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There’s a conversation that comes up in almost every coaching call we have with café, restaurant, and bar owners across Australia. It goes something like this.
We ask what the last price increase looked like. There’s a pause. Then: “We haven’t really touched prices in about two years.” Or: “We put up a few things but kept the most popular items the same because we didn’t want to lose any customers.”
Then we look at the numbers together. And the margin is exactly where you’d expect it to be for a business that hasn’t changed prices while its costs have gone up every quarter.
Underpricing is one of the most common and most costly decisions in Australian hospitality. Not because owners don’t know it’s a problem. Because raising prices feels like a risk, and keeping them the same feels like safety.
What Underpricing Actually Costs
Most operators think about a menu price increase in terms of what they might lose. A few complaints. Some regulars who notice. The customer who says something on the way out.
What they don’t think about is what underpricing is already costing them.
Consider a café doing $25,000 a week. Food cost percentage has crept from 28% to 33% over two years as supplier costs have risen but menu prices haven’t moved. That’s $1,250 a week in margin that’s disappeared. Not because anything got worse. Because nothing got adjusted.
Over a year, that’s more than $65,000 in lost margin. Money that was theoretically there, that the business worked for, and that quietly evaporated because the menu stayed the same.
This is what underpricing looks like in practice. Not a dramatic loss. A slow, invisible drain.
What Actually Happens When Operators Raise Prices
The fear is real and worth naming. Hospitality owners know their customers. They’ve built relationships over years. The idea of changing a price and having someone walk out feels genuinely threatening.
But when we look at what actually happens when operators do raise prices, the pattern is consistent.
Jackson raised his prices and saw net sales increase by 8%. Some customers noticed. Not many had negative comments.
Dan increased prices by 5 to 10% across his menu, opened on a day he’d previously kept closed, and did it without adding a single extra staff member.
Christian launched a new menu with price increases across the board. No pushback from customers. He finished the month with a 5% profit margin, a number that hadn’t appeared in his business before.
Kate put 25 cents on prices across both her businesses. No customer pushback at all.
In case after case, the feared outcome — the backlash, the walkouts, the reviews — didn’t arrive. What arrived was margin.
That’s not to say price increases are without risk. They require thought, timing, and positioning. But the risk of raising prices is almost always smaller than operators expect. And the risk of not raising them is far larger than most operators account for.
How to Know If Your Pricing Is the Problem
Before you can fix underpricing, you need to be able to see it. And that requires looking at each item on your menu, not just the business overall.
A dish that feels profitable because it sells well might be running at 38% food cost when your target is 28%. The volume is masking the margin problem. Meanwhile, items that feel expensive to customers might actually be your best performers from a profitability standpoint.
The question worth asking about every item on your menu is: what is this dish actually costing me to produce, and what margin is it generating? Not based on gut feel, but based on the actual numbers.
The industry benchmark we work toward is a food cost around 28 to 30%, but this can differ depending on the type of hospitality business you run. But, when operators run a proper menu analysis and see where their dishes actually land, the results are almost always surprising. Some items that feel like staples are quietly bleeding margin. Others have room to carry more.
This is where pricing confidence comes from. Not from guessing what the market will bear, but from understanding what your menu actually costs and setting prices that reflect that reality.
The Signs You’re Underpriced
A few things to look for in your own numbers.
If your food cost percentage has crept up over the past 12 to 24 months without a corresponding price adjustment, you’re underpriced. Supplier costs have increased across the board in Australian hospitality. If your prices haven’t moved to compensate, the margin has absorbed it quietly.
If you’re busier than ever but the profit isn’t reflecting it, underpricing is often the explanation. Revenue goes up, labour goes up to service the volume, costs go up, and margin stays flat or shrinks. More work, same result.
If you’re reluctant to look at a price review because you assume customers will leave, that reluctance is worth examining. The operators above — Tristan, Dan, Christian, Kate — all felt the same thing before they did it. The outcome was different to what they expected.
The Compounding Problem
Underpricing doesn’t stay still. It compounds.
When margins are thin, the business starts making decisions from a position of shortage. Investment in the team gets cut because there’s nothing to invest. The roster gets stretched. Small quality slips happen because every cost feels like a threat. And then something goes wrong — a supplier price jump, a quiet month, a key staff member who leaves — and there’s nothing in the margin to absorb it.
The price increase that felt too risky two years ago has now become unavoidable. But now it needs to be larger, faster, and it’s happening at the worst possible time.
This is why underpricing is a risk, not a safe choice. The status quo has a cost. It’s just not always visible until it’s compounded into something much harder to fix.
What to Do With This
The most useful thing you can do right now is run a proper analysis of your menu. Not a broad sense of whether things feel right, but a line-by-line look at food cost versus selling price, and where each item sits against the industry benchmarks worth holding to.
If you want a starting point, we’ve built a menu testing tool that walks you through this process. It analyses your dishes against industry cost standards and tells you clearly where the pricing gaps are — not as a judgment, but as information you can actually use.
Click here to use the recipe calculator: https://lm.foodiecoaches.com/recipe-calculator/
If your café or restaurant is currently doing under $17,000 a week in revenue, the Margin Maximiser program was built for exactly where you’re at. It’s designed to help operators at the foundation stage find the margin that’s already in the business — through food costing, menu pricing, and waste reduction — so that revenue growth actually shows up in the profit.
Apply for the Margin Maximiser program here: https://marginbooster.foodiecoaches.com.au/program
About the Author
Tim Kummerfeld is the founder of Foodie Coaches, an Australian hospitality coaching company that has worked with more than 2,000 café, restaurant, bar, takeaway, and food truck owners across Australia, New Zealand, and beyond. Tim is an accountant by trade and hosts the Make Restaurants Profitable podcast.