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Something we can ALL use to figure pricing..

 
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marvsbbq
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PostPosted: Mon Feb 02 09 2:59 am    Post subject: Something we can ALL use to figure pricing.. Reply with quote

Here is a FREE markup/markdown online calcuator that is VERY easy to use.

Once you know your cost of goods to be sold, enter that amount and then enter the markup you want to find the final price you should charge.

Another way (the way I like to do it) is enter your cost of goods then keep changing the markup until you get the price you would like to charge.

Example, I can buy 1/4 lb burgers (meat, bun, condiments) for $1.14 each unit. I want to sell them for $6.00. My markup is 425% for a GROSS profit of $4.85 each unit.

The reason I charge (what looks like) a high markup is I also take into consideration other expenses such as equipment, labor, insurance..etc.

Go ahead, play with it and see....you will be supprised... http://retail.about.com/library/bl_markup_calc.htm
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Harry Nutczak
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PostPosted: Mon Feb 02 09 10:57 am    Post subject: Reply with quote

Ok, but how do you figure your profitability after the gig is done and over?
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marvsbbq
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PostPosted: Mon Feb 02 09 12:13 pm    Post subject: Reply with quote

What I was really trying to show is....if someone wanted to "markup" their product by multiplying cost times 3...you would really be marking up the product 300%.

If someone wanted to realize a greater gross profit than cost times 3 (or 300%), this calcuator is an easy to use tool to figure that.
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Pit Boss
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PostPosted: Mon Feb 02 09 12:24 pm    Post subject: Reply with quote

That's a cool web thingamajig...but for simple math like that you could just use your regular calculator. Most times I just pull out the cell phone and click over to the calculator function.

If you want to realize more than cost times 3, you could simply punch in a 4 instead of a 3 on the calculator. I rarely do cost x 3 anymore anyway.
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marvsbbq
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PostPosted: Mon Feb 02 09 11:31 pm    Post subject: Reply with quote

Here is another "tool" that allows you to put in your whole menu and figure each item plus give you an overall average with all combined...

http://www.dinkytown.net/java/ProfitMargin.html
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Harry Nutczak
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PostPosted: Wed Feb 04 09 5:09 am    Post subject: Reply with quote

Ok, I looked at the first site you linked to and with your supposed "mark-up" it roughly equates to a 23% projected food cost.

For myself (and many others) I find it easier and faster if we would just use 4.25 as a multiplier. it can easily be done on paper, a cell-phone, PDA, or pocket calculator without needing access to the web to use a java-based application.

choosing the multiplier is real easy, lets say you want to set your projected foodcost ratio at 25%, simply multiply your actual cost of the food by "4"

if you many of are using "3" as a multiplier, that is in effect giving you a 33.3% projected foodcost ratio.

When the gig is all done and over, you can just reverse the math and see how well you stuck to that projected ratio so you know if changes need to be made to adjust for yield or waste.
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marvsbbq
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PostPosted: Wed Feb 04 09 12:36 pm    Post subject: Reply with quote

You are right Harry, I was simply pointing out another option....my bad Wink
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Harry Nutczak
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PostPosted: Wed Feb 04 09 1:38 pm    Post subject: Reply with quote

marvsbbq wrote:
You are right Harry, I was simply pointing out another option....my bad Wink


Nothing bad on your end Marv.
I just find the mark-up method a much more difficult and confusing concept to both use and to teach to others. Mark-up is most commonly used in items that require no work to make sale ready. Liquor or beer is a good example.

The easiest way I could explain how to figure a multiplier to use for figuring food-cost/Price;

lets say you want a 29% food-cost ratio;
So if you have $1.47 product cost and want to have a 29% food-cost multpily that $1.47 cost by 3.44 and you get $5.06 as a selling price, Since the $5.06 sounds funky, round it up to a better looking number.

a 40% food-cost ratio (2.5 multiplier) is about as high as you'd ever want to see on a price. This ratio is commonly used by "Not for Profit" places like a private country club, or if you are providing food for a charitable org. that they will then be selling to the customer for a higher price.

33.3% is the most commonly used target foodcost. But with a few losses from yield or waste, it could easily creep into a no-profit situation when the party is done and your verifying your profit.

I feel that 28%-30% is a good median ratio to use, it leaves a little wiggle room for you if you have a little unexpected waste such as overcooking, or something hitting the ground by accident.

getting into the 20%-25% range is nearing Gouging IMO, but if a product requires alot of labor to make, this cost ratio may be needed to offset your labor costs.

Ok, the one area where a decent foodcost is going to take a huge hit is in steaks!! There isn't many restaurants that can get away with anything lower than a 50% cost ratio on steaks. so it is almost always a no-profit menu item. (referred to as a "giveaway" in many kitchens)

Lets say your serving a 14 ounce Choice strip steak. Your cost is $9.00/LB
So that steak by itself with no sesonings, condiments, or garnish cost you $7.88 to put on a plate.
At Marvs preferred cost ratio (23.5%) he would need to charge $33.47 for that steak to meet his projected cost ratio.
I bet that steak just sits and rots becuase most people are not going to pay that price. but at a 40% cost, $19.75 sounds more fair. You have the ability to make up that loss on other items. maybe a few cents more for soup, salad Pasta is usually used as the equalizer to make up for other high percentage items on the menu.

Many places have a different cost ratios for different menu items according to the amount of labor involved and to offset the items that require a low profit margin to get them to sell.

lets use side items. Lets say you need to keep your meat low to compete with another person, you can bump your side items up in customer cost, or reduce the portion size to make up for the price you need to sell the meat at. it isn;t smoke and mirrors or misleading a client, it is just making a menu work.
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dietzy
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PostPosted: Wed Feb 04 09 9:58 pm    Post subject: Reply with quote

Harry, I honestly like your posts of food cost ratios, but your last post has me confused. To make this short (I have to get the kids to school) You are saying you are "giving" a steak away by pricing it at a 40% food cost ratio, but you are making $11.87 per steak. Sorry, but I don't have the time to figure out what the food cost ratio would be to make $11.87 on a pulled pork sandwich. (it would be mighty low). I guess I'm saying is you need to look at more than just food cost ratios.


Rob
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marvsbbq
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PostPosted: Wed Feb 04 09 11:52 pm    Post subject: Reply with quote

At Marvs preferred cost ratio (23.5%) he would need to charge $33.47 for that steak to meet his projected cost ratio.

The 23.5% cost ratio is NOT my "projected food costs for every item." I take each menu item (appetizers, entree's, sides...everything) and figure what I WANT (or CAN) make on each item. If it works out to be a 23.5% food cost ratio...fine. If it works out to be different, that is fine too.

Basically I price what I "belive" I can SELL the product at. For instance, my pre-made potato salad has a cost per serving of $.18 but yet I SELL that product for $2.00 per serving listed on my menu.

At your 29% food cost ratio, (cost times 3.44) I would have to sell that side item for $.61.

I have studied menus for many, many years and have attended a few menu costing classes and have NEVER, NEVER seen potato salad (pre-made or homemade) sold for $.61 per serving...have you???

I agree with you that each item needs to be figured seperatly...especially the main entree.

Last but not least....Harry, in your last post, you put out a lot of percetanges and numbers. The link I posted at the start of this thread might be (for some) an easier way to get a "idea" of their costs/retails without the need of pen and paper or a calcuator....Thus the reason for this thread in the first place.

Now for my disclaimer....My method works for me, if a different method works for you (or anyone) by all means contine with your method. I am only posting my own experience I am certainly not saying my way is the ONLY way....just what works for me.
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Harry Nutczak
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PostPosted: Thu Feb 05 09 2:14 am    Post subject: Reply with quote

marvsbbq wrote:
The 23.5% cost ratio is NOT my "projected food costs for every item."


That is the exact reason i had this phrase in my last post [b]"Many places have a different cost ratios for different menu items according to the amount of labor involved and to offset the items that require a low profit margin to get them to sell."


And I also mentioned that high cost items can go for a lower price becuase the slack can be made up in other items on the menu.

I offered an array of different examples on pricing, I never said "You must use this" or you are doing it wrong.
I was posting on this subject for people to learn the how's & why's of basic foodcost strategies and the suggested percentages to show a profit.

lets say someone is planning on opening a business, they will have competitiors. A real easy way to see if you can be competitive in that market is to look at your competitors pricing, then figure your costs to make the same item and see if you can make a profit while competing with the other business's.

Then if they plan on taking out a loan, their business plan will need to have cost/pricing strategies laid out for the financial advisor.
So many people attempt getting into a business with no clue about pricing and why or how things need to be priced to show a profit, figure the amount of money that needs to be taken in to meet their "Break Even Point" and how to figure the cost effectiveness of each and every menu item, and the menu as a whole.

Sure some people get lucky and are able to stay in business without planning, but those cases are few and far between.
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BobbyT
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PostPosted: Thu Feb 05 09 9:39 am    Post subject: Reply with quote

Thank you Marv for sharing the sites with us. They are worth taking a look at. Sounds like both of yall have a great deal of knowledge on this subject Wink
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marvsbbq
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PostPosted: Thu Feb 05 09 10:40 am    Post subject: Reply with quote

BobbyT wrote:
Thank you Marv for sharing the sites with us. They are worth taking a look at. Sounds like both of yall have a great deal of knowledge on this subject Wink


Yea, I think Harry and I get the same end result, we just have a different way of getting there... Laughing Laughing
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Pit Boss
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PostPosted: Thu Feb 05 09 11:34 am    Post subject: Reply with quote

Wow...$9 wholesale for strips? I think steaks would be off the menu for a while if that where to happen!
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Harry Nutczak
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PostPosted: Thu Feb 05 09 2:02 pm    Post subject: Reply with quote

cape_fisherman wrote:
Wow...$9 wholesale for strips? I think steaks would be off the menu for a while if that where to happen!


Very common cost in the summer months for choice center-cut loins. pre-cut will run higher.
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