Factors that Affect Menu Prices

Chapter 5

Factors that Affect Menu Prices

• Setting prices – Volume for prices– Competition– Prestige

• Demographics & type of services– Quick-service – volume intensive– Basic table – midlevel– Luxurious – elegant – fine-dining

Break – Even Analysis• Fixed costs – same despite change in sales– Rent interest– Depreciation or amortization– Insurance real-estate or property tax

• Variable cost - + or – with sales– Labor food– Beverage supplies– Employee meals & benefits– Utilities maintenance

• Total cost – FC + VC

Break – Even Analysis• Contribution Margin– Sales –expenses=CM

• Break-even – cost =sales• Hidden cost

Pre-costing Menu’s• Standardizing recipe– Consistency– Controlled labor – Scheduling– Predetermined product cost

• Discounts• Specialty items• Loss leader

Nonfood & Non-beverage Items• Rooms• Membership dues

Ideal Cost• Ideal vs actual• Tolerance to actual

Approaches to Pricing• BCG Matrix– Cows/plow horse – low growth & high market– Stars – high growth & high market– ?/puzzle – high growth & low market– Dogs - low growth & low market

• Contribution Margin• Informal approaches – Competitor– Market bear

Approaches to Pricing• Formal approaches – Derived FC %• Cost /% markup

– Pricing factor / markup / multiplier• 100/FC% = factor factor x FC = price

– Combined FC & LC (PC)• (FC+LC)/(FC%+LC%)

– Actual cost pricing• Combined cost (CC) = FC+LC+OC• CC /(1-10%)=price

• Rounding & font size– Nearest .25 increment

Approaches to Pricing• Formal approaches – Derived FC %• Cost /% markup

– Pricing factor / markup / multiplier• 100/FC% = factor factor x FC = price

– Combined FC & LC (PC)• (FC+LC)/(FC%+LC%)

– Actual cost pricing• Combined cost (CC) = FC+LC+OC• CC /(1-10%)=price

Approaches to Pricing• Rounding & print size– .25 increments under $5– .50 or .95 over $5

–Large font scares people– Always round up

Costs, Pricing & Profits• Lowest acceptable price – to both parties• Correct costing– Best price & quality sources

• Accurate pricing– Do it & be accurate

• Appropriate controls– Don’t under-estimate need for profit or time– Appropriate labor cost – setup – cleanup-

maintenance – cost facility

Computerization• Spreadsheets• Databases• Proprietary software