Should You Raise Prices? A Guide to Smart Menu Engineering

Today on the Bar Business Podcast, discover the perfect timing for price increases that minimize customer pushback, learn psychological pricing strategies that protect your margins, and explore smart menu design tactics that boost profits.

Today, we're diving into the critical topic of when and how to raise prices without damaging your guest experience and guest relationships. Let's be honest here. The reality is that we have rising labor. We've had rising supply costs. Food is going up drastically. That's all calmed down a little bit, but it's still going on. And we're seeing rents go up in some areas, a huge amount. And when all that is against you in the bar business, maintaining your

maintaining your margins isn't just about better cost control. You have to face the other side of it too, your prices. Now, I know for most bars, raising prices is always a difficult thing to do. And a lot of times that's because we're afraid of customer backlash. We're afraid of what our guests will think when those prices go up. So today we're going to talk about how do we do this in a way that is going to be

beneficial that is going to minimize that guest friction while at the same time allowing us to get what we actually need to charge for the items we have.

Now, the first thing I want to talk about is timing your price increases. So there are certain times within the year that your guests are going to be more psychologically open to your prices changing. For example, my favorite day to raise prices in any year is January 1st. New year, new prices. No one really bats an eye at that. Now, if you raise your prices too much, we'll get into that here in a second. Yeah, they are going to. But January 1st...

You raise prices on January 1st, nobody's totally surprised. beginning of the year, find to work really well. Beginning of the quarter works well. you know, if you were... Well, if this was last month, I would say you could raise your prices on June 1st because it's the first day of the quarter. October 1st works just as well. Even first day of the month is going to work better than a random Tuesday in November. So just keep in mind...

that those psychological dates that people have in their mind can work in your favor when it comes to setting your prices. Now, anytime you're going to change prices, one of the things we always want to do is implement those price increases gradually if you have to move a lot. So to give you an example, the bar I bought way back when, and this was like 2011, when I bought this particular bar, and it was, I want to say,

domestic beer bottles were like $2.50. I did all the math and I said, well, they should be $3.25. Now, I just go from $2.50 to $3.25 overnight. I added a quarter every quarter for three quarters. So no one got that huge shock of something changing by a large percentage. We gradually moved it to where it needed to be. And so for those major price adjustments, really think about spreading them out over six months.

12 months so that you're not shocking your guests. Now, obviously, if you have something that just does not work at the price you have it on, maybe that's not a good strategy. Maybe you should just pull it off the menu instead. But understand that any large changes you want to make should be done in kind of a phase in system. Now, the other thing you need to do is make sure that your staff is fully aware of when these changes are going to happen.

And we'll talk a little bit more about customer communication here in a little bit and how to train your staff to do this. But your staff should not just walk in one day and be like, oh, yeah, all our wine is now a dollar more than it was yesterday. Give them some heads up on to what you're doing. Make sure they are aware of it before they come in.

And something I recommend doing every time you're doing a menu change. So if you have a food menu and you're doing a quarterly menu change, make sure that you are with that menu change, producing a actual pricing strategy that you're following that is good for you, that is going to give you kind of these guardrails that we're talking about in this episode to change your prices in a way that is going to positively affect your bottom line and your employees pockets. Because if you charge more,

and the same amount of people come in and they spend more money, your employees get more tips. So make sure you have your profits in mind, your employees take home pay in mind, but also make sure that you have your guests in mind and that you're not just gouging them for a profit. That's never a cool thing to do. Now, once you've kind of worked on the timing and you have your strategy kind of put together, now let's talk about menu design tactics. So.

Something I've talked about a lot is menu design. I really enjoy menu design. I'm not going to lie. think menus are the most important piece of anything in a bar restaurant because it's what your guest is reading. It's what's explaining to them what they can buy, how they can buy, what their options are. So when it comes to menu design, especially when you're changing prices, but even if you're not changing prices, there are three things that I would point out here that can help.

mitigate some of the shock of changing prices. The first one is, and we've talked about this before, on your menu, you should always minimize your prices. Now, I don't mean minimize as in charge less, and I don't mean minimize as in making a smaller font. But I do mean use psychological tricks in how you design your menu to make those prices less obvious to your guests. So essentially, there are three things that I always point out there. The first one is to remove dollar signs from your menu.

If you're in Europe, I guess remove the Euro sign, but wherever you are, remove whatever currency sign is there. Now, why do you want to do this? Well, all of our brains, we've been trained from really young ages because we all live in pretty much capitalist societies that you look at the price of something first. And as soon as we see that dollar sign, we associate it psychologically immediately with price. And we know that's exactly what that is. If you don't present that sign to someone,

The brain has to think a little bit more. Yeah, well, their brain gets the same point. Absolutely. But it's going to minimize that price in an initial shock factor. And it's also going to hopefully make your guests choose more what they want to eat based upon what they actually want to eat than what they want to pay for. Another tactic you can do when we're just talking about how you're displaying your prices on menus is to shorten the numbers. So a lot of times you'll see things that are $11.99. Well, if you change that $0.99,

Those two decimal points after two numbers is also a psychological trigger in your brain that it's talking about money and price. So if you just put 12 there instead of 11.99, people are not going to associate that with the price as quickly in their brains. Now, the last thing I will tell you to do, and this is, I mean, you can have dollar signs. You can have four digit, you know, two digits, decimal, two digits in a price.

And those are not going to ruin you. This one is the one that I absolutely say you must avoid at all cost, which is do not put your prices in a single column on one edge of the menu. We've all seen this. You open a menu and along the right side is just prices. And on left side is what the menu is. What people will inevitably do is read the prices, not the items, pick some prices they like and then look at the items. That's the last thing you want. Prices should be contained.

within the menu descriptions themselves in the same font as the menu descriptions so they're not highlighted on your menu.

Now, additionally, there are two other things we can talk about here when we're talking about menu design and pricing. The first one being charm pricing, which is where we do that 11.99 instead of 12. Some people say that works. Some people say it doesn't. I think it's half, doesn't know one, six of the other. So that is something that people, some people do and it can work depending on your market. The other thing that you can use is decoy pricing to guide customers to profitable items. So essentially decoy pricing. I use this a lot on wine lists where I throw in a stupid expensive bottle of wine.

Right? So say most of the bottles of wine are between 30 and $100. I'll throw on a bottle that is $200 and buy one of them and keep it in the back because now if I have a $200 bottle, all those $100 bottles, they don't look so expensive. So using a decoy like that to kind of infer that cheaper stuff isn't as expensive as it is, can work very well. Now, finally, to wrap up our conversation about menu pricing here and menu pricing changes.

Let's talk a little bit about customer communication. So one thing I am a huge fan of is to be very transparent about the reasons that your price increases. Is it because you will need to make more money? Is it because your rent went up? Is it because inflation? Just be honest with people and tell them. Now, obviously, some people take honesty the wrong way. But in my experience, most people understand dollars and cents. If you just tell them, look, my prices went up because of this and you're honest about it and transparent, they'll believe you. And normally, that will not give them a negative impact unless

The reason you give them is just a bad reason. Make sure you train your staff on handling customer questions. So your staff needs to know that reason too. And you should give them a guidebook, some just simple ways to communicate the price changes to the customers and answer customer questions regarding those price increases. Also, in all that communication, whether it's you talking to the guests or your staff talking to the guests, make sure that you're focusing on value rather than price, right?

Price is one thing, value is something else. Price is what we're actually paying. Value is what I feel like it's worth. And everyone just wants a fair value at the end of the day. We all understand things cost money, but make sure that you're focusing in your communication on value rather than price. And the last thing I will say, always, always, always ensure you're maintaining quality standards when you're changing prices. If your price goes down and the quality goes down, you are going to get beat up.

really, really, really bad and that's your own fault. So maintain that high quality during those transitions between one price point and the next. So remember, price increases are a normal part of business operations. The key to implementing them strategically and communicating them effectively. Start with margin analysis, create your pricing strategy and implement changes gradually to maintain both profit and customer satisfaction.