Pricing your Menu

Pricing your Menu
Objective Pricing Methods:
• Simple Mark-up Pricing Method
• Contribution Margin Pricing
Method

Objective Pricing Methods
• Simple Mark –Up Pricing Methods
– Ingredient Mark – Up
– Prime Ingredient Mark – Up
– Mark – Up with Accompaniments Costs
• Contribution Margin Pricing Method
• Pricing considerations

• Simple Mark – Up Pricing Methods
– It considers a Mark – Up from the Cost of
Goods Sold (In the case of a Menu Item,
that would be the Standard Food Cost).
– The Mark – Up is designed in such a way
that it covers all Costs to Yield the Desired
Profit Levels.

• Simple Mark – Up Pricing Methods:
a) Ingredient Mark – Up Method
 This Pricing method attempts to account
for all Product Costs (Food Cost in case
of Food and Beverage cost in case of
Beverage).
• Steps:
– Determine Ingredient Costs
– Determine Multiplier to Mark – Up Ingredient
Costs
– Determine the Base Selling Price.

a) Ingredient Mark – Up Pricing:
Multiplier = 1
Desired Food Cost Percentage
 Example:
 If you want to keep your Food Cost as
40% then:
 Multiplier = 1 / 40%
= 1 / .40
= 2.5

a) Ingredient Mark – Up Pricing:
 Assume that a Seafood Platter has a
Standard Food Cost / Portion of a Seafood
Platter is K 5.32
 If a Food Cost % of 40% is desired:
 Base Selling Price (B.S.P.) = K 5.32 x 2.5
= K 13.30

b) Prime – Ingredient Mark – Up Pricing
• This method differs from the
Ingredient Mark – Up Pricing in that
it concerns itself with only the
Prime Ingredient of the Menu Item.
• Only the Cost of the Prime
Ingredient is Marked Up. The
Multiplier is usually higher in Order
to account for the Cost of the
ancillary ingredients in the recepie.

(Example)
– Using the same example as above, Consider
the Cost of Prime Ingredient in a Seafood
Platter as K 2.65 (Prime Ingredient being
Lobster)
– The Multiplier = 5 (Higher than the regular M
to account for other ingredients)
– Hence, B.S.P.
= K 2.65 x 5
= K 13.25

– If the Cost of the Prime Ingredient increases to K
2.75 per Dinner Portion, then the new B.S.P.
= K 2.75 x 5
= K 13.75
– The Pricing method approach assumes that the
Cost of other Recipe Ingredients increases in
Proportion to the Cost of the Prime Ingredient.

c) Mark – Up with Accompaniment Costs:
– In this pricing method, the Operator
determines the ingredient costs based
only upon the Entrée items and then a
Standard Accompaniment cost / Plate
Cost is added before Multiplying by a Mark
– Up.

c) Mark – Up with Accompaniment Costs:
• Example:
– Entrée / Primary Costs = K 3.15
Plate Cost = K 1.25
Estimated Food Cost = K 4.40
Mark – Up Multiplier = K 3.30
Base Selling Price = K14.52

• Determining the Multiplier:
i. The Mark – Up Pricing Methods are simple
to use and hence are commonly used in the
Hospitality Industry.
ii. A significant disadvantage involves
determining the Desired Food Cost %.
iii. Pricing method does not reflect higher /
lower Labor Costs / Utility Costs associated
with the Menu Item.

• Contribution Margin Pricing
Method:
– Contribution Margin
= Selling Price – Food Cost
– We can define Contribution Margin as the
Amount left after deducting the Food Cost
from the Selling Price of the Menu Item.
This is amount left behind to meet all Non
Food Expenditure and Profit
Requirements.

• Contribution Margin Pricing Method:
– Example: Consider the given data obtained from
the Operating Budget of the Restaurant:
• Non – Food Costs = K695,000
• Profit Required = K 74,000
• No. of Guests Expected to be served = 125,000
• With the above information, compute the
Base Selling Price (B.S.P) of a Menu Item
with a Food Cost per portion of K4.60.

• Contribution Margin Pricing Method:
– Step A)
Determine the Avg. C.M. per Guest:
Avg. C.M. / Guest = (Non F.C. + Profit Req.)
Total No. of Guest Served
= (K 695000 + K 74000) / 125000
= K 6.152
– Step B)
Determine the B.S.P:
B.S.P. = K 4.60 + K 6.152 = K 10.8

Pricing Considerations
• The Base Selling Price is the Starting
Point for deciding the S.P. of a
Menu Item. The B.S.P. is further
subjected to further assessment
based on several factors.
• Factors upon which the S.P. is
decided:
a) Concept of Value
b) Law of Supply and Demand

Pricing Considerations
• Factors upon which the S.P. is
decided:
– Volume Concerns – Higher the
Volume / Turn Over lower the
Overheads and vice versa.
– Competition
– USP – Unique Sales Proposition

Pricing your Menu

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