Toast's menu pricing guide says a price should be worked out backwards from cost: divide the plate cost by your target food cost percentage. It sets out formulas for COGS, food cost percentage, break-even point and maximum allowable food cost, which it says usually lands between 28% and 35%, then covers pricing models and menu psychology.
Start from cost, not from the restaurant next door
Plenty of menu prices are set by feel: what the competitor on the same street charges, what seems about right, what won't put regulars off. A detailed Toast guide to menu pricing argues for a stricter order of work. Cost data comes first, competitor prices second, and menu design and psychology are applied on top of both.
The four formulas behind a menu price
Toast relies on four calculations to do most of the work:
- COGS (cost of goods sold) = opening inventory + purchases − closing inventory.
- Food cost percentage = (opening inventory + purchases − closing inventory) ÷ food sales.
- Break-even sales = fixed costs ÷ ((sales − variable costs) ÷ sales). This is the level at which revenue exactly matches total cost, before any of it counts as profit.
- Maximum allowable food cost (MFC) = 100 − ((labour + monthly overheads + target profit) ÷ total sales), with the bracket expressed as a percentage. It is the ceiling a kitchen cannot go above and still make money.
Across the industry, Toast says, MFC tends to land in a 28% to 35% range. The right figure for any one kitchen, though, depends on its own labour and overhead costs.
Price = plate cost ÷ target food cost percentage
The central rule in the guide is to start from the plate cost and divide it by the food cost percentage you are aiming for; the answer is your price. Cost comes first and the price follows from it, rather than the other way round. In its worked example, if a dish costs $2.20 to plate and your target food cost is 32%, the minimum price is $2.20 ÷ 0.32, or $6.88. Those dollar figures are only illustrative. The division itself works in any currency, including rupees.
Prime cost: the number you can actually move
Toast groups COGS and labour cost together as prime cost, the restaurant's real variable cost base, separate from fixed costs such as rent. Rent cannot be adjusted from one week to the next, but prime cost responds to everyday operating decisions. An accurate prime cost figure depends on two habits:
- Standardised recipes, so every shift and every outlet produces the same dish at the same cost.
- Careful plate costing that tracks what each ingredient contributes to a finished, portioned dish, and is redone whenever a supplier changes a price.
Pick a pricing model that suits the concept
Instead of one default, the guide describes several pricing models:
- Cost-plus: a fixed markup on the full cost of the dish.
- Prix fixe: one fixed price for a set menu.
- Bundle pricing: several items sold together at one price to raise the average order value.
- Promotion-led pricing built around featured dishes.
- Upscale pricing: minimalist menus using whole numbers and no currency symbols.
- A short, farm-to-table style menu that changes with seasonal supply.
A quick-service outlet and a fine-dining room should not end up on the same model by default. The right choice depends on who the target guest is and how the kitchen buys its produce.
Menu psychology and checking the local market
On layout, Toast points to familiar menu psychology. Charm pricing ends a price in .99 rather than a round figure. In upscale settings, leaving the currency symbol off altogether keeps guests from thinking too consciously about cost.
The guide also sets out a practical competitor exercise:
- Gather the menus of 5–7 restaurants that compete in your market.
- Find the dishes that are directly comparable to yours.
- Note the highest, lowest and average price for each one.
- Then decide where your own dish should sit within that range.
Location changes what a market will accept. Toast's example is a burger priced several dollars higher in one city than the same burger sold 45 miles away, simply because the local market will pay more.
Value is more than the number on the menu
The guide ends on value. What a guest pays for includes service, the atmosphere of the room and how the food is presented, not only the dish, and competing to have the lowest price on the street erodes margin for every restaurant involved. Starting from true cost and then raising or trimming the price to reflect what that particular experience is worth protects margin better than a figure borrowed from a neighbour.
What this means for your restaurant
- Cost every dish from a standardised recipe, and re-cost it whenever a supplier changes a price.
- Set each price by dividing plate cost by your target food cost percentage, and work out your own maximum allowable food cost from your labour, overheads and profit goal.
- Before settling on a price, compare similar dishes on 5–7 local menus and note the high, low and average.
- Choose a pricing model that fits your format and your guests instead of copying another restaurant's approach.
Sources
This article summarises the reporting and guides listed above; the figures belong to those sources and are attributed in the text. Check anything that affects your business against your own platform agreements, payout statements and advisers.