How much should you charge for your the items on your food truck’s menu? How do you know if that price is right? If your prices are too low, you’ll be working really hard for low profit margins. If they’re too high, many of your customers may seek out alternatives.
Because pricing is one of the most important drivers of a food truck’s profitability, getting your menu prices wrong can cause a significant dent in your bottom line, and it can make the difference between remaining profitable or having to shut down your mobile food business.
The most common mistakes food truck vendors make when it comes to pricing are usually due to a disconnect between price and value. When you undervalue your menu products, you set prices that are too low. On the other hand, over-pricing is a sign that your customers do not perceive the value of your food as indicated by your prices.
Here are the two biggest menu pricing strategy mistakes:
It goes without saying that you should know exactly how much it costs you to plate a dish from your food truck menu. However, this number should only serve as a price floor, not as an overall strategy. While taking your cost and adding a markup may seem like a good idea, this often isn’t the case. The main reason is because this approach completely leaves the customer out of the equation. In all honesty, they don’t care about your internal costs. Just because something is expensive to serve doesn’t mean it is perceived as valuable. On the other hand, something that is inexpensive to make may be extremely valuable to a hungry consumer. When it comes to pricing, customers think in terms of whether something is “worth it” to them. If it is, they’ll buy it; if not, they’ll pass. Aligning price with the perception of value is the key to getting it right.
The easiest way to set prices is to look at all your competitors’ prices and set your number somewhere between the highest and the lowest. After all, it may seem logical to sit right in the middle. There are several problems with this approach. For one, very few food service establishment menus are exactly identical. You need to know exactly how your products are different or better than your competition, and price based on the unique benefits you provide your customers. You also need to clearly communicate those benefits to the customers waiting in line to be served, so they understand what they’re getting for the price they’re paying. Last but not least, it is highly possible that your competitors are not pricing their products correctly in the first place, so following their lead can wreak havoc on your profitability.
While there is no real test to determine whether your prices are set correctly, knowing and understanding the way your customers think and make decisions will go a long way towards pricing for value. Using a strategic approach when it comes to pricing will help your food truck remain profitable over the long term.