MENU PRICING

OBJECTIVES The student will be able to: zUnderstand how to calculate menu prices using a variety of methods zUnderstand the psychological impact of prices

Cost-Based Menu Pricing zFood Cost Percentage zFactor Pricing zPrime Cost Pricing zPerceived Value Pricing Note: Each of these methods uses the cost of the food item as the starting point.

Food Cost Percentage Cost per Portion = Selling Price Food Cost %

Factor Pricing A variation on food cost % pricing is factor pricing, in which a multiplier is used to calculate menu prices. Step #1: Take the desired food cost % and divide it into 100 to arrive at a cost factor. Step #2: The cost of each menu item is then multiplied by the cost factor to arrive at the menu price.

Prime Cost Pricing The food service industry uses a figure known as prime cost to refer to the total of raw food cost plus direct labor. zPrime Cost = Food Cost + Direct Labor zPrime Cost % = Food Cost % + Direct Labor %

Perceived Value Pricing A rather backwards way of setting prices based on customer perceptions of appropriate prices. First determine the “market price” for the same or similar item. Then calculate what you can serve for that price.

Profit-Based Menu Pricing Unlike cost-based pricing methods, profit- based methods use desired profit as the starting point for calculations. zGross Profit Pricing: is based on the specific amount of profit that is historically produced by each customer.