What Goes into the Selling Price?
Now that you have taken the time to properly price out each recipe, you’re ready to price out the selling cost. This process is much like that of costing recipes; you want to make sure that you include everything that is included or makes up the meal.
So what’s included? You priced out the recipe, isn't that all you need to calculate a selling price? This would be true if what you calculated only included what was in that recipe. Other things that you need to include will vary depending on if there are other items that are served with the meal such as bread and a salad or what style of service the establishment offers.
Everything that you add or include in the meal needs to be part of the selling price and must be marked up according to reflect a profit. Why a profit? How long do you think you could stay in business selling everything at what it cost you to bring in-house? Everything that is purchased must be sold at a profit. Remember, your selling price doesn't only cover the cost of your food, it needs to cover your overhead that includes labor, utilities, cleaning supplies, insurance, and licenses, paper products and other expenses just to name a few that it takes to operate a business. We’re not in the charity business, we are in the business of making money.
Let’s go back and look at that Chicken Breast dinner. We calculated the recipe to cost us $3.29 to produce that recipe and we said selling it at $10.50 would give us a 31% food cost. That price only includes what is in that recipe. What if we were to add bread $ .65 and Butter $ .35 and a salad with dressing at $. 95? We have taken the cost of that recipe and added $1.96 now giving us a total of $5.25. If we were to sell that meal now at the same $10.50, our food cost percentage would go from a 31% to now a 50% food cost, greatly reducing our profit margins.
With the additional items added to what is included in the meal, to sell that meal at the target 31% food cost, the new selling price would now need to increase to $16.94.
So what else would you include? That depends on what type of service you have. If you are a casual diner or family restaurant, maybe you use paper napkins $.02 apiece and a paper placemat $.03 apiece. We’ve now added another $.05 to the meal taking the price to $5.30 to produce. Our new selling price at our target 31% food cost now becomes $17.10.
The same would hold true if you used linen table clothes and napkins. For table cloths, you will divide the cost of a single table cloth by the number of seats. If you have four seats at a table and the cost of the table cloth rental is $2.00 this would be an additional $ .50 added to each meal. Along with the cost of a single napkin at $. 75, we have just added an additional $1.25 to our meal cost of $5.25 bringing the new total to produce and serve this meal to $6.50. Again, using our target food cost of 31%, our new menu price will need to increase to $21.97 in order to maintain our profit margins.
Looking for a quick way to find a selling price?
Divide 100 by your target food cost percentage. Multiply your raw cost by that number to get your selling cost
(100 ÷ TFC) x Raw Cost = Selling Price
(100 ÷ 31) = (3.23 x 3.29) = 10.62
You may find that you will need to make your target food cost percentage higher (meaning lower selling price) in order for the dish to be attractive to customers. You do not want to price yourself out of business. On the other hand, may also find that you can run a lower food cost percentage (meaning higher selling cost) for other items that will provide greater profits per dish sold. This will need to be determined by the business based on what the market will bear and our customers are willing to pay. You do not want to be the most expensive or the cheapest operation on the block.
A good menu will include a combination of low cost items to produce at a lower food cost percentage (higher selling price) that sell well and higher cost menu items at a higher food cost (lower selling price) that are offered because our guest expect them. My goal is not to tell you how to write a menu, but rather to understand how to properly and effectively cost out your menu items. It is import that you know your business needs, your customers and the market that you serve.