5 Pricing Mistakes Food Businesses Make (And How to Avoid Them)

You could have the best food in town, a prime location, and loyal customers—and still struggle to make money. Often, the culprit isn't quality or service. It's pricing.

This article is part of our comprehensive resource: The Ultimate Guide to Food Costing and Menu Pricing.

After working with hundreds of food businesses, we've identified the same pricing mistakes showing up again and again. Here are the top five—and exactly how to fix them.

Mistake #1: Not Knowing Your True Food Costs

• The problem: Many food business owners calculate costs by estimation. "This dish costs about $4 to make" becomes gospel without anyone actually measuring ingredients, accounting for waste, or factoring in prep time.

Why it hurts: If your estimate is off by even $1—which is easy when you're guessing—that's $1 less profit on every sale. Sell 100 of that item per week, and you're losing $5,200 per year on a single menu item.

The fix: Calculate the exact cost of your top 10 sellers. Weigh ingredients. Include everything. Account for waste and yield loss. Yes, it takes time—but it only needs to be done once, then updated when prices change.

Mistake #2: Pricing Based on Competition Alone

• The problem: "The restaurant down the street charges $14 for a burger, so we'll charge $13.50." This sounds logical but ignores a critical reality: you don't know their cost structure, rent, labor rates, or whether they're actually profitable.

Why it hurts: Copying competitor prices means inheriting their mistakes. If they're underpriced, you are too.

The fix: Start with your costs, then check competitors as a reality check. If your calculated price is significantly higher than market rate, you have three choices:

1. Find ways to reduce costs without sacrificing quality
2. Justify the premium through better marketing and positioning
3. Accept that this item might not work for your business

Mistake #3: Ignoring the "Set It and Forget It" Trap

• The problem: You set your menu prices when you opened—two years ago. Since then, ingredient costs have risen 8%, your rent increased, and minimum wage went up. But your prices? Still the same.

Why it hurts: Food cost inflation is relentless. If your costs rise 5% and your prices stay flat, your profit margin shrinks by 5%. Do this for a few years, and a healthy 10% profit margin becomes break-even—or worse.

The fix: Review prices quarterly. When you do raise prices:

• Small, regular increases (3-5%) are easier to absorb than rare, large ones
• Give advance notice to regular customers when possible
• Consider raising prices on new menu items rather than existing favorites
• Improve perceived value alongside price increases

Mistake #4: Undervaluing Your Time and Skill

• The problem: Especially common with cottage food businesses: you calculate ingredient costs, add a small markup, and completely ignore the hours you spent perfecting that recipe, preparing the food, and packaging it beautifully.

Why it hurts: If you spend 3 hours making $50 worth of cookies (after ingredient costs), you're earning $16.67 per hour—less than many entry-level jobs.

The fix: Factor your labor into every price. Set an hourly rate for yourself—at minimum $25-30/hour for skilled food preparation. Track your time honestly.

Mistake #5: One-Size-Fits-All Margins

• The problem: "We aim for 30% food cost on everything." While consistency sounds good, applying the same margin to every item ignores market realities and leaves money on the table.

The fix: Use differential pricing:

• Premium itemsSteaks and specialty dishes: aim for higher dollar margins, even if percentage is lower.
• High-volume basicsFries, drinks, bread: lower margins are fine because volume makes up for it.
• Signature dishesPrice based on uniqueness and demand, not just costs.
• Add-ons and extrasThese often have the best margins—price them strategically.

Your Pricing Action Plan

Here's how to audit your pricing this week:

1. Monday: List your top 10 selling items and calculate their exact costs
2. Tuesday: Compare your food cost percentage to industry benchmarks (28-35% for most restaurants)
3. Wednesday: Check competitor prices as a reality check (not as gospel)
4. Thursday: Identify items where you're underpriced and calculate the impact of small increases
5. Friday: Decide which prices to adjust and plan your implementation

Pricing isn't a one-time decision—it's an ongoing discipline. The businesses that master it aren't just more profitable; they're more sustainable, more able to pay fair wages, and more capable of investing in quality.

Don't let pricing mistakes quietly drain your business. Know your numbers, price with intention, and review regularly.

Learn More About Food Pricing

Explore our guides to become an expert at pricing your food products:

• Food Pricing Calculator for Small Food Businesses
• What Is Food Costing? A Complete Guide
• The Ultimate Guide to Food Costing and Menu Pricing
• How to Calculate Food Costs and Set Profitable Prices
• Pricing Guide for Home Bakers and Cottage Food Businesses