Before You Raise a Menu Price, Run This One Number

Raising a price feels like a gamble because you cannot know how many people will order something else. You can, however, know exactly how much room you have — the number of covers you can lose before the increase stops being worth it. That is arithmetic, not a guess, and it takes about thirty seconds per dish.

The formula

To end up with the same total contribution after a price change:

New units needed = old units x (old contribution / new contribution)

And the version worth writing on the wall:

Volume you can afford to lose = 1 - (old contribution / new contribution)

Contribution is menu price minus plate cost. Note what is not in the formula: revenue. A price increase that grows revenue and shrinks contribution has made you poorer, and revenue is the number most operators watch.

Worked example: a dollar on the burger

A burger sells at $16.00 with a $4.80 plate cost, so contribution is $11.20. It sold 910 times last quarter — $10,192 of contribution.

Raise it to $17.00. The plate cost has not changed, so the new contribution is $12.20.

11.20 / 12.20 = 0.918

910 x 0.918 = 835 burgers to make the same money as before.

Which means you can sell 75 fewer burgers — 8.2% of them — and be exactly level. Fewer than 75 lost and you are ahead. That is roughly one burger a day, in a restaurant selling ten a day.

Now the question is answerable. You are not asking "will people mind?" You are asking "will more than one customer in twelve walk away over a dollar?" On a $16 burger, in most rooms, the honest answer is no — and if it is yes, the dollar was never the real problem.

The same formula on a discount, which is where it hurts

Run it backwards. Drop the burger to $14.00 for a promotion. Contribution falls to $9.20.

11.20 / 9.20 = 1.217

910 x 1.217 = 1,108 burgers — you need 198 more, a 21.7% increase in volume, just to stand still.

A $2 discount on a $16 item — 12.5% off the price — needs a 21.7% lift in covers to break even, plus the extra labor and the extra prep to serve them. This is the arithmetic behind every promotion that felt busy and ended the month down. Before you run one, work out the volume lift it has to produce and ask out loud whether you believe it.

When the cost moves instead of the price

Same formula, applied to a supplier increase. The roast chicken plate costs $3.44 against an $18.00 price — $14.56 contribution, 420 sold. Chicken goes up and the plate now costs $4.10, so contribution falls to $13.90.

14.56 / 13.90 = 1.047, so 420 x 1.047 = 440 plates. You need 20 more covers a quarter from the same dish, with no other change, to stay where you were.

Or you move the price. To restore $14.56 of contribution at a $4.10 cost, the price has to be 4.10 + 14.56 = $18.66. Sixty-six cents. Compare that to the alternative — quietly shaving the portion — and price it.

There is a third case worth running before you touch a price at all: the free add-on. Say you start giving every burger a side of slaw that costs you $0.45. Contribution drops from $11.20 to $10.75, and 11.20 / 10.75 = 1.042 — you now need 948 burgers instead of 910, a 4.2% lift, to pay for the generosity. Sometimes that is a bargain for the goodwill. The point is to know the price of it before you decide, rather than finding it in next quarter's numbers.

What the formula does not tell you

It does not tell you how many covers you will actually lose. Nobody knows your price elasticity, and any article claiming a number for it is making it up. What the formula gives you is the size of the bet: 75 burgers, or one in twelve. You then apply the thing you do know better than any spreadsheet — your room, your regulars, what the place down the street charges.

Two things worth remembering while you decide:

• Contribution matters more than percentage. A price rise improves your food cost percentage and your contribution at the same time; a discount wrecks both. The percentage will tell you the direction, never the size.
• Losses are rarely evenly spread. If the dish you are raising is the cheapest thing on the menu, the guests most likely to switch are the ones anchored to that price. Raising the top of the menu and raising the bottom are different decisions.

How to stage a price change so you can read the result

1. Change three to five items, not the menu. Change everything at once and you will never know which move worked.
2. Pick items on both sides of the matrix — one popular-but-thin dish, one you think is underpriced — so you learn something either way.
3. Write down the current unit counts before you reprint. This is the step everyone skips, and without it there is nothing to compare to.
4. Wait four full weeks. Two weeks is weather and payday noise.
5. Compare unit counts, not sales dollars. Sales dollars will go up whether or not the change worked, which is exactly why they feel reassuring.

The rounding question

Prices ending in 9, prices without a dollar sign, no straight price column down the right-hand edge — these are long-standing menu conventions and they are cheap to try. Be skeptical of any specific lift figure attached to them; the honest position is that they are worth testing on your own tickets, using the same before-and-after unit counts as above, and worth nothing as an article of faith.

The formula is the part that is true everywhere. One division, and a price change stops being a feeling.

MenuGenie calculates contribution and break-even volume for every item on your menu from a photo or PDF, free — upload yours at menu-genie.com.