CHAPTER 12 PRICING
PRODUCT
CONTRIBUTION
MENU ENGINEERING
BREAK-EVEN ANALYSIS
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.
PRODUCT CONTRIBUTION ANALYSIS
ITEM
SMALL SODA
MED SODA
LARGE SODA
SMALL TEA
MED TEA
LARGE TEA
SMALL COFFEE
MED COFFEE
LARGE COFFEE
ITEM COST OTHER COST PROD COST
0.14
0.07
0.21
0.18
0.07
0.28
0.07
0.35
0.08
0.09
0.17
0.1
0.09
0.16
0.09
0.25
0.08
0.11
0.19
0.11
0.11
0.15
0.12
0.27
SELL PRICE
0.89
0.99
1.09
0.89
0.99
1.09
0.55
0.65
0.75
% COST GROSS MAR COMM CONT $ CONT %
23.6% 0.68 0.11 0.57 64.4%
32.1%
19.1%
0.74
0.72
0.13
0.11
0.61 55.9%
0.61 68.9%
22.9%
34.5%
0.84
0.36
0.13
0.07
0.71 65.1%
0.29 53.5%
36.0%
0.48
0.09
0.39 52.0%
PRODUCT CONTRIBUTION ANALYSIS
ITEM
SMALL SODA
MED SODA
LARGE SODA
SMALL TEA
MED TEA
LARGE TEA
SMALL COFFEE
MED COFFEE
LARGE COFFEE
ITEM COST OTHER COST
0.14
0.07
0.18
0.07
0.28
0.07
0.08
0.09
0.1
0.09
0.16
0.09
0.08
0.11
0.11
0.11
0.15
0.12
PROD COST
0.21
0.25
0.35
0.17
0.19
0.25
0.19
0.22
0.27
SELL PRICE
0.89
0.99
1.09
0.89
0.99
1.09
0.55
0.65
0.75
% COST GROSS MAR
23.6% 0.68
25.3% 0.74
32.1% 0.74
19.1% 0.72
19.2% 0.8
22.9% 0.84
34.5% 0.36
33.8% 0.43
36.0% 0.48
COMM
0.11
0.12
0.13
0.11
0.12
0.13
0.07
0.08
0.09
CONT $
0.57
0.62
0.61
0.61
0.68
0.71
0.29
0.35
0.39
CONT %
64.4%
62.7%
55.9%
68.9%
68.8%
65.1%
53.5%
54.2%
52.0%
PRODUCT CONTRIBUTION ANALYSIS
PIZZA
INGREDIENTS COST SELLING PRODUCT GROSS COMM CONT. $
PRICE COST MARGIN 12%
DOUGH
0.49
SAUCE
0.13
CHEESE
0.84
PEPPERONI 0.57
PLATE
0.68
MORNAP
0.09
TOTAL COST 2.8
COST PORTION 0.35
$10.00
$1.50
28.0%
23.3%
$7.20
$1.15
$1.20
$0.18
$6.00
$0.97
%
60.0%
64.7%
PRODUCT CONTRIBUTION ANALYSIS
CHEESE STEAK
INGREDIENTS COST SELLING PRODUCT GROSS COMM CONT. $
PRICE COST MARGIN 12%
MEAT
0.68
CHEESE
0.18
PEPPERS
0.08
ONIONS
0.06
ROLL
0.12
WRAP
0.06
TOTAL COST
%
PRODUCT CONTRIBUTION ANALYSIS
CHEESE STEAK
INGREDIENTS COST SELLING PRODUCT GROSS COMM CONT. $
PRICE COST MARGIN 12%
MEAT
0.68
CHEESE
0.18
PEPPERS
0.08
ONIONS
0.06
ROLL
0.12
WRAP
0.06
TOTAL COST
1.18
$3.29
35.9%
$2.11
$0.39
$1.72
%
52.1%
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?”
MENU ENGINEERING
THREE ELEMENTS
 CUSTOMER DEMAND
 MENU MIX
 CONTRIBUTION ANALYSIS
CLASSIFICATIONS
 STARS
 PLOW HORSES
 PUZZLES
 DOGS
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
MENU ENGINEERING
 LOOK AT EXAMPLE #1
 THE AVERAGE CONTRIBUTION
MARGIN IS $ .59
 CALCULATED AS FOLLOWS:
 $8100.23 DIVIDED BY 13,658
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
MENU ENGINEERING
 QUADRANT ANALYSIS
 EACH MENU ITEM IS PLOTTED WITH
A QUADRANT OF A GRAPH
ACCORDING TO THE FOLLOWING:
 MENU MIX
 CONTRIBUTION MARGIN
QUADRANT ANALYSIS
16%
• SMALL SODA
14%
M
E
N
U
M
I
X
12%
STAR
PLOW HORSE
• OCEAN SPRAY
10%
8%
6%
• SM. COFFEE
• LARGE SODA
4%
%
2%
DOG
10
20
• HOT COCO
30
40
50
60
• SM.70PUZZLE
TEA
CONTRIBUTION MARGIN
80
90
100
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
FIXED AND VARIABLE COSTS
FIXED COST
VARIABLE COST
RENT
FOOD
FOOD
INSURANCE CHEMICALS
CHEMICALS
RENT
COMMISSIONS
LABOR
INSURANCE
LABOR
COMMISSIONS
REMEMBER
• FIXED COST IS IN $$$
• VARIABLE COST IS IN %%%%
BREAK EVEN SALES ANALYSIS
 FORMULA FOR BEP IN SALES
TOTAL FIXED COST
(100% - TOTAL VARIABLE COST)
 DO PROBLEM #1
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%
PROBLEM #1
 FIXED COST




LABOR
CLEANING
TELEPHONE
OFFICE
$1,214.00
100% - 51.9%
$1,200
$10
$2
$2
$1,214
•VARIABLE COST
•COMM
5%
•PAPER
4%
•FOOD
39.9%
•ADV
3%
= $2,523.91
51.9%
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%
PROBLEM #2
 FIXED COST




LABOR
CLEANING
TELEPHONE
OFFICE
$1,214.00
100% - 61.9%
$1,200
$10
$2
$2
$1,214
•VARIABLE COST
•COMM
5%
•PAPER
4%
•FOOD
39.9%
•ADV
3%
•PROFIT
10%
= $3,186.35
61.9%
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
PROBLEM #3
•VARIABLE COST
 FIXED COST
•COMM
5%





•PAPER
4%
•FOOD
39.9%
•ADV
3%
LABOR
CLEANING
TELEPHONE
OFFICE
PROFIT
$1,714.00
100% - 51.9%
$1,200
$10
$2
$2
$500
$1,714
= $3,563.41
51.9%
GRAPH VIEW OF BEPA
SALES
PROFIT
.
BEP
TOTAL COST
VARIABLE COST
FIXED COST