There are two groups of people that have 2 different type of business minds.
1. They price their products high to try have the best profit margin
2. They try to reduce their Gross Profit (GP) to try make their prices as friendly as possible
Which one are you?
For me, both make sense.
For the first type, it is every restauranteur’s dream to charge really high prices so they can make the most GP. But in order to do so, successfully, certain criteria must be completed. If not, and they start by charging high prices, they will fail. And I’ve seen that happen. So, the only way it will work is by pricing your products from down to up (start low and then gradually increase).
Let me explain why setting a high price requires different criteria and conditions to be fulfilled first.
When deciding on the price of your product(s), it is important that your whole brand fits the price – e.g décor, plating, menu, service, etc. All of these additional factors must support your price range.
So, let me clarify what our job is. Our job is to give more than what people expect. When we are able to deliver more, we encourage return customers, create loyal customers and a good reputation. This eventually results in a good cash flow.
And don’t get me wrong. I am not saying that you should not charge more. I am saying that you have to meet the criteria one by one before charging a high price.
Meeting every criteria and condition takes experience and time, especially if you want to deliver such quality to customers.
I would rather have a busy restaurant than an empty one. Wastage does not only mean food and drink wastage. This is because when the seats in your restaurant are empty, your staff are being paid to do nothing – so it also counts as a wastage to the company.
Therefore, only after you get busy would it make more sense to push your prices higher. You do not need to predict how the market will react to your product anymore, you already know. I have witnessed many restaurants that start charging high prices when they first open, and when it does not work out, they try to adjust or lower their prices – it just doesn’t work. It’s too late.
So before you set your prices, ask yourself a few questions...
How confident are you with your kitchen staff? Can they consistently provide high quality products? Can they consistency provide efficient service?
Consistency is one of the main considerations.
To make it clear, your pricing should be based on:
1. The products you provide
2. The service you provide
3. The environment you provide
4. Consistency in all areas
5. Your Location
6. Your marketing/branding/advertising
7. The addition value you provide – e.g. DJ, Masterclass, Doorman
If all of these are of high quality, then you can set your prices high.
And in my experience, it is hard to achieve this at your first restaurant.
So be realistic and not greedy when starting out.
Once your restaurant is full, then can you start raising your prices.
All in all, the first group of people are usually those who want to make a lot of money immediately and become rich, but never truly consider their capabilities in competing with other restaurants.
The second group are generally too afraid to push their prices up, which is why their GP never reaches the stage they want.
I am in the middle.
Because I believe in real feedback from the market.
It is not about how much I want to charge, but how much the market is willing to pay or can afford.
My advice is aim for 72-75% GP in the beginning, then when you get busy you can start aiming for 75-82% GP. Do not start from 80% GP straight away.
Wing Chang
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