For self-employed takeaway restaurant owners, precise price calculation is extremely important. Operating profitably is crucial for the long-term success of your restaurant, bar, or takeawy, allowing you to sustain yourself from the earnings. It’s especially important to delve into calculation methods early in your career as a business owner. In this article, we provide some insights on how to manage your calculation effectively.
❌ What Not to Do: Gut Feeling Calculation
Even if you’re an experienced business owner and believe you can calculate prices based on intuition, it’s advisable to rely on professional methods for pricing calculation. Depending solely on your feelings and experience might lead to overlooking hidden costs, setting prices either too high or too low, or not generating enough profit to cover costs. Business owners without thorough calculation often find themselves facing insolvency.
✅ How to Calculate Prices Correctly
During price calculation, the selling price is determined based on formulas and is dependent on costs and margins. As a takeaway restaurant, it’s crucial to know the components that make up the price of a dish, namely: cost of goods, overhead costs, personnel costs, profit, and value-added/sales tax. From these price-forming factors, the net selling price (excluding taxes) is initially derived. The gross selling price for the menu is obtained by subsequently adding the statutory value-added/sales tax to the net price.
Cost of Goods
Cost of goods includes expenses for the food and beverages in your establishment. This encompasses procurement, transportation costs, storage costs, shelf life, quality control, etc. Your goal as a takeaway restaurant owner should be to achieve the best possible quality at the lowest possible price. Established portion sizes with target cost calculations and a good purchasing strategy with careful demand planning are crucial for success. It’s worthwhile to regularly review the cost of goods since factors like inflation or supply shortages can cause fluctuations.
Overhead Costs
Overhead costs include expenses such as rent, lease, electricity, gas, water, maintenance, cleaning, insurance, leasing fees, advertising, internet and phone costs, waste disposal, or maintenance.
Employee Costs / Wage Costs
In addition to cost of goods and overhead costs, it’s also important to carefully calculate employee costs and related costs. This includes the salaries of all employees as well as social security contributions and holiday pay. Additionally, you should plan contingencies in case of absences or illnesses.
Profit Margin and Taxes
Another essential aspect of professional price calculation is creating an overview of the profit margin and the amount of outgoing taxes. The applicable value-added tax for your establishment is then added to the set prices for your products. A good profit margin is crucial for the continuity of your business, as it allows for financing investments or repairs. It’s also advisable to always have a financial buffer for tough times. The profit margin varies significantly for individual products; for example, it is particularly high for items like fries or coffee.
By calculating the cost of goods sold (COGS) ratio, the efficiency of the cost of goods sold can be measured, indicating whether selling a dish is profitable. The lower the COGS ratio, the more efficient the price.
Template for Detailed Selling Price Calculation:
Price of Used Goods + 40% Cost of Goods Management + 30% Overhead Costs + Own Costs + 20−40% Calculated Profit = Base Price
Base Price +17%−20% Personnel Costs = Net Selling Price
Net Selling Price + VAT = Gross Total Price
Alternative Methods of Pricing Calculation in the Takeaway Restaurant Industry
- Mixed Calculation (with Markup): This method, known for its simplicity, is often used in takeaway restaurants. It attempts to find a middle ground where products with low profit margins are balanced by those with higher margins. Distinctions are made here for key, access, and compensation items.
- Key items: Popular products with high quality offered at an attractive price to create an incentive compared to competitors.
- Access items: Particularly inexpensive offers, such as lunch specials, to attract customers. Little profit is made here due to the low price.
- Compensation items: Intended to offset the previously discounted products through a high profit margin. Profits of up to 300% are not uncommon, for example, with coffee or fries.
- Simple Markup Calculation: The simplest and fastest way to calculate a selling price is Selling price=Material costs ×3. However, this method has disadvantages, as some relevant factors are overlooked (e.g., competitor prices, location, changes in costs for larger portions). The simple markup calculation is recommended for a rough overview but should be confirmed or refuted by a more precise pricing calculation method.
Price Calculation: Other Important Considerations
- Align with the willingness to pay of your target audience (Keyword: Price Sensitivity): An analysis of your target audience helps you estimate which prices are acceptable for your customers.
- Compare yourself to competitor prices and critically examine them.
- Compare the market offering and ensure a supplier with the best price-performance ratio for you. Regularly review and renegotiate prices with suppliers.
- Consider seasonal fluctuations in commodity prices and, if necessary, provide the menu with offers.
- Examine your menu for slow-moving items and those that do not generate profit. Less is more.
- Check the shelf life of your goods in the warehouse.
- Set fixed quantities and sizes for your dishes so that the same cost of goods is always present.
- Use psychological price thresholds, i.e., broken amounts instead of round figures that are just below the price threshold of your target audience.
- Calculate special promotions (offers, discounts) as a marketing measure in a way that at least covers the costs.
Conclusion: Consider Tips for Calculation
Accurate price calculation in takeaway restaurant industry is crucial for your success. Don’t be tempted to choose the easier and faster path of intuition or simple markup calculation. Instead, delve into your cost of goods and profit margin. Additionally, regularly review your calculation. It’s also recommended to stick to recipes with consistent cost of goods, regularly renegotiate with suppliers, and align with psychological price thresholds to maximise profit.
