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Catering menu prices must reflect the total costs of the operation as well as the desired profit. As discussed on page 156, costs and profits must be considered in order to achieve catering menu prices that generate enough revenue to allow profit as well as cover costs. The selling price is equal to the sum of costs plus profit. Methods of menu pricing and pricing formulas are used to determine the selling price depending on which factors and costs are already known and which must be calculated.

Because of catering’s limited menu formats, only a few of the methods used by the foodservice industry to calculate food costs are applicable. These meth-ods are:

, Actual-cost method

, Food-cost-percentage method , Factor pricing

, Contribution-to-profit method

. ACTUAL-COST METHOD ,

The actual-cost method is applied where the selling price is established before the cost of food is calculated. When the cost of food is determined, management can refer to the catering specification form in Figure 7.11 to find appropriate menu items that can be combined to match the available food cost.

The actual-cost method determines the percentage that each of the four price components represents based on costs currently incurred by the foodser-vice business and an established profit percentage goal, as in Figure 7.12.

In this example, the customer has expressed a need for a menu priced at $20 per person. The amount of money available for food cost is calculated as shown in Figure 7.13.

From the catering menu specification form in Figure 7.11, management now selects appropriate menu items to total a selling price of $20 per person.

. FOOD-COST-PERCENTAGE METHOD ,

The food-cost-percentage method of menu pricing is the method used most fre-quently in restaurant operations to price individual menu items. Its application as a method of pricing catering menus determines what the selling price should be based on a known food-cost percentage. This method also allows manage-ment to identify how much money is available for food cost once the selling price and food-cost percentage are established.

Two of the following three factors must be known in order to apply the food-cost percentage to menu pricing:

1. Food-cost percentage 2. Cost of food

3. Selling price

Catering Pricing Methods

173

. Figure 7.11 , CATERING MENU COST FORM

MENU ITEM COST SELLING PRICE

$20.00

Roll and butter .30

Dessert .55

Beverage _______.35

Total food costs $ 6.87

Selling price $20.00

Actual food cost % 34%

. Figure 7.12 , ACTUAL-COST METHOD

COST PERCENT OF SELLING PRICE

Total 100%

Overhead – 25%

Labor – 30%

Profit ______– 10%

Available for food cost: 35%

The food-cost-percentage method consists of three pricing formulas, one for determining each unknown factor. The formulas and their abbreviations are:

1. food cost ÷ food-cost percentage = selling price FC ÷ FC% = SP

2. food cost ÷ selling price = food-cost percentage FC ÷ SP = FC%

3. selling price × food-cost percentage = food cost SP × FC% = FC

The formulas can be applied to catering menu pricing in the following ways:

1. Management is conducting a periodic review of the catering menus in order to evaluate the cost of food and current selling prices. If food costs have increased, it will be necessary to raise menu prices. Management would like to maintain a 30 percent food-cost percentage for this selection of menus. By dividing the food cost by the food-cost percentage, the new selling price can be calculated.

(FC) $9.75 ÷ (FC%) 30% = (SP) $32.50

2. Management wants to maintain the current selling price for a catering menu. The current food cost is known. If the current food-cost percentage based on these two factors is not acceptable, then the food cost must be decreased. The food-cost per-centage can be calculated by dividing the food cost by the selling price.

(FC) $3.85 ÷ (SP) $12.00 = (FC) 32%

3. The customer has asked for a catering menu priced at $20 per person. Manage-ment knows that the selling price must result in a 35 percent food cost. In order to develop a menu, it is necessary to know the amount of money available for the cost of food. The food cost can be calculated by multiplying the selling price by

. Figure 7.13 , FOOD COST CALCULATION

COST PERCENT OF SELLING PRICE SELLING PRICE

Total 100% $20.00

Overhead –25% –5.00

Labor –30% –6.00

Profit ______–10% _______–2.00

Available for food cost: 35% $ 7.00

the food-cost percentage. (This formula was used to calculate the food cost by the actual-food-cost method.)

(SP) $20 × (FC%) 35% = (FC) $7

. FACTOR PRICING ,

The factor pricing method establishes a factor that represents the food-cost per-centage. The factor is based on the number of times the percentage can be di-vided into 100:

100% ÷ 40 (percentage) = 2.5 (factor)

The factor is multiplied by the food cost to calculate the selling price:

$3.35 (food cost) × 2.5 (factor) = $8.37

Management can apply the factors for the food-cost percentages most com-monly used in their operation to quickly calculate selling prices. The chart in Fig-ure 7.14 identifies the factors for a range of food-cost percentages.

Catering Pricing Methods

175

. Figure 7.14 ,

FACTOR/FOOD-COST-PERCENTAGE TABLE

FOOD COST % FACTOR FOOD COST % FACTOR FOOD COST % FACTOR

20 5.00 30 3.33 40 2.50

Source: Lendel H. Kotschevar and Diane Withrow, Management by Menu, 4th ed., 2007.

Note: Decide what percentage of food cost you wish and then multiply actual food cost by the desired percentage factor to arrive at the desired selling cost. Example: If an item has a food cost of $1.50 and you want a 28% food cost, look up the factor opposite 28 (3.57) and multiply this by $1.50:

1.50 × 3.57 = $5.35 The base selling price is $5.35.