Every coffee shop needs a menu.
Every menu needs menu items.
And every menu item needs a price.
That’s why coffee shop owners and operators are no strangers to the concept of “menu pricing” — A.K.A. the process of assigning a price to each of your coffee shop’s menu items.
Now, in theory, menu pricing sounds pretty straightforward. All you’re doing is matching numbers to items based on what you want to earn, right?
Right… in theory.
But, in practice, menu pricing isn’t a simple mix-and-match game, assigning random menu items prices that “sound about right.”
It requires calculated thinking, data and analytics, deliberate planning…
Y’know, sort of like a menu pricing strategy that guides the whole process from start to finish.
(See what we did there?)
In this blog, we’re taking you through all things menu pricing strategy, from what it means and why it matters to five different strategies you might want to try at your coffee shop.
We’ve also linked our free food cost calculator to help with your menu pricing calculations (because nobody really likes doing manual math, do they?).
Let’s get into it.
What is a menu pricing strategy for coffee shops?
A coffee shop menu pricing strategy is a way of intentionally pricing out your coffee shop’s menu, using specific factors and considerations to guide your pricing decisions.
Now, there are tons of unique menu pricing strategies out there — which we’ll talk about in a bit — but they’re all based on the same few principles and concepts.
- Customer demographics — Who does your coffee shop serve? What kind of prices do they expect? What are they willing to pay more for (i.e. what do they like best)?
- Operational costs — What are your current menu items’ food costs? What’s your minimum price to make a profit? What other costs do you need to account for?
- Competition and market rates — What are other coffee shops charging for similar items? What’s your USP and how does it impact your prices? How can you stand out?
- Consumer psychology — What do your guests value that only you can offer? How do you make them feel special? How can you make them feel like your prices are “worth it”?
- Menu design — Have you used menu engineering to find your menu’s Plowhorses, Stars, Dogs, and Puzzles? Does your menu design account for those findings?
For some strategies, customer demographics are their North Star. For others, it’s all about food and operational costs. And for others yet, it’s a combination of multiple things.
But, regardless of which principle or concept a menu pricing strategy priorities, the goal among all strategies is the same:
Ensure your coffee shop’s menu items are actually turning a profit.
(And luckily, there’s no “right” or “wrong” way to do that — you get to decide what works!)
Don’t worry — menu pricing math gets a lot simpler with our free calculator
Why a menu pricing strategy matters to coffee shops
The number one reason menu pricing matters to coffee shops is because profitable menus matter to coffee shops.
Turning a profit is the only way for your coffee shop to stay up and running, making effective menu pricing a “must” for your business to stay afloat. But, outside of the non-negotiable impact of profit, there are a few other ways menu pricing matters to coffee shops, too.
- Menu pricing can impact your guest’s perception of your menu
- Menu pricing can dictate your position in a competitive market
- Menu pricing can affect the perceived value of your menu
(Plus, you can’t even have a complete menu without menu pricing — it’s phase 2 in the menu creation process!)
What are the most common menu pricing strategies?
1 — Cost-plus menu pricing
What it is
Cost-plus menu pricing starts by taking the production cost of each menu item — the “cost” bit — then adding a fixed, pre-determined profit margin — the “plus” bit. The combination of these two numbers results in your menu item’s final price.
Example
- Your coffee shop’s vanilla latte costs $4.50 to make
- You want a profit margin on all menu items of 15%
- You price your vanilla latte at $5.20 ($4.50 + 15%)
|
PROS |
CONS |
|
Profit calculations are simple and straightforward |
Doesn’t account for industry- or market-wide changes |
|
Fixed profit margin is easy to adjust as costs change |
Doesn’t factor in your coffee shop’s unique value proposition |
2 — Competitive menu pricing
What it is
Competitive menu pricing is when your coffee shop uses competitors’ menu prices as a guideline for your own. You can approach competitive menu pricing in several ways depending on your coffee shop’s goals (which we’ve broken down in the example below).
Example
- You price your coffee shop’s menu lower than your competitors’ menu.
- This positions your coffee shop as the better, more cost-effective option, a good strategy for catering to value-conscious guests.
- You price your coffee shop’s menu higher than your competitors’ menu
- This positions your coffee shop as the more high-end, high-quality option, a good strategy for catering to exclusivity-seeking guests.
- You price your coffee shop’s menu the same as your competitors’ menu.
- This positions your coffee shop as unique outside of pricing, a good strategy for enticing guests to experience your unique value proposition.
|
PROS |
CONS |
|
It’s simple and fast to implement (the only barrier is competitor research) |
Competitors’ prices might be too low for your needs |
| It can potentially boost profits if your costs are lower than your competitors |
Competitors’ prices might not be working for them either |
Ditch the manual math in one click with our free food cost calculator.
3 — Value-based menu pricing
What it is
Value-based menu pricing involves establishing item prices based on what you and your guests perceive the item’s value to be. This strategy leverages your coffee shop’s less tangible factors like customer experience, ingredient quality, uniqueness, and exclusivity to assign a perceived value to each menu item.
Example
- You conduct a customer satisfaction survey before redoing your menu pricing
- Data reveals your Gingerbread Latte has generated rave reviews from guests of all kinds
- Your new menu has a higher-priced Gingerbread Latte based on its higher perceived value
|
PROS |
CONS |
|
High-quality items at a high-quality price can improve your customers’ value perception |
It’s not easy to collect the right guest data to inform value-based decisions |
|
Value pricing uses real guest data, making it a largely customer-focused approach |
It’s not an evergreen strategy; guest perceptions can (and do) rapidly change |
4 — Bundle menu pricing
What it is
Bundle menu pricing is when your coffee shop combines multiple items — AKA a bundle — and prices them as a complementary unit versus individual items. Coffee shops often make bundled items unavailable to purchase individually, promoting exclusivity while demonstrating the bundle’s value compared to other items.
Example
- Your coffee shop has a best-selling Southwest salad and not-so-best-selling BBQ sandwich
- Instead of removing the Cajun sandwich from the menu (or drastically reducing the price), you bundle it as an exclusive, available only as a bundle with the Southwest salad
|
PROS |
CONS |
|
Guests are encouraged to spend more per visit (and often feel it’s a better deal, too) |
Guests might be disappointed that certain items are only available in a bundle |
|
It’s easier to move less popular products when they’re bundled with big sellers |
Profit margins can be lower when items are sold in bundles versus individually |
5 — Psychological menu pricing
What it is
Psychological menu pricing involves assigning a price to your coffee shop’s menu items, then enacting different elements of consumer psychology to (subtly) impact your guests’ perception of those prices. At its core, psychological menu pricing is intended to convince your customers that your items are justifiably priced — without saying it outright.
Example
- Your coffee shop has a Pumpkin Spiced Latte and croissant combo priced at $10.00
- You notice sales have been lower than you’d like, so you change the combo price to $9.99 to be more appealing to customers
|
PROS |
CONS |
|
These strategies are inexpensive (or free) to implement in-house |
Pricing led by consumer psychology might make guests feel manipulated |
|
Psychological menu pricing is easy to adjust and experiment with |
Future price changes can be difficult to justify since guests become accustomed to deals and discounts |
Final thoughts
Whether you give competitive menu pricing a shot or you decide that psychological menu pricing is where it’s at, remember:
Menu pricing strategies are dynamic and flexible.
There may be a day when your priorities change, or your menu items get a head-to-toe makeover. If (or when) either of those things happen at your coffee shop, you can simply change your menu pricing strategy to match.
And that’s the nicest thing about strategies like these ones — they get to grow with you.
Choosing the right menu pricing strategy starts with knowing the right prices.
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