The smart way to increase prices
Everyone, in all industries, are increasing prices. Customers simply know it’s coming. However, that doesn’t mean you stop trying to make it more acceptable and understood. That doesn’t mean you don’t analyse your figures carefully before doing so. Get a good restaurant accountant to work with you. And we are not talking about getting healthier margins here. For many, if they don’t change their prices quickly, they will not be in business anymore.
Firstly, you can look at your lower margin items on your menu. You can increase them but do not do it for all. If your market is quite educated on the pricing of an item, or can find agreeable alternatives fairly quickly, that should be the last one you touch. Even if you feel that it is a valid price increase. Spare a thought for how your market would react to increasing the price of item A versus increasing the price of item B. It has to be about how your customers will react to it.
Secondly, offer a smaller portion option. You don’t really want to decrease a menu item that is known for being generous. That is your brand and that is how people think of you. At best, that would be confusing. At worst, otherwise loyal customers will start thinking that you have become greedy. On the other end of this spectrum, you’ll find customers complaining that meal portions are too large as there is a large focus on healthy eating. Fortunately, times have changed, and a smaller portion may not necessarily be confused with a greed for larger profits.
If you feel that reducing portions could damage your brands, try this instead. How about new products? Swapping the old margin thinners with better products overall that allow them to charge more. Obviously, there could be a backlash if we are talking about customer favorites – but is it manageable with improved communications? Can you come up with something that is even better received by the same segment of customers?
Fourthly, look closely at your premium (higher priced) products. If you are already selling something for $70 a pop, increasing the price to $74 will likely not dampen demand. People are expecting price increases to start with, and in this price range, it would hardly be noticeable. This works best in niches – if you can identify a group of people that typically buy the same thing e.g. culturally or some other demographic. They tend to be more aware of price increases as they likely make similar foods at home. A price increase will feel justified and not just a money grab.
Lastly, no one benefits from you going out of business – if you are a loyal member of the community. Your customers know that as well as you and will tolerate what they feel is a reasonable price increase. No one likes to feel ripped off. Once you have established their expectation, act accordingly and all should be well.
But, as long as you have enough demand, keep tweaking your table turnover using the advice above. Your revenue will thank you for it. So will your customers and staff. If you need help with any of this, please contact us, your friendly restaurant accountant.