CHAPTER 12 PRICING

1. CHAPTER 12 PRICING PRODUCT CONTRIBUTION MENU ENGINEERING BREAK-EVEN ANALYSIS

2. PRODUCT CONTRIBUTION • IDENTIFIES WHETHER YOUR MENU PRICES ARE HIGH ENOUGH TO ENSURE THAT THE AMOUNT REMAINING AFTER ALL VARIABLE COSTS HAVE BEEN SUBTRACTED IS SUFFICIENT TO COVER YOUR FIXED EXPENSES INCLUDING PROFIT.

3. PRODUCT CONTRIBUTION ANALYSIS

4. PRODUCT CONTRIBUTION ANALYSIS

5. PRODUCT CONTRIBUTION ANALYSIS

6. PRODUCT CONTRIBUTION ANALYSIS

7. PRODUCT CONTRIBUTION ANALYSIS

8. MENU ENGINEERING • MENU ENGINEERING IS A MARKETING ORIENTED APPROACH TO EVALUATE CURRENT AND FUTURE MENU PRICING, DESIGN, AND MENU CONTENT • USES SALES MIX AND PRICING • MENU ENGINEERING IGNORES THE QUESTION “WHAT IS A SATISFACTORY FOOD COST ?” AND ASKS INSTEAD “ARE WE GETTING A REASONABLE CONTRIBUTION TO PROFIT FROM THE SALES MIX?”

9. MENU ENGINEERING THREE ELEMENTS • CUSTOMER DEMAND • MENU MIX • CONTRIBUTION ANALYSIS

10. CLASSIFICATIONS • STARS • PLOW HORSES • PUZZLES • DOGS

11. MENU ENGINEERING • STEP ONE FIND THE AVERAGE CONTRIBUTION MARGIN • THE AVERAGE CONTRIBUTION MARGIN IS CALCULATED BY DIVIDING THE TOTAL MENU CONTRIBUTION MARGIN BY THE NUMBER OF ITEMS SOLD

12. MENU ENGINEERING • LOOK AT EXAMPLE #1 • THE AVERAGE CONTRIBUTION MARGIN IS $ .59 • CALCULATED AS FOLLOWS: • $8100.23 DIVIDED BY 13,658

13. MENU ENGINEERING • STEP 2 IS TO CLASSIFY THE MENU MIX AS HIGH OR LOW. • TO DO THIS USE THE FOLLOWING FORMULA: • (100/#OF ITEMS ON MENU] X 70% • IN THIS EXAMPLE THERE ARE 22 MENU ITEMS • (100/22) X .7 = 3.2% • ITEMS WHOSE MENU MIX IS GREATER THAN 3.2% ARE CLASSIFIED AS HIGH AND THOSE LESS THAN 3.2% ARE CLASSIFIED AS LOW

14. MENU ENGINEERING • QUADRANT ANALYSIS • EACH MENU ITEM IS PLOTTED WITH A QUADRANT OF A GRAPH ACCORDING TO THE FOLLOWING: • MENU MIX • CONTRIBUTION MARGIN

15. QUADRANT ANALYSIS 16% STAR 14% • SMALL SODA MENU MIX % PLOW HORSE 12% 10% • OCEAN SPRAY 8% 6% • SM. COFFEE 4% • LARGE SODA DOG PUZZLE 2% • HOT COCO • SM. TEA 50 60 70 10 20 30 40 80 90 100 CONTRIBUTION MARGIN

16. BREAK EVEN SALES ANALYSIS • BREAK EVEN SALES ANALYSIS IS THE POINT IN SALES OR UNITS NEEDED TO SHOW NO LOSS OR PROFIT. • INFORMATION NEEDED • FIXED COST • VARIABLE COST

17. FIXED AND VARIABLE COSTS VARIABLE COST FIXED COST RENT FOOD FOOD CHEMICALS INSURANCE CHEMICALS RENT COMMISSIONS LABOR INSURANCE LABOR COMMISSIONS REMEMBER • FIXED COST IS IN $$$ • VARIABLE COST IS IN %%%%

18. BREAK EVEN SALES ANALYSIS • FORMULA FOR BEP IN SALES TOTAL FIXED COST (100% - TOTAL VARIABLE COST) • DO PROBLEM #1

19. PROBLEM #1 DETERMINE BEP IN SALES • FOOD 39.9% • LABOR $1,200 • COMM 5% • PAPER 4% • CLEANING $10.00 • TELEPHONE $2.00 • OFFICE SUPPLIES $2.00 • ADV & PRMO 3%

20. PROBLEM #1 • VARIABLE COST • COMM 5% • PAPER 4% • FOOD 39.9% • ADV 3% • 51.9% • FIXED COST • LABOR $1,200 • CLEANING $10 • TELEPHONE $2 • OFFICE $2 $1,214 $1,214.00 100% - 51.9% = $2,523.91

21. PROBLEM #2 DETERMINE BEP IN SALES • FOOD 39.9% • LABOR $1,200 • COMM 5% • PAPER 4% • CLEANING $10.00 • TELEPHONE $2.00 • OFFICE SUPPLIES $2.00 • ADV & PRMO 3% • PROFIT OF 10%

22. PROBLEM #2 • VARIABLE COST • COMM 5% • PAPER 4% • FOOD 39.9% • ADV 3% • PROFIT 10% • 61.9% • FIXED COST • LABOR $1,200 • CLEANING $10 • TELEPHONE $2 • OFFICE $2 $1,214 $1,214.00 100% - 61.9% = $3,186.35

23. PROBLEM #3 DETERMINE BEP IN SALES • FOOD 39.9% • LABOR $1,200 • COMM 5% • PAPER 4% • CLEANING $10.00 • TELEPHONE $2.00 • OFFICE SUPPLIES $2.00 • ADV & PRMO 3% • PROFIT OF $500

24. PROBLEM #3 • VARIABLE COST • COMM 5% • PAPER 4% • FOOD 39.9% • ADV 3% • 51.9% • FIXED COST • LABOR $1,200 • CLEANING $10 • TELEPHONE $2 • OFFICE $2 • PROFIT $500 $1,714 $1,714.00 100% - 51.9% = $3,563.41

25. GRAPH VIEW OF BEPA SALES TOTAL COST PROFIT . VARIABLE COST BEP FIXED COST