PRODUCT CONTRIBUTION MENU ENGINEERING BREAK-EVEN ANALYSIS CHAPTER 12 PRICING PRODUCT CONTRIBUTION MENU ENGINEERING BREAK-EVEN ANALYSIS

PRODUCT CONTRIBUTION IDENTIFIES WHETHER YOUR MENU PRICES ARE HIGH ENOUGH TO ENSURE THAT THE AMOUNT REMAINING AFTER ALL VARIABLE COSTS HAVE BEEN SUBTRACTED IS SUFFICIENT TO COVER YOUR FIXED EXPENSES INCLUDING PROFIT.

PRODUCT CONTRIBUTION ANALYSIS

PRODUCT CONTRIBUTION ANALYSIS

PRODUCT CONTRIBUTION ANALYSIS

PRODUCT CONTRIBUTION ANALYSIS

PRODUCT CONTRIBUTION ANALYSIS

MENU ENGINEERING MENU ENGINEERING IS A MARKETING ORIENTED APPROACH TO EVALUATE CURRENT AND FUTURE MENU PRICING, DESIGN, AND MENU CONTENT USES SALES MIX AND PRICING MENU ENGINEERING IGNORES THE QUESTION “WHAT IS A SATISFACTORY FOOD COST ?” AND ASKS INSTEAD “ARE WE GETTING A REASONABLE CONTRIBUTION TO PROFIT FROM THE SALES MIX?”

MENU ENGINEERING THREE ELEMENTS CUSTOMER DEMAND MENU MIX CONTRIBUTION ANALYSIS

CLASSIFICATIONS STARS PLOW HORSES PUZZLES DOGS

MENU ENGINEERING STEP ONE FIND THE AVERAGE CONTRIBUTION MARGIN THE AVERAGE CONTRIBUTION MARGIN IS CALCULATED BY DIVIDING THE TOTAL MENU CONTRIBUTION MARGIN BY THE NUMBER OF ITEMS SOLD

MENU ENGINEERING LOOK AT EXAMPLE #1 THE AVERAGE CONTRIBUTION MARGIN IS $ .59 CALCULATED AS FOLLOWS: $8100.23 DIVIDED BY 13,658

MENU ENGINEERING STEP 2 IS TO CLASSIFY THE MENU MIX AS HIGH OR LOW. TO DO THIS USE THE FOLLOWING FORMULA: (100/#OF ITEMS ON MENU] X 70% IN THIS EXAMPLE THERE ARE 22 MENU ITEMS (100/22) X .7 = 3.2% ITEMS WHOSE MENU MIX IS GREATER THAN 3.2% ARE CLASSIFIED AS HIGH AND THOSE LESS THAN 3.2% ARE CLASSIFIED AS LOW

MENU ENGINEERING QUADRANT ANALYSIS EACH MENU ITEM IS PLOTTED WITH A QUADRANT OF A GRAPH ACCORDING TO THE FOLLOWING: MENU MIX CONTRIBUTION MARGIN

STAR PUZZLE QUADRANT ANALYSIS DOG PLOW HORSE SMALL SODA MENU MIX % 16% STAR 14% SMALL SODA MENU MIX % PLOW HORSE 12% 10% OCEAN SPRAY 8% 6% SM. COFFEE 4% LARGE SODA DOG PUZZLE 2% HOT COCO SM. TEA 10 20 30 40 50 60 70 80 90 100 CONTRIBUTION MARGIN

BREAK EVEN SALES ANALYSIS BREAK EVEN SALES ANALYSIS IS THE POINT IN SALES OR UNITS NEEDED TO SHOW NO LOSS OR PROFIT. INFORMATION NEEDED FIXED COST VARIABLE COST

FIXED AND VARIABLE COSTS FIXED COST VARIABLE COST RENT FOOD FOOD CHEMICALS INSURANCE CHEMICALS RENT COMMISSIONS LABOR INSURANCE LABOR COMMISSIONS REMEMBER FIXED COST IS IN $$$ VARIABLE COST IS IN %%%%

BREAK EVEN SALES ANALYSIS FORMULA FOR BEP IN SALES TOTAL FIXED COST (100% - TOTAL VARIABLE COST) DO PROBLEM #1

PROBLEM #1 DETERMINE BEP IN SALES FOOD 39.9% LABOR $1,200 COMM 5% PAPER 4% CLEANING $10.00 TELEPHONE $2.00 OFFICE SUPPLIES $2.00 ADV & PRMO 3%

PROBLEM #1 VARIABLE COST FIXED COST 51.9% = $2,523.91 COMM 5% PAPER 4% FOOD 39.9% ADV 3% 51.9% FIXED COST LABOR $1,200 CLEANING $10 TELEPHONE $2 OFFICE $2 $1,214 $1,214.00 100% - 51.9% = $2,523.91

PROBLEM #2 DETERMINE BEP IN SALES FOOD 39.9% LABOR $1,200 COMM 5% PAPER 4% CLEANING $10.00 TELEPHONE $2.00 OFFICE SUPPLIES $2.00 ADV & PRMO 3% PROFIT OF 10%

PROBLEM #2 VARIABLE COST FIXED COST 61.9% = $3,186.35 COMM 5% PAPER 4% FOOD 39.9% ADV 3% PROFIT 10% 61.9% FIXED COST LABOR $1,200 CLEANING $10 TELEPHONE $2 OFFICE $2 $1,214 $1,214.00 100% - 61.9% = $3,186.35

PROBLEM #3 DETERMINE BEP IN SALES FOOD 39.9% LABOR $1,200 COMM 5% PAPER 4% CLEANING $10.00 TELEPHONE $2.00 OFFICE SUPPLIES $2.00 ADV & PRMO 3% PROFIT OF $500

PROBLEM #3 VARIABLE COST FIXED COST 51.9% = $3,563.41 COMM 5% PAPER 4% FOOD 39.9% ADV 3% 51.9% FIXED COST LABOR $1,200 CLEANING $10 TELEPHONE $2 OFFICE $2 PROFIT $500 $1,714 $1,714.00 100% - 51.9% = $3,563.41

. GRAPH VIEW OF BEPA SALES TOTAL COST PROFIT VARIABLE COST BEP FIXED COST