Menu pricing

Food Cost Percentage method

Step 1 Determine the food cost Total food cost/total sales=Food cost percentage Refer to handout given: Total sales are $100,000 and cost of good sold (total food cost) is $33,000. $33,000/$100,000=0.33 or 33%

Food Cost Percentage

Step 2 Calculating the food cost Eg: Steak steak $3.83 Bake potato $.049 Sour cream $0.22 Tossed salad $0.52 Dressing $0.41 Onion ring $0.39 Total $5.86

Food cost percentage

Step 3 Calculate the menu price Item food cost food cost percentage =menu price $5.860.33= $17.76

Because

of food cost percentage method depends on the cost of the food and its preparation within the foodservice operation, an accurate food cost percentage will be different for each menu category: appetizer, salad etc. therefore using this method is not logical since restaurant will have different food cost percentage for each menu category.

Average check method

Only

can be use by the established restaurant In this method the average amount of money spent by the customer is used to determine a price category. Then all the price are set to fit into this category. The average check is determined for a specific period of time eg month.

Average check method

Basic formulation total revenue no of customer =average check This formula require information: Length of time period to use Total revenue for the specific period Number of seat in the restaurant Average turnover of those seats Number of days the restaurant is open in the specific period.

Average check method

Total revenue ____________________________________ number of seats x average turnover x number of days open = average check

Average check method

Eg: total revenue $100,000 number of seats 175 average turnover 1.5 times open for 30 days in specific month $100,000 ______________________ = $ 12.70 175 x 1.5 x 30

10

Average check method

Variation of meal period Let say the restaurant serve breakfast, lunch and dinner, there will be different average check for each meal period Then it is necessary to determine the revenue and turnover for each meal separately.

11

Determine the menu price

Once the average check has been determined the price range for all menu item must be determined price of menu item can be established within the identified price range. Previously the average check is $12.70 which can be use to establish the price range for the restaurant.. The price range could be set from $ 10.00 to $ 15.00/

12

Contribution margin method

Work for ala carte menu as well as menu item that comprise a meal (appitzer to dessert) Uses a wide data to determine a dollar amount that need to be added to each major menu items food cost. In restaurant operation each menu item must contribute a dollar amount to the running of foodservice operation. The items price can be calculated as the cost of the items food plus dollar amount called the items contribution margin.

13

Contribution

margin = gross profit in foodservice. It consist of non food cost and profit. Non food cost + profit + food cost = menu price. Usually in foodservice operation does not know the cost of nonfood factors (rent, utilities, labor, etc) of individual menu item. Therefore these amount have to derived from the total nonfood cost and the total profit of entire operation.

14

Food cost +total nonfood +target profit __________________________ Number of customer = menu price $5.86 + 60,000 + 7,000 ____________________ 10,000 5.86 + 6.70 = 12.56

15

Straight markup pricing method

Set dollar amount markup method - By adding a fixed dollar amount to the food cost item. - Food cost + markup = menu price
-

Profit per menu item + labor cost per menu item + operating cost per menu item = mark up

16

Eg

restaurant would like 10,000 profit per month, if the average no of customer is 10,000 then the profit required is 1.00. If labor cost is 34,000, with 10,000 customers then labor cost is 3.40. Operating cost per month 26,000, customer 10,000 so operating cost per customer is 2.60 The markup sum of three amounts 1.00+3.40+2.60= 7.00 So if the food cost item is 5.86, 5.86+7.00= 12.86

17

Set percentage increase method - Percentage that are more general and avoid the problem with adding a fixed dollar amount to each entre food cost. - Food cost x percentage = markup - Markup /food cost = percentage - 7.00/5.86=119% - 119% should be add to food cost to get the menu price. If menu item is 4.27 the markup of 119% of 4.27 or 5.08 - 4.27+5.08 =9.35.

18

Another

way by multiplying the food cost by a total markup percentage.

Food

price 4.27 x (100% +119%) = 9.35 4.27 x 219 = 9.35

cost x (100% +percentage) =menu