Menu Pricing Menu Pricing Subjective Methods Reasonable Price
Menu Pricing
Menu Pricing • Subjective Methods • Reasonable Price (Usually Copying the Competition’s Prices) • Highest Price • Loss Leader • Lost Leader • Intuitive (Trial And Error)
Menu Pricing Objective Methods • The Factoring Method - Multiply the cost of ingredients by three (this method does not include labor or other costs) • Gross Margin Pricing - The formula is gross profit minus cost of goods sold divided by net sales. A gross profit margin of 0. 33: 1 means that for every dollar in sales, you have 33 cents to cover your basic operating costs and profit. This is a good method for dishes having a high cost of ingredients.
Menu Pricing • Prime Cost Method - The formula is to add the cost of labor and cost of food, and add a percentage for profit. This method is good for dishes that require a lot of preparation. • Competitive Pricing - Competitive pricing seeks to match what others charge for the same product or service. Conduct a market study and compare the prices to similar ones on your menu. That means pricing your product neither very far above or below what others charge. • Combination Pricing -This method considers all methods, factoring, gross margin, prime costs and competition, and tries to balance the prices of the competition with your costs and needs.
Developing a Pricing Strategy • you need to know the cost of goods for each of your menu items. • Standardize recipes • include all of the items that are served with the menu item. • it is better to over estimate your costs rather than under estimate them. • You will need to do an analysis of your sales and the current selling price of each menu item
Developing a Pricing Strategy Consider your demographic • Are you a restaurant for every day middle class diners, • a fancy option for those looking to indulge, • or a small establishment serving a primarily lowincome group? • Along with your base cost, your clientele will help you determine a proper price point.
Developing a Pricing Strategy Menu Prices and Food Costs • To keep food costs in line, it is important to have consistent portion control. • Ingredients are purchased in weight, count and volume. • Calculate the cost of all ingredients used in the production of a specific menu item (the actual item, seasonings, garnishes). • Total these costs and divide by a food cost you wish to achieve for that menu item. This determines a menu price.
Developing a Pricing Strategy • For example, a cheese burger with tomato, lettuce, and mustard on a wheat bun with a bag of chips has a total cost of all ingredients - $2. 10. To achieve a 30 percent food cost for this burger, you can calculate a menu price by dividing $2. 10 by 30 percent (. 30), which would give you a menu price of $7.
Developing a Pricing Strategy • Try to keep your food costs between 22 and 34%. If your food cost is 34%, that means you will be spending 34 cents out of every dollar food. This will leave you with 66% to cover your labor costs and other expenses
Food Cost • Food cost refers to the menu price of a certain dish in comparison to the cost of the food used to prepare that same dish. • In other words, how much you pay for food will determine how much you need to charge for it. Generally, food cost should be around 30 -35%. This means that if you pay $1. 00 for something, you need to charge minimum of $3. 34.
MENU PRICING EXAMPLES
Pricing a Filet Mignon Dinner. • The initial cost of a filet mignon dinner can be broken down into the following areas: • The beef filet costs you $6. 00 per portion • The wrap (the potato, vegetable, salad and bread that comes with the filet, as well as any condiments the guest asks for) costs $2. 50 • Therefore, the entire meal costs you $8. 50. If you wrapped the filet in bacon and topped it with herb butter (very tasty) your costs would increase. • Every thing that goes onto the customers plate needs to be accounted for.
Pricing a Filet Mignon Dinner. • The formula for costing goes as follows: • Cost of your product/. 35=menu price or $8. 50/. 35= $24. 29 • $24. 29 is the absolute minimum you need to charge in order to make a profit off the filet mignon dinner. • Of course, $24. 29 is an awkward looking number, so you might bump it up to $24. 99. • If you bumped it up to $29. 99, your food costs would drop below 30%, which means you make a bigger profit.
FACTOR PRICING METHOD • PRICES ARE SET TO ACHIEVE A (BUDGETED)TARGET FOOD COST PERCENTAGE FOR EACH ITEM • FOOD COST PERCENTAGES RANGE BETWEEN 25 -50% • A LOWER FOOD COST % RESULTS IN A HIGHER MENU PRICE • A HIGHER FOOD COST % RESULTS IN A LOWER MENU PRICE
FACTOR PRICING METHOD 1. DETERMINE THE FACTOR 2. APPLY THE FACTOR TO CALCULATE THE PRICE TO DETERMINE THE FACTOR USE THIS FORMULA 100% / TARGET FOOD COST % = FACTOR IF YOU TARGET FOOD COST PERCENTAGE IS 33. 3%, YOUR FACTOR IS 3. OO
FACTOR PRICING METHOD • TO CALCULATE PRICES , USE THIS FORNULA • FOOD COST X FACTOR =PRICE • IF YOUR ITEMS FOOD COST IS $3. 26 AND YOUR FACTOR IS 3. 00, YOUR CALCULATED PRICE IS $9. 78 • REMEMBER DO NOT USE THE CALCULATED PRICE; USE PRICING PSYCHOLOGY TO SET THE PRICE AT $9. 95 OR $ 9. 99
FACTOR PRICING METHOD • CALCULATE THE PRICES FOR THE FOLLOWING USING THE FACTOR PRICING METHOD MENU ITEM BUDGETED FACTOR FOOD COST % FOOD COST FRIES 27. 3 2. 60 STEW CHICKEN 40 13. 78 ROAST BEEF 37 12. 65 HAM STEAK 14. 78 29 SALE PRICE
FACTOR PRICING METHOD MENU ITEM BUDGETED FOOD COST % FACTOR FOOD COST SALE PRICE FRIES 27. 3 3. 66 2. 60 9. 52 STEW CHICKEN 40 2. 5 13. 78 34. 45 ROAST BEEF 37 2. 7 12. 65 34. 16 HAM STEAK 29 3. 45 14. 78 50. 99
Contribution Margin Pricing Method • Assume the budget indicates: – Food costs = $3. 60 • Non-food costs = $395, 000 • Profit goal = $ 50, 000 • 85, 000 guests • • Step 1: Determine the average contribution margin per guest. • Non-food costs + Profit Number of expected guests • • $395, 000 + $50, 000 85, 000 – • • = Average contribution margin per guest = $5. 24 Step 2: Determine the base selling price for the menu item (add the average contribution margin per guest to the item's standard food cost). – – $3. 60 (food cost) – + $5. 24 (contribution margin) = $8. 85 (rounded) (base selling price)
Contribution Margin Pricing Method • Assume a the food cost for a Prime Rib is $10. 79, non-food costs are $650, 000 and you profit goal is $500, 000, and you expect to serve a $150, 000 guests • Determine the average contribution margin per guest • Determine the base selling price for the Prime Rib
Contribution Margin Pricing Method • Average Contribution Margin per Guest = $650, 000 + $500, 000 $150, 000 = $1, 150, 000 $150, 000 = $7. 67 Base selling Price = $10. 79 + $7. 67 = $18. 46
- Slides: 21