Picture this: you're about to open your restaurant and decide to slash prices 20% below market rate to pack the house. Sounds logical, but this strategy often backfires spectacularly. The hidden costs of underpricing can haunt your business for years.
Why low prices are dangerous
A low price unconsciously communicates quality. Guests think: "If it's this cheap, it can't be good." This effect is called price-quality inference and is scientifically proven.
⚠️ Watch out:
A 30% price increase is easier to sell than starting cheap and becoming more expensive later. Guests experience that as 'it got more expensive' instead of 'the right price'.
Calculate the risk of underpricing
You can calculate the financial impact of low prices with this method:
💡 Example calculation:
Restaurant with 100 covers per day, 6 days per week:
- Current average bill: €22.00
- Market-appropriate price would be: €28.00
- Difference per guest: €6.00
Annual loss: €6.00 × 100 × 6 × 52 = €187,200
Calculate positioning damage
Beyond direct loss, underpricing also costs you your positioning. This damage is harder to measure, but you can estimate it. One of the most common blind spots in kitchen management is failing to account for the customer quality shift that cheap pricing creates.
- Customer type: Low prices attract price-sensitive customers who tip less and complain more often
- Word of mouth: Cheap restaurants get fewer recommendations ('it was okay for the price')
- Repositioning: Moving up in price costs 6-12 months and loses 20-30% of customers
💡 Example positioning damage:
Bistro raises prices from €18 to €26 average:
- Loses 25% of customers in first 6 months
- Marketing costs to find new customers: €15,000
- Revenue loss during transition: €45,000
Total repositioning costs: €60,000
Determine the right opening price
Use this formula to calculate your minimum price:
Minimum price = (Food cost + Labor cost + Overhead + Desired profit) / 0.91
The 0.91 corrects for 9% VAT that you must pay.
💡 Example minimum price:
For a main course:
- Food cost: €8.50
- Labor cost per plate: €6.00
- Overhead per plate: €4.50
- Desired profit: €5.00
Minimum menu price: (€8.50 + €6.00 + €4.50 + €5.00) / 0.91 = €26.37
Research market prices
Visit 5 comparable restaurants in your area. Note their prices for similar dishes. Your right price lies between your minimum (calculated above) and the market average.
- Below market average: Risk of underpricing
- At market average: Safe choice
- Above market average: Only if you clearly offer more value
⚠️ Watch out:
Don't just look at price, but also portion size, ingredient quality and service. A cheap restaurant with small portions is actually more expensive per gram.
Calculate long-term impact
Make a 3-year calculation of different pricing strategies:
- Scenario 1: Start low, raise later
- Scenario 2: Price at market rate from the start
- Scenario 3: Premium pricing from the beginning
Calculate: revenue, costs, profit and repositioning costs per scenario. Often scenario 2 proves most profitable over 3 years.
How do you calculate the risks of low prices? (step by step)
Calculate your actual minimum price
Add food cost, labor cost per plate, overhead and desired profit. Divide by 0.91 for VAT. This is your absolute minimum to be profitable.
Research market prices in your area
Visit 5 comparable restaurants. Note prices for similar dishes. Calculate the average - this is your market-appropriate price.
Calculate the difference per year
Multiply the price difference per guest by your expected number of covers per year. This shows your direct revenue loss from underpricing.
Estimate repositioning costs
Calculate what it costs to move up in price later: customer loss (20-30%), marketing costs for new customers and revenue loss during transition.
Make a 3-year comparison
Compare total profit over 3 years with different pricing strategies. Include repositioning costs - often pricing at market rate from the start is most profitable.
✨ Pro tip
Track your first 90 days of sales data religiously - if you're hitting 85%+ occupancy consistently, you've likely underpriced by 15-20%. Most successful restaurateurs wish they'd started 8-12% higher than their gut instinct suggested.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What if I don't get customers with higher prices?
Better 60 paying customers at market price than 100 customers at loss price. Focus on communicating value: fresh ingredients, homemade sauces, good service.
How do I know if my prices are too low?
If your food cost is above 35%, you pay staff below market wage or make no profit with a full restaurant, your prices are probably too low.
Can I raise prices without losing customers?
Yes, but gradually. Raise maximum 10-15% at a time and communicate improvements: new dishes, better ingredients or service. Wait 3-6 months between increases.
What if competitors are cheaper?
Don't compete on price alone but on value. Better ingredients, larger portions, nicer interior or better service justify higher prices.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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