PERCENTAGE OR MARGIN PRICING YOUR MENUS EFFECTIVELY
 As an operator, you already know the importance of costing your menus properly. Did you know that you can use one of two strategies to set your selling prices?
The key to good menu pricing is setting your selling prices to ensure that you earn your desired profit, and also to ensure that your customers perceive value.
There are two ways to set your selling prices:
Pricing by food or beverage cost percentage helps to ensure that your menu cost stays within the overall food or beverage cost set for your establishment.
The formula is: Item Cost (4.20) = Selling Price (14.00)
Cost % (30%)
For example, your chicken dinner has a plate cost of 4.20 and you want a food cost of 30%. You would have to sell it for 14.00 to achieve that cost percentage.
Behind the bar, a 5 oz glass of wine costs you 2.30 to pour. You want a pour cost of 35%, so your ideal selling price is 6.59.
Once your know your ideal selling price, you can adjust the portion size or the price to get the selling price you want, to ensure that your customers will perceive value and want to buy it.
Pricing by contribution margin is to determine how much profit you want to make from a certain menu item. The contribution margin is simply the difference between the item cost and the item selling price; the ‘profit margin’.
Higher ticket items are generally costed using the contribution method, because sometimes pricing them using percentages put them way out of the market.
The formula is: Item Cost (9.00) + Contribution Margin (12.00) = Selling Price (21.00)
For example, your steak dinner carries a plate cost of 9.00. Perhaps charging 30.00 (30%) seems high for your establishment. You could decide that you want a margin of 12.00 for each steak you sell. Now you can sell your steak for 21.00 and know that you are ‘banking’ 12.00 for every one you sell. If you were pricing them by percentage, they would be much more expensive, and you may sell fewer steaks.
The same principle is applied to fine cognacs in a bar. You can sell a bar brandy that costs you 2.10 for 7.00 to get a 30% pour cost, but if you have a cognac that costs you 12.00, you would have to sell that for 41.75 to achieve 30%. Great profit margin, but do you think you would sell as many as if you used the contribution method? You could set a margin of 18.00, still sell it for 30.00, and probably sell many more of them.
Using the different methods of pricing your menu items by percentage or by margin can help you walk that fine line between profit and customer value perception. Use either method, or a combination of both for effective pricing that keeps your customers buying!
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