Pricing A Menu You have chosen your menu

Pricing A Menu

You have chosen your menu items, written enticing descriptions and created an amazing design…. now what? PRICING THE MENU!!

Factors to Consider… • Prices are too high = no customers/lose sales • Prices are too low = lose money/not cover operating costs • Operating Cost: is anything that is a cost of doing business So what do you have to do? ? ? • Make sure the menu prices cover operating costs & be fair to customers

Prices are Influenced by… • Labor: Menu items that take more time to create and more skill in preparation are often higher priced • Competition: Use your competition as a guide…see where they price similar items at • Customers: The type of customers your restaurant will attract influences prices • Atmosphere: Customers expect fine dining restaurants to have higher prices than more casual restaurants. • Location: Restaurants in cities usually have higher prices than restaurants in smaller towns.

Pricing Methods: Factor Method • Factor Method: Uses a pricing scale based on a percentage of the food costs needed to operate the restaurant successfully. • To Use: First: Determine what the food cost % should be • How do you find food cost %? – Divide the total cost of food by the total food sales • Total cost of food $4000. 00, Total Sales $16, 000. 00 » $16000. 00 / $4000. 00 =. 25 (Food Cost %)

Factor Method (cont. ) Next: Take the food cost % & divide it into 100% If you have a club sandwich and sweet potato fries cost $1. 50 to make. 25 / 1. 00 = 4 (factor) Finally: Multiply the factor by the cost of the menu item $1. 50 x 4 = $6. 00 (selling price) • Factor Pricing: Low Risk

Pricing Methods: Markup-On-Cost • To find the selling price using this way… 1 st: Take the food cost of an item and divide it by the desired food cost % Example: you want the food cost % to be 25%, a salad & half a sandwich cost $1. 25 to make… . 25 / $1. 25 (item cost) = $5. 00 (selling cost) The salad & half a sandwich would be priced at $5. 00 • Markup-On-Cost: Moderate Risk

Pricing Methods: Contribution Margin • Contribution Margin: is a pricing method where you add the average contribution margin per guest to the item’s standard food cost. • Example: you want to sell a roast beef sandwich… INFORMATION GIVEN… – the nonfood costs + the profit for a month = $4000. 00 – The restaurant serves around 20 meals a day, averaging 800 a month – The base food cost for the roast beef sandwich is $2. 00 • What should the price be? – 800/$4000. 00 = 5. 00 (contribution margin) – $5. 00 + $2. 00( Food Cost) = $7. 00 (Selling Price) • Contribution Margin Method: Moderate Risk

Pricing Methods: Average Check Method • This system prices items near an average check that you would like to see each customer spend • Example: – if you want the average check total of $10 per customer per lunch, your menu should be set so that customers will automatically order food & drinks that come out to that total • Cobb Salad $ 8. 75 + Soda $ 1. 75 = $10. 50 (cost of meal) • Average Check Method: Moderate Risk

Pricing Methods: Competitors’ Pricing • This system charges approximately what their competitors charge for similar menu items • It can be risky since each establishment has different overhead costs such as; rent, labor, food costs & profit. • Example: – “Pizza My Heart” charges $ 3. 50 for a slice of pizza…down the street is “New York Pizza” charges $3. 75 for a slice of pizza • Competitors’ Pricing: High Risk

Pricing Methods: Psychological Pricing • Once the selling price is determined using another method, this method can be used…this system is based on how a customer reacts to the menu prices. • Example: – A customer may be more willing to order a $7. 00 French dip sandwich with French fries if it is prices at $6. 95 (moving from one dollar category to another influences how customers view the value they get for their money) • Psychological Pricing: Moderate Risk

Math Menu Worksheet • Break into quad groups. • You will now create a math menu word problem worksheet. • The groups need to write up six different math menu problems, one from each category/ (method of pricing) • Methods are: factor, markup-on-cost, contribution, average check, competitor's pricing & psychological pricing • Once groups have come up with their math menu problems worksheet, they will join another quad group and exchange worksheets. • Each quad group will take the other quad group's worksheet and figure out the math menu problems that they have created. • Once each quad group has completed the math menu problems, they will check the other groups answers and review the steps/problems if any clarification is needed.