October 14, 2022

Menu Pricing: The Way For Your India Restaurant To Do It

menu pricing

Restaurants in India are constantly vying to be king of the hill, but face stiff competition from new and established eateries. One of the key aspects that results in great success is menu pricing as it tempts customers to visit your establishment and, if done right, converts them into regulars. 

India’s F&B sector is booming, which means that menu pricing is more important than it has ever been, as diners have many more options to choose from. 

To ensure your menu pricing is where it should be, here are a few tips and bits of advice you can use to propel your restaurant or CloudKitchen® delivery kitchen to stardom. 

The right way to price your menu

A comprehensive, in-depth process that requires you to calculate a couple of core things is the best way to price your menu and ensure you are making a profit on every item you have on offer.

Working out your food cost percentage

Knowing the food cost percentage for items on your menu is vital. Let’s say you are running an Indian restaurant and one of the signature dishes is the vegetarian biryani. You, as a restaurant owner, have to decide what the food cost will be and stick by it. In this instance, let’s put it at 25%. 

vegetable biriyani

Find out the cost of goods sold (COGS)

Having worked out your food cost percentage, you need to calculate how much it will cost to create your vegetarian biryani from scratch. Be sure to take all the raw ingredients into account, along with any sauces used. In this example, let’s say it costs INR 5 for a single portion. With that figure on hand, you can insert it into the following formula to work out how much your food needs to be priced at. 

Let’s use the formula

The formula below is a great tool for menu pricing. 

Price = COGS / Ideal Food Cost

Price = INR 5.00 / .25

Price = INR 20

Having used the formula, you have learned that in order to achieve your food percentage cost goal of 25%, you must sell the vegetarian biryani at INR 20. 

However, this is not the sole way to figure out your menu pricing as there is another method that can be utilised. 

Using gross profit margin to work out your menu pricing 

You might be wondering what gross profit margin is. In a nutshell, it’s the percentage of total sales made from one dish that is profit. So, if we were to keep using the vegetarian biryani as an example, let’s assume it has a profit margin of 30%. This means that out of every dollar spent preparing this dish, 30 cents of it is profit. 

How gross profit margin can be used for menu pricing 

A simple formula can be used to find out what a dish should be priced at on your menu. But, before jumping headfirst into this, you must have a general idea of the menu price for every item, along with the raw food cost and amount of gross profit margin you want to attain. 

For your vegetarian biryani, you might price it at INR 15, while the cost to make it is INR 5, as noted earlier. As for the profit margin, you might be aiming for 60%. 

If we insert this into the formula, it will come out looking like this: 

Gross Profit Margin = (Menu Price – Raw Food Cost) / Menu Price

Gross Profit Margin = (15 – 5) / 15

Gross Profit Margin = 66.6%

So, if you were to price your vegetarian biryani at INR 15, your profit will actually be over 60%, which is excellent!  

Menu pricing for buffets

buffet

Buffet menu pricing

When pricing your menu for buffets, there are a few things you need to consider, such as:

  • Customers, on most occasions, eat around one pound of food
  • The overall cost of raw materials required for that one pound of food (COGS)
  • The gross profit margin you want

Let’s assume one pound of food has a COGS of INR 10. This will include everything from different meats to side items like french fries or samosas. If your ideal food cost is 30%, you can use the following formula to work out the buffet price. 

Price = COGS / Ideal Food Cost

Price = INR 10 / .30

Price = INR 33.3

If you have a gross profit margin of 80% in mind and put your buffet’s pricing at INR 20 on your restaurant’s menu, the following formula will tell you whether it is enough to hit your gross profit margin goal. 

Gross Profit Margin = (Menu Price – Raw Food Cost) / Menu Price

Gross Profit Margin = (20 – 10) / 20

Gross Profit Margin = 50%

It’s obvious from this that INR 20 is not enough to attain that 80% gross profit margin figure. In order to get there, you would need to price your buffet at INR 50. 

What can influence your menu pricing?

Your menu pricing can be affected by many different factors, such as varying ingredient costs and the prices of your competitors. To ensure you stand out from the crowd, attract more customers and be a profitable business, here are a few things to take note of. 

1. Direct costs

direct costs

Simply put, direct costs are what you pay for your raw materials and it should definitely be at the back of your mind when you do any menu pricing. A few key aspects fall under this category, including: 

  • How much is paid for raw materials, excluding the labour and transport costs 
  • The cost of food waste, which includes food and raw materials that don’t get eaten or fail to be used 
  • The cost of different portions, which will be different for each dish 

To explain it simply, if your direct costs are high, the pricing on your menu has to go up too as this is the only way you will be able to make a decent amount of profit and keep your business going. 

2. Indirect costs

happy-indian-female-chef-in-kitchen

The main thing this incorporates is labour costs, which will be substantially higher in traditional restaurants when compared to CloudKitchens® delivery kitchens.

Along with the wages you pay your workers, indirect costs also include everything else required to make the dishes on your menu, excluding raw materials. So, this will include pots, pans, cutlery and all utilities, such as water, gas and electricity. 

3. Customer mindset

customer perception

The mindset of your customers is something you have to keep in mind when pricing your menu as you want to ensure they feel as if they aren’t being cheated. If the items on your menu are too pricey, your customers will snub your eatery and turn to one of your competitors to satisfy their appetite. 

On the other hand, if your dishes are way too cheap, it will raise a few eyebrows as potential diners will wonder if your food is of the highest quality and whether it has been prepared hygienically too. As a result of this, you have to be careful that your prices are fair and closely match your competition, otherwise you risk losing your patrons. 

4. Menu engineering

You might have never heard of this term before, but it is simply centred around getting the most bang for your buck out of the dishes that are the biggest hits on your menu. 

When it comes to menu engineering, there are two main things you want to achieve: 

  1. Reduce the food costs of the top-selling items
  2. Entice people to order those dishes by making them more visible and offering special promotions and discounts 

To do this, you will need to closely look at the costs, profit margins and sales patterns of each dish to work out which ones apply to the menu engineering concept. It may sound tiring, but it will definitely be worth it in the long run. 

5. The pricing of your competitors

No matter if you have a restaurant or operate out of CloudKitchens® delivery kitchen, you will have plenty of competitors in India. With that in mind, it is imperative that you keep a close eye on their pricing and ensure yours matches it or is as close as possible. 

If your food is much more pricey and offers no major unique selling point, your customers won’t think twice about going to one of your competitors. But, if you do have a wow factor, then the higher price tag might be warranted. 

What it all comes down to is making sure that you are making enough profit on every dish. One piece of advice is if your prices are significantly higher than your competitors, you need to find ways to reduce it without ruining the taste and quality of the food. 

Name your price

It’s no secret that menu pricing can send your sales soaring or bury your restaurant or CloudKitchen® delivery kitchen. To avoid the latter, you need to know your cost of goods sold (COGS) and gross profit margin for every dish available. If you are able to do this, you will be on the path to success in no time! Should you want more help with crafting a menu your customers cannot resist, click here

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