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 $ , Total Sales $16, »$ / $ =.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 = $ –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

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 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.