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

2. 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.

3. PRODUCT CONTRIBUTION ANALYSIS

4. PRODUCT CONTRIBUTION ANALYSIS

5. PRODUCT CONTRIBUTION ANALYSIS

6. PRODUCT CONTRIBUTION ANALYSIS

7. PRODUCT CONTRIBUTION ANALYSIS

8. 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?”

9. MENU ENGINEERING THREE ELEMENTS CUSTOMER DEMAND MENU MIX
CONTRIBUTION ANALYSIS

10. CLASSIFICATIONS
STARS
PLOW HORSES
PUZZLES
DOGS

11. 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

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

13. 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

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

15. 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

16. 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

17. 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 %%%%

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

19. 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%

20. 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% %
= $2,523.91

21. 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%

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

23. 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

24. 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% %
= $3,563.41

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