Many restaurant brands are currently updating their pricing for the next quarter, so today I’ll share a real-life example of how not to set menu prices—and what to do instead.

The brand was in the casual dining space with a broad menu of nearly 100 items across 12 categories (burgers, salads, skillets, appetizers, etc.). They had a very “interesting” approach to setting menu prices twice a year:

1. Calculate food cost for each item
2. Set a target margin for each category (which always happened to be a multiple of 5, like 25.5%)
3. Do the math, round the price to the nearest number ending in 49 or 99 cents, and voilà!

Ironically, they had built an entire process with spreadsheets to run this logic at every menu revision.

Here’s what’s wrong with this approach:

1. Your customers don’t care about your costs, especially not at the item level. Yes, monitor costs to maintain profitability, but (a) do this at the restaurant level, not by item, and (b) treat your desired profitability as a floor, not a fixed target.
2. Round numbers aren’t magical. There’s no good reason for multiples of 5 to be the “right” gross margin rate. Maybe the margin that optimizes your pricing is 26.83%—and that’s perfectly fine because customers never see this number. You bank dollars, not percentages; only your dollar gross margin matters.
3. Price points can be optimized by factoring in consumer psychology: price thresholds and “zones of indifference.”

If you’re revising prices using a spreadsheet full of food costs and margin formulas, stop immediately and try this instead:

1. Measure price elasticity of your items and sort from least to most price-sensitive.
2. Start with the least price-sensitive items and work down the list until you hit your floor margin (at the restaurant level, in dollars not percentages) assuming a minimum price increase (typically 10 cents in QSR and fast casual, sometimes 20 or 50 cents depending on your segment).
3. For price points, ask two questions:

9. Are we crossing a price threshold with this increase (e.g., from $9.99 to above $10)? If so, remove the item and replace it with the next one down the elasticity list.
10. Are there items with very low price elasticity that can afford more than the minimum increase (e.g., 20 cents instead of 10)?

This process helps you meet margin goals without impacting guest count or competitive positioning.