Rate
• April 1, 2024   •   36:14 Ronna McDaniel, TV News and the Trump Problem
• March 29, 2024   •   48:42 Hamas Took Her, and Still Has Her Husband
• March 28, 2024   •   33:40 The Newest Tech Start-Up Billionaire? Donald Trump.
• March 27, 2024   •   28:06 Democrats’ Plan to Save the Republican House Speaker
• March 26, 2024   •   29:13 The United States vs. the iPhone
• March 25, 2024   •   25:59 A Terrorist Attack in Russia
• March 24, 2024   •   21:39 The Sunday Read: ‘My Goldendoodle Spent a Week at Some Luxury Dog ‘Hotels.’ I Tagged Along.’
• March 22, 2024   •   35:30 Chuck Schumer on His Campaign to Oust Israel’s Leader
• March 21, 2024   •   27:18 The Caitlin Clark Phenomenon
• March 20, 2024   •   25:58 The Bombshell Case That Will Transform the Housing Market
• March 19, 2024   •   27:29 Trump’s Plan to Take Away Biden’s Biggest Advantage

Hosted by Michael Barbaro

Featuring Jim Rutenberg

Produced by Rob Szypko ,  Rikki Novetsky and Alex Stern

With Stella Tan

Edited by Brendan Klinkenberg ,  Rachel Quester and Paige Cowett

Original music by Marion Lozano ,  Dan Powell and Rowan Niemisto

Engineered by Chris Wood

Listen and follow The Daily Apple Podcasts | Spotify | Amazon Music

Ronna McDaniel’s time at NBC was short. The former Republican National Committee chairwoman was hired as an on-air political commentator but released just days later after an on-air revolt by the network’s leading stars.

Jim Rutenberg, a writer at large for The Times, discusses the saga and what it might reveal about the state of television news heading into the 2024 presidential race.

On today’s episode

Jim Rutenberg , a writer at large for The New York Times.

Background reading

Ms. McDaniel’s appointment had been immediately criticized by reporters at the network and by viewers on social media.

The former Republican Party leader tried to downplay her role in efforts to overturn the 2020 election. A review of the record shows she was involved in some key episodes .

There are a lot of ways to listen to The Daily. Here’s how.

We aim to make transcripts available the next workday after an episode’s publication. You can find them at the top of the page.

The Daily is made by Rachel Quester, Lynsea Garrison, Clare Toeniskoetter, Paige Cowett, Michael Simon Johnson, Brad Fisher, Chris Wood, Jessica Cheung, Stella Tan, Alexandra Leigh Young, Lisa Chow, Eric Krupke, Marc Georges, Luke Vander Ploeg, M.J. Davis Lin, Dan Powell, Sydney Harper, Mike Benoist, Liz O. Baylen, Asthaa Chaturvedi, Rachelle Bonja, Diana Nguyen, Marion Lozano, Corey Schreppel, Rob Szypko, Elisheba Ittoop, Mooj Zadie, Patricia Willens, Rowan Niemisto, Jody Becker, Rikki Novetsky, John Ketchum, Nina Feldman, Will Reid, Carlos Prieto, Ben Calhoun, Susan Lee, Lexie Diao, Mary Wilson, Alex Stern, Dan Farrell, Sophia Lanman, Shannon Lin, Diane Wong, Devon Taylor, Alyssa Moxley, Summer Thomad, Olivia Natt, Daniel Ramirez and Brendan Klinkenberg.

Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly. Special thanks to Sam Dolnick, Paula Szuchman, Lisa Tobin, Larissa Anderson, Julia Simon, Sofia Milan, Mahima Chablani, Elizabeth Davis-Moorer, Jeffrey Miranda, Renan Borelli, Maddy Masiello, Isabella Anderson and Nina Lassam.

Jim Rutenberg is a writer at large for The Times and The New York Times Magazine and writes most often about media and politics. More about Jim Rutenberg

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