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 do??? Make sure the menu prices cover operating costs & be fair to customers

Pricing of Food Why is one more expensive than the other? KFC Fried Chicken Dinner $4.99 and Chili’s Chicken Crisper Dinner $ tip

Why so much? On the menu a meal is $10.00 – the food to prepare that meal costs $2.00. What is the other $8.00 for?

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.

What is 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%.

Food Cost Average The Average Food Cost is 28-42% and depends on the food establishment, location, and so many other factors. Most restaurants have a specific percent and manager and chefs must work hard to meet that percent and not exceed it. Some meals like pasta might be less than 28% and some with lots of protein like steak might be higher than 42%, but it will average out.

Where are food costs low? Places you are “captive” – they can make a fortune!! –Disneyland –Recreation locations (Yellowstone, Lake Powell, etc… high food cost might be because of location) –Movie Theaters –College and Professional Athletic Events

Where are food costs high? Places where they make more money other ways but they need to get you to come – so the food is cheap. They make little no money from the food, but when you’re there you’ll spend money in other ways. –Las Vegas (casinos) –Ikea

Recipe Precosting OH – 9.12 Recipe: Chicken (Turkey) Tetrazzini Yield: 46portionsPortion Size: 1/24 (12" x 20" x 2" pan) Total Ingredient Cost $89.83 Cost Per Portion =Total Ingredient Cost ÷ Number of Portions $0.94 (rounded) = $89.83 ÷ 96 IngredientAmountPurchase UnitCost Per Purchase Unit No. of Purchase Units Ingredient Cost Spaghetti 6 lb.(lb)$ $ 6.18 Margarine 2 lb.(lb) Celery 2 qt.Bunch.991.8(1) 1.78 Onions 2 qt.(lb) (2) 3.72 Flour 1 lb., 4 oz.(lb) Salt 2.5 oz.(lb) (3) Pepper 1 tsp(lb)--- Chicken Stock 2 gal., 2 c (4) Chicken 12 lb., 8 oz.(lb)2.3526(5) Mushrooms 2 c(lb) (6).95 Green Pepper 3 c(lb) (7) 2.52 Bread Crumbs 2 qt.(lb) (8) 3.33 Sharp Cheese 2 qt.(lb) (9) 5.70

Menu Precosting OH – 9.13 Menu Item: Fresh White Fish Dinner Precosting Date: 8/03/20XX Type of ItemMenu ItemCost Per Serving EntréeFresh White Fish$ 4.23 Potato Three Choices Daily 0.37 Vegetable Four Choices Daily 0.42 Salad Tossed Green, Caesar, Spinach 1.12 Dressing 5 Choices Daily 0.37 GarnishLemon Wheels 0.02 Bread Loaf 0.27 Butter Butter/Margarine 0.06 Condiment(s) 0.03 Total Entrée and Accompaniments Cost: $6.89

Pricing Video

Pricing Methods Factor Method Markup method Contribution Margin Average Check Method Competitor Pricing Psychological Pricing

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: If you have a club sandwich and sweet potato fries cost $1.50 to make $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… $1.25 /.25 = $5.00 (selling cost) The salad & half a sandwich would be priced at $5.00 Markup-On-Cost: Moderate Risk

Food Cost Formulas Cost of Food Food cost % = Minimum menu price

Food Cost Example 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 sides (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. So, then your prices would increase. Get the picture? Every thing that goes onto the customers plate needs to be accounted for.

Food Cost Example cont. 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 $ If you bumped it up to $29.99, your food costs would drop below 30%, which means you make a bigger profit.

Examples What should you price the Chicken Fried Steak Dinner? Chicken: $1.50 White gravy: $0.35 Mashed Potatoes: $0.45 Green beans: $0.12 Food cost percentage: 30% (0.30) = ?

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 = $ –The restaurant serves around 20 meals a day, averaging 800 a month –The base food cost for the roast beef sandwich is $2.00 What should the price be? –800/$ = 5.00 (contribution margin) –$ $2.00( Food Cost) = $7.00 (Selling Price) Contribution Margin Method: Moderate Risk

Bellringer 3/9 You want to add a Hamburger to your menu. It costs you $3.50 to make the hamburger. You desire a 30% food cost. What is your selling price?

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 $ 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 priced at $6.99 (moving from one dollar category to another influences how customers view the value they get for their money) Psychological Pricing: Moderate Risk

Odd Pricing Strategy The odd pricing strategy prices products just below the whole dollar amount. For example, instead of charging $5 for a product you might charge $4.99. Buyers associate the price closer to $4 than $5 even though it is only one cent less.

Sample Problem Work by yourself on a piece of paper: You want to add a Spanish Omelet to your breakfast menu. You want the food cost to be 30%. It costs you $2.25 to make. Using the markup method, what is selling price?

Solution Convert food cost to decimal 30%= 0.30 Divide the food cost by the food cost % $2.25/0.30= $7.50 Selling price is $7.50 or you can charge $7.95

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.