Restaurant Menu Pricing Strategy: How to Set Prices That Protect Your Margins

Your menu prices directly determine whether your restaurant thrives or barely survives. With food costs in South Africa rising — food inflation sat at around 4.5% year-on-year and is moderating to roughly 3.7% in 2026 — strategic restaurant menu pricing strategy is more important than ever. The South African restaurant market was valued at USD 10.16 billion in 2025 and is projected to reach USD 20.11 billion by 2030. That growth creates opportunity, but only for operators who price correctly. Guess your prices, and you leave money on the table or push customers away. Get your menu pricing right, and you protect margins, cover costs, and still attract diners.

This guide walks you through how to price menu items in a restaurant using methods that work in the SA context: cost-plus pricing with ZAR examples, perceived value pricing, and menu engineering (the star/dog matrix). You’ll learn why most restaurants get pricing wrong, how to use psychology in menu design, how to handle food cost inflation without losing customers, and how to use your POS data to optimise prices. Whether you run a full-service restaurant, a café, or a quick-service outlet, these strategies give you a clear, repeatable approach to setting and updating prices. The goal is not to charge as much as possible, but to charge enough to protect your margins while keeping your restaurant full — and that starts with knowing your costs and your customers.

Why Most Restaurants Get Pricing Wrong

Before diving into how to price menu items, it helps to understand the mistakes that drain profit.

Pricing by gut feel

Many owners set prices by what “feels right” or what they’d be willing to pay. Gut feel ignores your actual food cost, labour, rent, and overhead. A dish that “feels” like R120 might cost you R50 in ingredients and labour — and if your target food cost is 30%, you should be charging closer to R167. Guessing leaves thousands of rands unclaimed every month.

Copying competitors

Checking what the restaurant down the road charges is useful for context, but copying their prices is dangerous. Their rent, labour, portion sizes, and supplier deals are different from yours. A price that works for them can lose you money or undercut your positioning.

Not accounting for all costs

Plate cost is only part of the story. You must factor in labour (prep, cooking, plating, serving), packaging (if you do takeaways), and a share of overhead (rent, utilities, insurance). If you price only on ingredients, your gross margin looks fine until you pay the bills.

Not updating when costs change

Food inflation in SA has been real. If you haven’t raised prices in 12–18 months, your food cost percentage has almost certainly crept up. Sticking to old prices while ingredient costs rise is a slow margin squeeze. Regular reviews (at least twice a year) keep you aligned with reality.

The Cost-Plus Pricing Method

Cost-plus pricing is the most straightforward way to set a baseline selling price. You work out what each plate costs you, then divide by your target food cost percentage to get the price you need to charge.

The formula

Selling price = Plate cost ÷ Target food cost %

Plate cost = Total cost of all ingredients (and any direct consumables) for one portion.
Target food cost % = The food cost percentage you want to hit. For full-service restaurants in South Africa, the ideal food cost range is typically 28–35%. Use 30% as a default if you’re unsure.

Worked example in ZAR

Suppose your Bobotie and yellow rice has a plate cost of R45 (mince, spices, egg, rice, raisins, etc.). Your target food cost is 30%.

Selling price = R45 ÷ 0.30 = R150

So you need to charge at least R150 to hit a 30% food cost on that dish. Round to R149 or R155 for psychological pricing if you prefer; the key is that you’re not guessing.

Another example: A burger and chips costs R38 per plate. Target food cost 32%.

Selling price = R38 ÷ 0.32 = R118.75 → round to R119 or R125.

When to use cost-plus

Cost-plus is reliable for a baseline. Use it when you want a clear, defensible price that protects margin. It doesn’t account for what customers are willing to pay or how popular the item is — that’s where perceived value and menu engineering come in. One caveat: if your calculated price feels too high for your market, the problem may be your plate cost (portion size, waste, or supplier choice) rather than the formula. Revisit food cost control before dropping below your target food cost percentage.

Perceived Value Pricing

Perceived value pricing means setting prices based on what customers believe a dish is worth, not only on your cost. When the perceived value is high, you can charge more and still sell well.

What drives perceived value

Presentation — Plating, garnish, and portion appearance. A beautifully plated dish can justify R20–R40 more than a sloppy version of the same ingredients.
Location and ambiance — A seaside or CBD location, comfortable seating, and atmosphere support higher prices than a strip-mall spot with the same food cost.
Brand and reputation — A known chef, awards, or a strong local following let you command a premium.
Story and sourcing — “Free-range Karoo lamb” or “locally sourced seasonal vegetables” add perceived value and justify higher prices.

How to justify higher prices

Improve plating — Consistent, Instagram-worthy presentation increases willingness to pay.
Use sensory language on the menu — “Slow-braised”, “crispy”, “house-made”, “fresh” all reinforce quality and support higher prices.
Highlight provenance — Name regions, farms, or suppliers where it adds credibility.
Bundle or premiumise — Add a small upgrade (e.g. truffle oil, extra sauce) and price it as a premium option rather than raising the base price across the board.

Cost-plus gives you the floor; perceived value helps you find the ceiling. Combine both: never go below your cost-plus price, and test how high you can go before volume drops.

Menu engineering uses sales data and food cost data to classify each menu item into one of four quadrants. Each quadrant suggests a different strategy: promote, re-engineer, reposition, or remove.

The four quadrants

Quadrant	Profitability	Popularity	What it means
Stars	High	High	Best items. High profit and high sales. Promote them.
Plowhorses	Low	High	Sell well but make little profit. Re-engineer (reduce cost or raise price).
Puzzles	High	Low	Profitable but unpopular. Reposition (better description, placement, or presentation).
Dogs	Low	Low	Low profit and low sales. Consider removing or replacing.

You need two inputs for each item: profitability (contribution margin or gross profit per item) and popularity (sales count or revenue share). Split your menu at the average: above average = “high”, below average = “low”. That gives you the matrix.

How to categorise your items

Export sales data from your POS (units sold or revenue per item over a representative period, e.g. 4–8 weeks).
Calculate food cost per item (from your recipe costing or POS recipe module).
For each item: contribution margin = selling price − plate cost (and optionally labour if you track it).
Find the average contribution margin and average popularity across all items.
Plot each item: high profit + high popularity = Stars; low profit + high popularity = Plowhorses; high profit + low popularity = Puzzles; low profit + low popularity = Dogs.

Strategies for each quadrant

Stars — Put them in prime menu positions, train staff to recommend them, and consider slight price increases if demand is strong. Don’t change the recipe; protect it.
Plowhorses — These are volume drivers with thin margin. Options: reduce portion size slightly, swap a costly ingredient for a cheaper one, or raise the price by R5–R15 and monitor sales. If they’re signature items, focus on cost reduction first.
Puzzles — High margin but low sales. Improve the description, add a photo, move them to a more visible spot, or run a short promotion. If they still don’t sell after repositioning, consider dropping them to simplify the menu.
Dogs — Low profit and low sales. Remove them unless they serve a strategic purpose (e.g. vegetarian option for a small segment). Freeing up kitchen and menu space can reduce waste and simplify operations. For more on controlling waste and stock, see restaurant inventory management.

Menu engineering turns your menu into a strategic tool instead of a static list. Re-run the analysis every quarter as sales mix and costs change. As you do, you’ll start to see which categories (e.g. starters, mains, desserts) carry your margin and which drag it down — that insight helps you decide where to add new items or trim the list.

How you present prices on the menu affects what people order and how much they spend.

Price anchoring

Place a higher-priced item next to the one you want to sell. A R195 steak makes a R145 burger look reasonable. The first price customers see (or the most prominent one) acts as an anchor; other prices are judged relative to it.

Removing currency symbols

Some operators drop the “R” and show only the number (e.g. “150” instead of “R150”). The theory: customers process numbers without the “pain of paying” associated with the rand symbol. Use this with care — in SA, many diners expect to see “R”. Test on a single menu or section first.

Strategic placement

Items in the top-right of a section or in a highlighted box get more attention. Put your Stars and high-margin Puzzles there. Avoid burying your best margin items at the bottom of a long list.

Decoy pricing

Offer three options where the middle one is the one you want to sell. For example: small chips R25, regular chips R35, large chips R45. Many customers choose the middle option, which you’ve priced for better margin.

Description power

Sensory and descriptive words increase sales. “Grilled” vs “flame-grilled”, “cheese” vs “aged cheddar”, “tomato” vs “sun-ripened tomato” — the second option supports a higher price and often sells better. Use this across your menu, especially for Puzzles you’re trying to move.

How to Handle Food Cost Inflation

With food inflation in South Africa moderating but still present, you need a plan for when costs rise.

When to raise prices

Gradually, not all at once — A 15% across-the-board increase in one go shocks customers. Smaller, more frequent adjustments (e.g. 3–5% every 6–12 months) are easier to absorb.
Tie increases to visible value — “We’ve upgraded our beef supplier” or “We now use free-range eggs” gives a reason for the increase.
Raise prices on less price-sensitive items first — Specialty dishes, premium proteins, and signature items often tolerate small increases better than staples like chips or soft drinks.

Alternatives to raising prices

Menu shrinkflation — Slightly reduce portion size (e.g. one fewer prawn, a smaller starch portion) while keeping the price. Do it carefully; obvious shrinkflation can backfire.
Re-engineer recipes — Swap an expensive ingredient for a cheaper one without compromising quality (e.g. a different cut of meat, seasonal veg). This is often better than a straight price increase.
Simplify the menu — Fewer items mean less waste and less complexity. Dropping Dogs and weak Puzzles can improve overall margin without touching prices.

Communicating price changes

Avoid a big “we’re raising prices” announcement. Most customers won’t notice small, gradual changes.
If you do communicate, focus on quality and consistency: “We’re keeping our ingredients and portions at the same standard” rather than “Everything is more expensive.”
Train staff to answer price questions calmly: “We’ve made a small adjustment to keep our quality consistent” is better than “Suppliers went up.” Confidence and consistency matter more than apologising for inflation.

Using Your POS Data to Optimise Pricing

Your point-of-sale system should do more than process payments. Use it to support data-driven menu pricing.

Sales mix analysis

See which items sell the most and at what times. Combine that with food cost to identify your Stars, Plowhorses, Puzzles, and Dogs. Without sales mix data, menu engineering is guesswork.

Contribution margin reports

Reports that show revenue minus food cost (and optionally labour) per item tell you which dishes actually contribute to profit. A R180 dish with R80 cost contributes R100; a R120 dish with R70 cost contributes R50. The first is more valuable even though the second might sell more units.

Item-level profitability tracking

Track food cost and gross profit by item over time. When an ingredient price spikes, you’ll see which items are affected and can reprice or re-engineer those first. For a system that supports recipe costing and reporting out of the box, see our best restaurant POS systems South Africa comparison.

Tafela includes recipe costing and sales analytics so you can see plate cost, contribution margin, and sales mix by item. You can link ingredients to menu items, track cost of goods sold, and run reports that show which dishes are Stars, Plowhorses, Puzzles, or Dogs without leaving the system. That makes it easier to set prices, spot items that need attention, and re-run your menu engineering matrix whenever costs or sales change. See how Tafela works.

Use this checklist when you review or update your menu pricing.

Calculate plate cost for every item — Use your recipe builder or a spreadsheet; include all ingredients and consumables per portion.
Set a target food cost % — Use 28–35% for full-service (e.g. 30%); adjust for your concept and location.
Apply cost-plus — For each item: selling price = plate cost ÷ target food cost %. This is your minimum price.
Run menu engineering — Export sales and cost data; classify items as Stars, Plowhorses, Puzzles, Dogs. Plan actions for each quadrant.
Adjust for perceived value — Where you have strong presentation, location, or story, consider pricing above cost-plus within reason.
Optimise menu layout — Place Stars and high-margin items in prime positions; use anchoring and descriptions to support margin.
Plan for inflation — Schedule price reviews at least twice a year; prefer small, gradual increases and recipe re-engineering over one big hike.
Use POS reports — Review sales mix and contribution margin regularly; update your matrix and prices as data changes.

For more on launching and running a restaurant in SA, see how to start a restaurant in South Africa. Once your pricing is in place, keep an eye on actual vs target food cost each month — if the percentage drifts up, revisit plate costs, portions, and waste before defaulting to another price increase.

Frequently Asked Questions

At least twice a year — for example, after winter and after summer — and whenever you notice a sustained rise in ingredient costs. If food inflation is high, consider quarterly reviews. Use your POS and food cost reports to spot when actual food cost % drifts above your target.

What markup should restaurants use?

Markup depends on your target food cost percentage. If your target food cost is 30%, your markup on cost is 1 ÷ 0.30 ≈ 3.33 (i.e. you need to charge about 3.33 times your plate cost). So a R40 plate cost → R133 selling price. There is no single “correct” markup; full-service restaurants in SA often aim for 28–35% food cost, which implies markups in the 2.9–3.6 range on food.

How do I raise prices without losing customers?

Raise gradually (e.g. 3–5% every 6–12 months), prioritise less price-sensitive items, and add perceived value where you can (better plating, storytelling, quality cues). Avoid a single large increase. Many customers won’t notice small changes, especially if quality and portion consistency stay the same.

The menu engineering matrix has four quadrants based on profitability and popularity: Stars (high profit, high sales — promote), Plowhorses (low profit, high sales — re-engineer), Puzzles (high profit, low sales — reposition), and Dogs (low profit, low sales — remove or replace). You need sales data and food cost per item from your POS to build it.

Conclusion

A clear restaurant menu pricing strategy protects your margins and keeps you competitive. Start with cost-plus so every item has a defensible floor price. Layer on perceived value where your concept supports it. Use menu engineering to classify items into Stars, Plowhorses, Puzzles, and Dogs, and act on each quadrant. Apply simple psychology in menu design — anchoring, placement, and description — to steer orders toward your best margin items. When food costs rise, adjust prices gradually and re-engineer recipes where possible. And use your POS: sales mix and contribution margin reports turn guesswork into data-driven decisions.

Tafela’s recipe costing and sales analytics make data-driven menu pricing straightforward. See how Tafela works for your restaurant or hotel.