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Monday, December 02, 2013

Using Food Cost for Menu Pricing

Dear Mr. Dunbar,

I am a bit confused about my menu pricing.    I have a small BBQ trailer in DE and do all the labor myself. 

I have been pricing items by way of food cost x 2.5 to 3 depending on the item. 

As I read online about pricing, I fear I may be too low on some things.  In your opinion, if I have a pulled pork sandwich that costs me 1.90 to make:  How much should I charge?   

It always amazes me how cheap BBQ joints sell food for.  How do they make money with so many people working there?  

I have been doing this for 2 years now and I'm still getting new customers as well as my repeats.  Just doesn't seem like I'm making any money (just able to pay bills and maybe a little pocket change).  Any advice would be appreciated.    Thank you.
Thanks for the question, Eric.  I'm sure you can improve your results.  You may not be able to rely on the truck as your sole income source.  At the heart of this issue is your break even point sales level.  The break even point should include direct labor expense.  I would build in $10 base rate plus benefits for $12 per hour.

Make a spreadsheet with all your annual expenses except food cost and disposables (napkins, straws, etc.).  Add the labor cost for yourself using the $12 per hour rate times your hours.  Add a profit of $500 per month to the total.  This will cover any negative surprises.  You can treat this total as your nut.

Do your best to calculate the number of customers you serve per year.  Divide this number into the total from the above formula.  For example, if your annual expenses net of food and disposables were $54,000 and your profit is $6,000, the total is $60,000.  If you serve 15,000 customers per year, you need $4 of gross profit for each customer. 

Cost out each sandwich and add $4 to the cost of food and disposables.

I would not sell chips and soda separately.  Create bundles with a sandwich, chips and soda for a value meal price.  Add $5 to the cost of each bundle.

Your pulled pork sandwich would be priced at $5.95 in this example.  ($1.90 + $4.00 plus $0.05 extra).

The key to success is the customer count.  If you use this formula and you do not envision enough customers to pay yourself a modest income, you need to change the concept to attract more customers.

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