Determining Menu Item Prices

Updated: January 2019

Overview: The certified dietary manager (CDM) is responsible for setting menu prices that result in profits for their department. Setting menu item prices appropriately can mean the difference between profit and loss. The following Practice Standard will provide steps and formulas for menu pricing and profitability.

Supplemental Material: Access the Gap Analysis Tool to supplement your practices.

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Standard 1

The certified dietary manager (CDM) prices each menu item to ensure a profit or break-even outcome, considering all costs involved with food production.

Criteria

Implement & Evaluate

1.1 Raw food cost is calculated for every menu item.

Calculating Standard Portion Cost

Purchase price per unit DIVIDED by the number of portions per unit.

Example to determine the cost of a serving of canned green beans:

Step 1: Determine purchase price per unit:
Purchase price per case: 6-#10 cans = $16.95
$16.95 ÷ 6 = $2.82 per #10 can or per unit

Step 2: Determine number of portions per unit Number of portions per #10 can: 25, 4 oz portions

Step 3: Divide purchase price per unit by the number of portions per unit $2.82 ÷ 25 = $0.11 per 4 oz serving

Calculating Portion Cost with Yield Loss

Step 1: Look up the yield loss on red potatoes (81 percent).

Step 2: Look up the price per pound of red potatoes from the produce invoice: $.70/pound

Step 3: Determine the number of servings from one pound=4.7.

Step 4: Divide the original price per pound by the yield $.70 ÷ .81 = $.86. (Note: 81 percent is .81 as a decimal)

Step 5: Divide the new cost per pound of potato by the number of 1 oz (1/2 cup) servings of potato.
$.86 ÷ 4.7 = $.18 per serving of potato

Consider the following factors that vary yield loss:
✓ employee skill and experience (a skilled employee will waste less)
✓ size of the product (large potatoes will have less waste than small)
✓ freshness of your product (older potatoes will have more bruising and waste)

Calculating Standard Recipe Cost

List of each ingredient’s cost ADDED together DIVIDED by the recipe yield

Example: Egg Bake for 50 clients:
50 eggs @ 1.60/doz. ($.133/egg)
50 x $.133 = $6.67 for 50 eggs

2 cups milk @ $4.25/gallon (16 cups/$4.25 for 1 gallon= $.266/cup)
2 x $.266 = $.53 for 2 cups milk

2 cups croutons @ $4.25
4 cups cheese @ $11.80

$6.67+$.53 + $4.25 + $11.80 =$23.25

Total Cost per Client/Portion

Food Cost
DIVIDED by # of clients:

$23.25
÷ 50


$.47 per client/portion of egg bake

 

1.2 Menu prices are set for each item, using a predetermined profit margin.

Method 1: Contribution Costs + Raw Food Costs

Option A
(for healthcare of other operations that do not have an actual sales amount each month)

To calculate contribution costs:
1. Monthly Foodservice department budget MINUS monthly cost of food = COSTS OTHER THAN FOOD
2. Determine TOTAL CUSTOMERS
3. Determine NUMBER OF MEALS SERVED (customers x number of meals)
4. Total costs other than food (#1) DIVIDED by Number of meals served (#3)
5. Determine raw portion cost (Criteria 1.1 above)
6. ADD #4 to #5

Example:

1. Monthly Dept’ Budget
MINUS monthly food cost


= Costs other than food

 

2. 90 customers x 93 meals=
3. Costs other than food
÷ Meals Served

$52,000
- $24,715


$27,285

 

8,370 Meals served
$24,285 ÷ 8,370


$2.90

 

Using Egg Bake Example in 1.1

4. $2.90 + $.47 = $3.37
In this example, you could round up to an even price that makes sense ($3.50)

Option B
(for operations that have an actual sales amount each month)

To calculate contribution costs:
1. Monthly Foodservice dept’ sales MINUS monthly cost of sales (include food, labor, utilities) = GROSS PROFIT
2. Determine total NUMBER of CUSTOMERS/Transactions
3. Gross Profit (#1) DIVIDED by ÷ Number of customers (#2)
4. Determine raw portion cost (Criteria 1.1 above)
5. ADD #3 to #4

Example:

1. Monthly Dept’ Sales
MINUS monthly cost of sales
= Gross Profit



2. Customer Count
3. Gross Profit
÷ Customers

$52,435
- $47,219


$5,216

 

= 2,000
$5,216
÷ 2,000


$2.61

 

Using Egg Bake Example in 1.1 4. $2.61 + $.47 = $3.08

In this example, you could round up to an even price that makes sense ($3.10)

Method 2: Cost Percentage

Step 1: Determine Food Cost Percentage
Predetermine a desired FOOD COST PERCENTAGE (Industry standards range from 35-50%)
-OR- DIVIDE your monthly food cost by total sales=FOOD COST PERCENTAGE

Step 2: Determine Price
DIVIDE the portion cost of the food by the food cost percent.

Adjust the result to meet your predetermine goal

Example:

1. Desired Food Cost Percentage:
2. Raw food portion cost:
3. DIVIDE raw food cost
By food cost percentage

4. Round to $6.55

40%
$2.61
$2.61
.40


$6.52

Whichever method the CDM uses, they should consider:
✓ Raw food cost
✓ Labor hours/FTE per menu item
✓ Utilities
✓ Paper Products
✓ Marketing/POS
✓ Any cost associated with production of the menu item

1.3 Consider price adjustments for employees, family, or other frequent customers.

Other programs to consider:
✓ Payroll deductions
✓ Prepaid meals (punch card, credit card, etc.)
✓ Free or reduced prices for foodservice staff
✓ Special guest meals
✓ Catering, meetings or special events

1.4 Prices and sales are monitored to maximize profits or balance costs with the department budget.

Consider:
✓ Menu complexity
✓ Use of convenience items
✓ Type of service
✓ Seasonal items
✓ Novelty/theme meals

1.5 Menu prices are compared to industry standards.

Compare:
✓ Similar operations/type of facility
✓ Local retail opportunities for customers

1.6 Department Policies & Procedures are maintained for menu item costs and adjustments.

✓ CDM prepares a written procedure to determine menu item costs using either the Contribution Margin or Cost Percent method



References:

Molt, Mary. Food for Fifty. 14th Edition. Pearson, 2018

Legvold, Dee, and Salisbury, Kristi. Foodservice Management by Design. Association of Nutrition & Foodservice Professionals, 2nd Edition, 2018.

Kristin Klinefelter, MS, RDN, LD has been in the dietetics field for 20 years, working in a variety of consulting and education capacities. She has been working with the University of North Dakota's Nutrition and Foodservice Training Program for ten years and served on the Certifying Board for Dietary Managers (CBDM) for six years.


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