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Catering Chapter 3

chapter 3 catering

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Michaelisrael Patiño
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17 views10 pages

Catering Chapter 3

chapter 3 catering

Uploaded by

Michaelisrael Patiño
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 3- Catering Menu Pricing and Controls

Menu pricing is an important management control that is directly related to the overall
profitability of a foodservice operation. Effective and accurate menu pricing requires a thorough
knowledge of a foodservice operation’s costs and profit goals. Successful menu pricing also
requires a knowledge of what customers find acceptable and the prices charged for similar menus
and packages by competitive foodservice operators. This chapter reviews the formulas for
calculating costs, breakeven points, and profits. Catermate software reports that reflect these
activities are reviewed. Package pricing can capture revenues that might otherwise go to outside
vendors. Revenue management practices can help increase the value of individual functions by
creating inclusive package prices.

Objectives:
 Identify the Cost, Profit and Breakeven Analysis.
 The Price Menu, Range and Packaging.

Cost and Profit

Prior to calculating menu prices, it is necessary to determine how much profit a foodservice
operation must generate in order to cover operating costs. Profit is the portion of revenue that
remains after all operating costs are paid. Costs are all expenses required to conduct business,
including rent or mortgage, taxes, licensing fees, and contracts such as laundry, pest control,
equipment service, and trash removal, plus food, labor, supplies, telephone, heat, electricity,
water, advertising, and printing, to name a few. Costs are broken into three major categories:

1. Food-and-beverage costs: The cost of all food-related purchases required to produce


completed menu items
2. Labor costs: The costs associated with labor, including benefits, taxes, wages, meals, and
uniforms
3. Overhead costs: The costs of operating the business
To these three costs can be added profit:
4. Profit: Funds remaining after all costs have been paid from revenues

Breakeven Analysis

A method of identifying how much revenue must be generated before an operation


begins to make a profit is called a breakeven analysis. In this analysis, costs are distributed in
two categories: fixed costs and variable costs. Fixed costs are those costs that remain constant
regardless of the volume of business. Variable costs are those costs associated with the volume
of business and are flexible.
Fixed costs are established and posted as a solid horizontal line across the graph.
Variable costs are posted as a line that begins at the fixed-costs point. This line is plotted to rise
across the graph on an angle to the point, which represents total variable costs for the period
being calculated. This now combines both fixed and variable costs as the total cost line.
Revenues are then posted on the graph. The point at which the revenue line crosses the total-
costs line is the breakeven point—the point at which revenue has covered costs and can become
profit. Note that costs still increase in order to continue producing catering services and products.

Breakeven point:
Sales= Fixed Cost ÷ Contribution Rate
Contribution Rate= 1- Variable Rate
Variable Rate= Variable Cost ÷ Sales

Example:
Sales = 925,000
Variable Cost = 402,375
Fixed Cost = 416,250

Solution:
Variable Rate = Variable Cost ÷ Sales
= 402,375 ÷ 925,000
= 0.435
Contribution Rate = 1 – Variable Rate =
= 1 – 0.435
= 0.565

Breakeven point:
Sales= Fixed Cost ÷ Contribution Rate
= 416,250 ÷ 0.565
= 743,303

Menu Pricing
Menu pricing for catering menus is based on three primary costing formats, all of
which can be varied slightly. These formats are:

1. FIXED PRICE, OR TABLE D’HÔTE


Caterers traditionally rely on fixed-price menus to control costs, production, service,
and profit. Choosing the fixed-price method for a menu program requires that operators consider
how to establish a selling price and still maintain a profitable overall food-cost percentage.
Grouping menu items for food compatibility is essential, but so is looking at each item’s food
cost as it affects the final selling price.
Using this pricing format, individual menu items can be changed without affecting the
food-cost percentage and selling price. After adjusting the selling price for menu marketing, the
new food-cost percentage calculations allow adjustments to pricing according to the competition
or customer perceived values. Choosing the higher price allows for the menu price to be set for a
six-month period (or longer) and absorb rising costs without threatening the stability of the food-
cost mix.
2. MIXED PRICING, OR SEMI À LA CARTE
With this menu pricing format, the customer is offered a set price menu with the option
of changing some courses for an additional charge per person. In this way, customers may
individualize their menu, adjusting the per-person price as it suits their budget.

3. INDIVIDUAL COURSE PRICING, OR À LA CARTE


À la carte menu pricing offers every course item on the menu for a separate per person
price.
Customers can build their own menu according to individual taste and budget. Rolls and butter,
along with the coffee and tea service, are included in the per-person price. The program
stipulates that there is a minimum of three courses and that gratuity and tax are additional.
Examples of A la carte menu
Price Range

Catering menu prices must reflect the total costs of the operation as well as the desired
profit. 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
methods are:

1. Actual- Cost Method


The actual-cost method is applied where the selling price is established before the cost
of food is calculated. The actual-cost method determines the percentage that each of the four
price components represents based on costs currently incurred by the foodservice business and
an established profit percentage goal

2. Food- Cost- Percentage Method


The food-cost-percentage method of menu pricing is the method used most frequently
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 management 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

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

3. Factor Pricing
The factor pricing method establishes a factor that represents the food-cost percentage.
The factor is based on the number of times the percentage can be divided into 100:

100% ÷ 40 (percentage) = 2.5 (factor)

Package Pricing
Package prices can combine reception, dinner, beverage, flowers, entertainment, and
theme costs as one per-person price. The pricing structure of the menu is often controlled by the
overall package price. Any number of services can be included in the per-person price; the costs
for flowers and entertainment are broken down on a per-person basis and added to the total
package price. This marketing approach often creates a perceived value for the customer and the
assumption that the overall function price is less expensive than if each item were charged for at
a flat fee.

Example of Party Package


A Wedding Package
Example of Baptismal Package

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