How to price a menu item: 3 methods compared on one dish
· 7 min read
There is no single right way to price a dish, but there are three common methods, and each answers a different question. Used together they give you a price that covers your costs, earns what you need and still makes sense to guests. We will run all three on the same dish: a burger with fries that costs $2.79 to plate. The food cost guide shows how that cost was worked out.
Method 1: food cost percentage
Choose the share of the price you want ingredients to take, then divide the plate cost by it:
- Price = plate cost ÷ target food cost %.
- At 30%: 2.79 ÷ 0.30 = $9.30.
- At 28%: 2.79 ÷ 0.28 = $9.96.
- At 25%: 2.79 ÷ 0.25 = $11.16.
This is quick and keeps costs in proportion across the menu. Its weakness: it treats every dish the same. A cheap-to-make dish ends up underpriced, and an expensive one ends up priced out of reach.
Method 2: contribution margin
Start from the cash each plate needs to bring in. Add up your monthly costs that are not food (wages, rent, utilities, card fees and so on) plus the profit you want, and divide by the plates you expect to sell:
| Line | Amount |
|---|---|
| Wages, rent and other costs per month | $28,000 |
| Target profit per month | $4,000 |
| Plates sold per month | 3,800 |
| Cash needed per plate, on average | $8.42 |
Price = plate cost + cash needed per plate = 2.79 + 8.42 = $11.21.
This ties prices to what the business actually needs. Use the per-plate figure as an average across the menu, not a fixed amount for every dish: a side salad cannot carry $8.42, and a sharing platter can carry more.
Method 3: the market
Look at what guests can get nearby. Check five places that a guest might choose instead of you, with a similar style and setting, and note what they charge for something comparable. Say they range from $11 to $14.
This tells you what guests expect to pay, not what you need to charge. It is the ceiling: price far above it and you need a clear reason, such as better ingredients, a bigger portion or a better setting.
Putting the three together
| Method | Price it suggests |
|---|---|
| Food cost at 28% | $9.96 |
| Contribution margin | $11.21 |
| Market range | $11.00–14.00 |
Use the contribution margin as your floor, the market as your ceiling and food cost percentage as a sanity check. Here the floor is about $11.25 and the market goes to $14, so $12 is a confident price. It gives a food cost of 23.3% and $9.21 per plate, comfortably above the $8.42 average the business needs.
Details that change the answer
- Taxes and service charges: decide whether your menu prices include them, and follow your local rules on how prices must be shown.
- Delivery apps take a large commission on every order. Many restaurants set separate delivery prices so those orders still make money.
- Drinks usually have much lower costs than food, and they help carry a menu. Price them on their own logic, not the food formula.
- Presentation: keep price endings consistent and avoid lining prices up in a column, which invites comparing on price alone. Our article on menu psychology looks at what the research says about price formats.
When to revisit prices
Re-price when a key ingredient's cost moves, when you change a recipe or portion, and at least once or twice a year. A live digital menu makes this a five-minute job instead of a reprint. For the practical side of putting prices up, see how to raise menu prices without losing regulars.