there are two main ways to price menus. what is a comparative approach?
Food Costing
fifteen The Principles of Menu Engineering
Although y'all likely have a target overall food cost in your institution, not every menu item will behave exactly the same nutrient cost percentage. Some items are more plush than others, but most establishments will have a range of prices that all the carte items fit into. Consequently, information technology is important to balance the menu then that the depression and high food cost items work together to assistance y'all accomplish your target food cost. This procedure is called carte du jour engineering. ways balancing the high and low food cost items; it also includes strategically featuring or promoting items to help reach your targets.
Computing Carte du jour Detail Costs
The cost per portion derived from yield tests washed on the main ingredient of a menu item usually represents the greatest part of the cost of preparing the item (meet the department above on yield tests for more information).
However, of equal importance is the portion cost cistron. For instance, the portion toll gene can be used to make up one's mind the cost of a portion of the primary ingredient regardless of the price of the meat (which is often the master price factor) charged by the supplier every bit long equally the eating house's preparation of the meat remains unchanged. The cost per portion is determined by multiplying the portion cost gene by the packing house'due south toll per kilogram (or pound).
Quite often the cost per portion of the chief ingredient is used past itself to determine the selling price of a card item. This works well with items on an à la carte bill of fare as the bones main ingredient (such as a steak) is sold by itself and traditional add-ons (such as a baked potato and other vegetables) are sold separately.
As discussed earlier in this book, in many cases, some of the components will be the same, so a basic plate toll can be used to add together to the cost of the main poly peptide to get a total cost for the dish.
In dishes where the main ingredients are not sold as entities but every bit part of a prepared dish, the cost of all the items in the recipe must be determined to find an authentic portion toll price. In this case, a recipe item and price sail is used to determine the cost price of bill of fare items. (Refer back to the section on costing individual card items for more information.)
Once the potential cost of a menu item is determined, the selling price of the item can also be calculated by using the food toll percentage.
Food Cost Percentages
Equally you may recall, food cost percentage is determined by dividing the portion cost by the selling price:
food cost percentage = portion cost ÷ selling cost
If the portion cost is $four.fourscore and the selling price is $14.00, the food cost per centum is:
food cost percent = portion toll ÷ selling price
= $four.80 ÷ $14.00
= 0.34285
= 34.285%
= 34% (rounded off)
Some other way of expressing the food toll is as a cost marker-upwards.
The cost mark-upward is determined by reversing the food price percentage equation:
cost marking-up = selling price ÷ portion cost
The cost mark-up can also be adamant by dividing the food price percentage into 1. The equation so becomes:
price mark-upward = 1 ÷ nutrient cost percentage
In the instance in a higher place, where the portion cost is $1.20 and the selling price is $3.fifty, the price mark-upwardly can exist solved in the following ways:
cost mark-up = selling cost ÷ portion cost
= $14.00 ÷ $4.80
= 2.9166
= 2.92
or cost mark-upward = 1 ÷ nutrient cost percentage
= ane ÷ 34.285%
= one ÷ 0.34285
= ii.91674
= 2.92
The toll mark-up tin be used to determine a selling price when a portion cost is known by multiplying the toll marking-up and the portion cost:
selling price = portion cost × cost marking-up
For case, if the ingredients for a portion of soup costs $1.05 and the eatery has a cost mark-up of 3.6, the menu price of the soup is:
selling price = portion cost × cost marking-up
= $1.05 × 3.6
= $3.78
The restaurant would accuse at to the lowest degree $3.78 for the carte du jour item if it wants to keep its mark-up margin at 3.6, which is almost a 28% food cost pct. This cost might exist adjusted because of competition selling the same item for a different price, cost rounding policies of the restaurant or the whims of management. For example, many restaurants have prices that end in 5 or nine (such equally $iv.99 or $five.95). Prices on such menus tend to be rounded to the nearest number catastrophe in 5 or 9. No thing what the final carte du jour toll is, at to the lowest degree a base price has been established.
The problem with the to a higher place approach is it doesn't explain how to select a food percentage or a selling cost from which to derive the percentage. In many cases, the food percentage is based on past experiences of the manager, or by a supposed awareness of industry averages. For example, many people merely ready their food percentage at 30% and never work out a more than appropriate figure. Similarly, the selling price of a menu detail is frequently the product of guessing what the market will bear: $4.50 for a basin of soup may seem like a good bargain or as much as a reasonable person might pay in that restaurant. Unfortunately, none of these methods takes into account the unique situations affecting nigh restaurants.
A more accurate way of computing a target nutrient cost per centum is to guess total sales, labour costs, and hoped-for profits. These figures are used to determine allowed food costs. The total of projected food costs is divided by the projected sales to produce a food price percentage. The food cost percentage can be turned into a marker-up margin by dividing the percentage into 1, as shown to a higher place.
For example, to determine the food cost pct of a restaurant that has projected sales of $ten 000 and labour costs of $6000, overhead of $g, and a goal of before-tax profits of $500, the post-obit procedure is used:
food costs = sales − (labour costs + overhead + turn a profit)
= $ten 000 − ($6000 + $1000 + $500)
= $10 000 − ($7500)
= $2500
food pct = food costs ÷ sales
= $2500 ÷ $10 000
= 0.25
= 25%
mark-up margin = 1 ÷ food per centum
= i ÷ 25%
= 1 ÷ 0.25
= four
In this example, the carte prices would be determined past multiplying the portion costs of each item by the mark-up margin of 4. Adjustments would so be made to improve fit the prices to local market conditions.
If the application of the derived mark-upwards margin produces unreasonable prices, then 1 or more of the projected sales, labour costs, overhead, or profits are probably unreasonable. The advantage of using this organisation is that information technology points out (but does not pinpoint) such problem assumptions early on in the process.
A similar approach uses a worksheet every bit shown in Figure 21.
In the middle section of the worksheet in Effigy 21, a food toll percentage is determined by subtracting other known toll percentages (i.e., operating costs, labour cost, and profit wanted) from 100%. 1 divided by the food price percentage determines the mark-up margin. Food costs are then determined in the bottom half of the sheet and a menu cost derived by multiplying the total toll past the mark-up margin.
In this pricing method, a "profit wanted" percent is added to the price of each carte item. This builds some potential profit into the bill of fare prices. If y'all were to price everything according to costs only, the eatery would only ever exist able to break even and never turn a profit.
Contribution Margins
On the surface, it seems that the lower the nutrient cost, the more room there is for profit. In 1 sense this is true, as the percentage profit is plainly greater for an item that has a food cost percentage of 25% (or 75% percentage profit) than an item that has a nutrient percentage cost of 45% (or 55% percentage turn a profit). However, in terms of monetary turn a profit, the issue is not that straightforward. What has to exist determined is how much coin the bill of fare item generates. This adding involves finding the of each item.
Contribution margin is determined by subtracting the price from the selling price. An detail that costs $two.00 to make and sells for $3.00 has a contribution margin of:
contribution margin = selling price − toll cost
= $three.00 − $2.00
= $1.00
Consider the contribution margin of two menu items that have different food costs and food cost percentages shown in Figure 22.
| Item | Food Cost | Selling Toll | Food Cost % | Contribution Margin |
|---|---|---|---|---|
| Craven | $4.50 | $xvi.50 | 27% | $12.00 |
| Steak | $9.00 | $24.00 | 38% | $15.00 |
In terms of percentage profit, the craven is college. Nevertheless, in terms of money in the till, the steak creates more money that can be used to pay bills. The key to a good menu is not necessarily to just keep food cost percentages low; it is to also to keep contribution margins high.
Balancing the Menu to Achieve Targets
Menu Assay
A basic carte assay determines how often each particular on the menu is sold. This basic statistic can be used with toll percentages, card prices, and sales values to make generalizations almost the relative value of each carte item. Figure 23 shows a carte analysis worksheet for a tiffin menu. Nearly POS systems can generate this type of data at the end of a shift, twenty-four hour period, week, or month.
| A | B | C | D | Eastward | F | Grand | H | I | J |
| Carte du jour Item | Total Sold | Menu Price | Portion Cost | Food Cost % | Portion C.Chiliad.[1] | Total Nutrient Sales | Full Food Toll | Full C.Yard. | C.M.% |
|---|---|---|---|---|---|---|---|---|---|
| Hamburger | 12 | $10.95 | $ii.75 | 25% | $viii.twenty | $131.40 | $33.00 | $98.xl | 24% |
| Cheeseburger | 8 | $11.95 | $4.25 | 36% | $seven.seventy | $95.lx | $34.00 | $61.60 | 15% |
| BLT sandwich | 10 | $xi.95 | $3.75 | 31% | $8.20 | $119.50 | 37.50 | $82.00 | 20% |
| Ham sandwich | 5 | $ten.95 | $3.l | 32% | $7.45 | $54.75 | 17.50 | $37.25 | nine% |
| Fried chicken | 4 | $xiv.95 | $5.25 | 35% | $9.70 | $59.lxxx | $21.00 | $38.80 | 9% |
| Clubhouse | 6 | $12.95 | $iv.00 | 31% | $eight.95 | $77.70 | $24.00 | $53.70 | thirteen% |
| Steak sandwich | 5 | $fifteen.95 | $7.25 | 45% | $8.lxx | $79.75 | 36.25 | $43.50 | 10% |
| Totals | 50 | $618.l | $203.25 | $415.25 |
The statistics provided in a bill of fare analysis take several uses. For example, the full sold statistics tin can exist used to predict what time to come sales numbers will exist. This information is valuable for ordering supplies and organizing the kitchen and kitchen staff to produce the predicted number of items.
Even more of import than popularity is the contribution margin of each item. Often an average contribution margin is found and compared with the contribution margin of individual items.
The boilerplate contribution margin in the example above is found by dividing the total contribution margin (full of Cavalcade I) by the number of sales (total of Column B):
average margin = total margin ÷ number of sales
= $415.25 ÷ 50
= $8.31
The contribution margin for each detail is institute by subtracting the cost of the item from the selling toll. In the example in Effigy 23, the contribution margins are given in Column F.
Some decisions can be made comparing items:
- The hamburgers, cheeseburgers, BLTs, and ham sandwiches are beneath the average contribution margin. The first 3 items are adept sellers and account for over half of the sales (30/50 = threescore%) and they may be able to pull their weight by slightly increasing their prices. By calculation $0.50 to the menu price of each of these items, they would each have a contribution margin to a higher place or close to $eight.31.
- The ham sandwich is significantly lower than the boilerplate margin and is also low in sales. It might exist best to drop this item from the bill of fare and replace it with something else.
- The fried chicken has a good contribution margin just its sales are a little on the low side. To increment sales, the chicken might be given more prominence on the bill of fare or might be offered as part of a special with a small salad for a slight increment in price. As long equally the additions have a reasonable food price percentage and are inexpensive compared to the portion toll of the chicken, the increase in sales should accept a positive touch on on the total contribution margin (the values in Column I).
The type of bill of fare analysis must be tempered with mutual sense. Because averages are used to determine an acceptable margin or level of sales, some menu items will automatically be under the boilerplate just as some will have to be above the boilerplate. If items that are under the average are replaced, the next time a card analysis is done there will be a new average and other items under that average. Taken logically, your bill of fare options will run out earlier you have every particular being exactly at the boilerplate!
Given that menu items are usually broken down into categories, this type of assay is about effective when comparing similar items. An assay of all of the desserts or starters to compare their margins is much more than effective than comparison the margin of a dessert against a lobster dinner, which by the very nature of its price and cost volition always have a higher contribution margin.
Profitability
Y'all want to sell menu items that have a high margin of . The relative profitability of an item is calculated by comparison its contribution margin to the boilerplate contribution margin (ACM) of all items. The contribution margin is the selling cost of a card detail minus the standard food cost of the item. This is the amount that the item contributes to the labour cost, other costs of doing business organisation, and profit. The ACM equals the total contribution margin divided by full numbers of items sold. Assisting items take a contribution margin equal to or college than the ACM.
Desserts and appetizers may accept lower contribution margins than entrées. This is because these items generally have lower prices and cannot contribute the same dollar value of contribution margin, even though their food cost percentage may be lower than entrée items. As well, the restaurant may wish to tempt patrons to add these items to their purchase, increasing the boilerplate cheque size. If y'all tin sell more to an individual guest, you increment the revenues without increasing the labour costs and other costs to the same extent.
For example, if the customer orders and appetizer before the entrée, he or she does not accept up any more time in the restaurant (that is, the client does not subtract seat turnover) because the appetizer is served and eaten during the normal waiting fourth dimension for preparing the primary dish. Equally well, the boosted labour of the server is minimal because fifty-fifty without ordering an titbit service may still be needed to provide boosted bread or refill water spectacles. Thus, the sale of the titbit volition increase the profitability of the restaurant even though the contribution margin is not every bit high.
Desserts may also have a depression contribution margin. Often desserts are purchased gear up-made (e.g., cakes and cheesecakes). There may be footling labour cost in serving these items so the overall contribution of the dessert item to profitability is high.
Items that require piffling preparation (that is, take a low labour cost) may still generate a significant contribution to margin even when their nutrient costs are college. Even if the nutrient cost of the item was very loftier and the CM depression, y'all would want to keep this item because the combined labour cost and food cost is low. Thus the amount this particular contributes to the fixed cost of the business concern is high.
Potential Profitability of Menu Items
To determine the potential profit in a menu detail, you must accept a good thought of the potential cost of producing the item. Pre-costing the menu means you determine the price of producing every item on the menu nether ideal atmospheric condition. The assumption is that cooks will follow directions, the portions will be accurately measured, and all the portions will be sold. The results are the optimum costs; in reality costs could be higher.
Popularity
Another gene to consider when reviewing your menus is the popularity of an item. Popularity is determined by comparing sales of items to expected popularity. The expected popularity is the predicted card mix (sometimes chosen the sales mix) if each of the card items in a category were equally popular.
An example is provided in Figure 24, which lists seven appetizers. The expected popularity would be 100% divided past 7 (the number of menu items) or 14.3%. Menu assay assumes that popular items accept sales of lxx% or more of the expected popularity. In the example, appetizers would have to exceed ten% (seventy% of fourteen.3%) of appetizer sales in order to be considered popular. Which of the items are popular?
| Bill of fare Item | Total Sold | Bill of fare Price | Portion Price | Food Cost % | Portion C.M. | Full Nutrient Cost | Total Food Sales | Total C.M. | C.M.% |
|---|---|---|---|---|---|---|---|---|---|
| Thai Wings | 31 | $6.75 | $1.93 | 28.59% | $4.82 | $59.83 | $209.25 | $149.42 | 4.63% |
| Dry Ribs | 211 | $6.75 | $ane.72 | 25.48% | $five.03 | $362.92 | $1,424.25 | $1,061.33 | 31.54% |
| Nachos | 71 | $half dozen.95 | $1.53 | 22.01% | $v.43 | $108.63 | $493.45 | $384.82 | 10.61% |
| Calamari | 19 | $7.50 | $ii.23 | 29.73% | $5.27 | $42.37 | $142.50 | $100.13 | 2.84% |
| Soup and Salad | 78 | $5.95 | $i.55 | 26.05% | $4.twoscore | $120.90 | $464.10 | $343.20 | eleven.66% |
| Thai Salad | 129 | $six.45 | $ane.68 | 26.05% | $iv.77 | $216.72 | $832.05 | $615.33 | 19.28% |
| Cajun Caesar | 130 | $6.95 | $1.76 | 25.32% | $5.nineteen | $228.80 | $903.50 | $674.lxx | xix.43% |
| Total Appetizer | 669 | ACM = | $4.98 | $1,140.70 | $four,469.10 | $3,328.93 | 100.00% |
You can run across at a glance that Dry Ribs is the almost popular appetizer, followed past Thai Salad and Cajun Caesar. Nachos and Soup & Salad fall merely slightly over the 10% boundary. Thai Wings and Calamari show dismal results in terms of popularity with only four.63% and 2.84% of titbit sales.
Sales of bill of fare items are analyzed to put menu items in four categories:
- Popular and profitable
- Popular but non profitable
- Not popular but assisting
- Neither popular nor profitable
Effigy 25 displays graphs the popularity of the appetizers from the case over these four categories. The graph shows popularity on the vertical centrality and contribution margin on the horizontal centrality. A line is drawn vertically to point the ACM and horizontally to show seventy% of expected popularity. This allows you to run across at a glance which category an item falls into: A) Less pop and profitable, B) popular and profitable, C) unpopular and unprofitable, and D) Unpopular and assisting.
The graph shows that Thai Wings and Calamari were very unpopular menu items, merely it also provides information on profitability. Thai Wings has a contribution margin that is lower than the ACM for appetizers. Calamari has a contribution margin that is higher than the ACM.
Computer programs may automatically summate contribution margins and popularity. The information may be presented in tables or spreadsheets as shown above, or in a 4-box analysis, with less detail, every bit shown in Figure 26.
| Unprofitable | Profitable | |
|---|---|---|
| Popular | Thai Salad, Soup and Salad | Dry Ribs, Cajun Caesar, Nachos |
| Unpopular | Thai Wings | Calamari |
Menu Revisions
Popular and profitable items are ones y'all want to maintain on your menu. Maintain the specifications of the item rigidly. Practice not change the quality of the product served. Feature the item in a prominent location on the bill of fare. You want to sell this item, and so make sure that customers come across it. Have servers suggestively sell the item. For example, when asked for suggestions, they could say, "You lot may want to try our Linguine Chicken. It is very pop. It has a cream sauce with lots of fresh basil." Test the possibility of increasing prices past raising the price slightly.
If an item is pop but not assisting, you want to see if you can increase the contribution margin without reducing its popularity. Increase prices carefully and gradually. If the detail is attractive because of its loftier value, it may still be a good value after a price increment. You could also increase the contribution margin by reducing the toll of the accompaniments. For example, you might substitute less plush vegetables. Yous might also try to reduce costs by decreasing the portion size. If you are unable to better the item'due south popularity, you may desire to relocate it to a lower contour part of card. If the particular has a very depression labour cost, yous may exist able to justify the lower contribution margin because less acquirement is needed to compensate for the labour price.
Non pop but profitable items are often a puzzle. You want to sell these items, but your claiming is to encourage the guests to purchase them. Shift demand to these items by repositioning them on the carte. Encourage servers to suggestively sell these items. Consider decreasing the price slightly or adding value by offer a larger portion size, more than expensive accompaniments or garnishes. However, you demand to be cautious and then that you practise not modify the item into a popular but unprofitable detail.
Items that are neither popular nor assisting are obvious candidates to remove from the carte. They are not pulling their weight. The only time such an particular might exist left on the menu is if information technology provides an opportunity to use leftovers and has low labour costs associated with its training.
Using Specials and Feature Items
Some other way to balance the menu is past using daily specials and feature items. For example, assume y'all take been tracking your food costs using a daily food cost command sheet (refer back to Figure twenty). It is halfway through the calendar month and you are running a slightly college than average food cost for the month so far. Choosing to run specials that have lower nutrient costs or having the staff feature and promote the better food cost items should help to bring the targets in line by the end of the month.
Arranging Items on the Menu
Another fashion of engineering science the bill of fare is by strategically arranging the items on the menu. Some menus utilise callout or feature boxes to highlight certain items, others have pictures featuring certain menu items, and others may note an detail as a house specialty. These are all ways to concenter the attending of the customer, and in almost cases, you will find that it is these items that sell the best. If these items too have high contribution margins and/or low nutrient costs, they volition increase profitability. Featuring the items with the lowest margins and highest food costs will have the opposite effect, and probable hateful that you will not be in business organisation for very long.
There are too some psychological reasons that things volition sell on a menu. Ofttimes the most expensive or the least expensive item will not sell as well every bit other items on the menu considering customers exercise not wanting to appear either extravagant or cheap in front end of their guests. Using descriptions that entice the customer (eastward.thousand., "award-winning," "best in the city") will increase the sale of a item item, but make sure you tin deliver on the promise!
All in all, balancing the menu is something that takes time and experience to exercise well, but is a skill that you volition need to run a profitable kitchen.
Source: https://opentextbc.ca/basickitchenandfoodservicemanagement/chapter/describe-the-principles-of-menu-engineering/
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