- Business
- Sales and Marketing
July 16, 2009August 12, 2020 Fitz 27 comments
Updated: August 12, 2020
The food business remains as one of the top industries that entrepreneurs consider highly profitable. After all, food is a basic necessity; and with that stable market comes good earning potential.
However, the food business is also a very competitive market. Your delicious offerings alone would not be enough to deliver business success.
One needs more than great tasting food, but likewise, a good location, sensible marketing, and many other factors which also includes reasonable pricing.
If you want to sell food, how do you determine your selling price? What is the right pricing strategy so that you can give your consumers an affordable product with optimum profits?
Again, there are many factors to consider. But the most basic strategy is to come up with the costing template for your recipes. From there, you can easily determine and adjust your retail price that will fit your target market without compromising your income.
So how do you make a costing template for your food recipes? Here’s a five-step product pricing plan.
Contents
Step 1
Write down your recipe, including all the ingredients and their quantities, as well as the average yield. It helps to convert the quantity to measurable equivalents.
Step 2
Determine the price of each ingredient and calculate the cost per recipe. Simply divide the ingredient price by the total volume and multiply it by the equivalent measure in your recipe.
Example:
375 ml of cooking oil costs P20. So P20 divided by 375 ml multiplied by 30 ml (from the recipe) equals P1.60
Step 3
Add up the total cost of the ingredients per recipe to determine the total recipe cost.
In our example, the total food recipe cost would be P17.86
Step 4
Divide the total recipe cost by the total yield to get the cost per serving.
Since our recipe example will yield 4 servings, then our cost per serving will be P17.86 divided by 4 which is equal to P4.47
Step 5
Now add your mark-up to the cost per serving. If we’ll follow the simple pricing strategy I wrote before, then this would be considered as a make-and-sell item that requires 130% profit margin.
So from our costing template example, one order of scrambled eggs in my food business would cost P10.27 (or I can round it up to P10.50 😛 ).
What is the basis of the 130% profit margin?
It’s just best practice as told to me by friends who are in the food cart business. They say that the “100%” covers for the production cost and the “30%” is your product cost mark-up. I believe that there’s no economic basis for that figure.
And of course, this is just one of the many pricing strategies you can do. After all, there are still other factors and business expenses to consider.
Nevertheless, this very simple pricing strategy can be effective when you’re just starting – such cases as when you’re simply selling food to your officemates or maybe participating in a food bazaar or just selling online from home.
And that concludes our short business tip for today. I hope I was able to help you come up with a good pricing strategy for your food business. Catch the next business article here by subscribing to Ready To Be Rich.
What to do next: Click here to start your financial journey with IMG Wealth Academy
TagsBusinesscosting and pricing samplecosting templatefood cost calculator appfood cost calculator freefood cost formatfood cost formulafood costing sheetpricepricing strategyrecipe cost calculatorSales and Marketingstandardized recipe cost sheet
I’ve never seen a better breakdown of cost and pricing! Well done!
Extremely helpful! Thank you 🙂
If we bought an equipment or machine, do we also need to add those in our costing? This is very helpful.. Thank you very much.
Hi Randall, ideally you should. But it entails some assumptions.
The usual calculation for that is you divide the cost of the equipment by the number of months it will take for it to fully depreciate. Then divide that amount by the approximate number of product yield per month to compute the additional cost in production.
Let’s say you bought an electronic egg beater for P1,000 which you estimate will take 1 year before it breaks down and needs to be replaced. That will give you P84 per month depreciation cost (P1,000 divided by 12)
Assuming you usually produce 120 servings of scrambled eggs per month, then your total recipe cost will have an additional P0.70 (P84 divided by 120) in it.
I hope my explanation was clear. Thanks.
I would like to ask a question that has been in my mind for such a long time now … How do you compute for LPG cost? I plan of making a business out of my love for baking and I really find costing for LPG use difficult. I assume that I should include the preheating time in calculating for it, am I right? Thanks a lot!
Regarding the purchase of capital equipment, the egg beater what about if you used it to other menu or product, does the additional cost added to scramble egg can be also used or add with other menu you made like lecheplan, or does the contributing cost to the product price will be more reduce since it also use in other menu or product.
Thanks a lot have a great day.hi just wanted to ask, how can i determine the quantity food to serve? For example in pasta servings, how many servings can a 1kilo pack of pasta make? I’m newbe in this biz so I really need to be educated, I already atended seminars but they seemed not helping on this area,I want to know the particular grams/percent of food per servings. I need help on this pls, thank u so much!
Thanks for this very helpful explanation!
The egg beater computation (as a fixed expense) is also very helpful. Admittedly, LPG computation is very complex, since a dedicated LPG tank for production must have been fully consumed before we can have a better estimate versus number of goods produced (better if it is just one SKU or item). I assume that the 100% production cost is a good leeway to cover the (yet) immeasurable expenses from the start.
Thanks for a great article. I’ve a question, though. In such a scheme, how do you cope with fluctuations in the cost of your raw materials? Like LPGs (talking of, any advice on how to go about factoring this into the costing computation – e.g. how exactly to you quantify LPG use per recipe)? I’m assuming that certain accommodations would be factored into the profit portion, but what would be a standard, or safe figure? Say, your example gives 130%, but the prices of eggs are very erratic, and change daily, would a 140% profit margin be ideal for this situation? What’s the standard practice in such a situation?
Thanks much!
Hi Mercky, you can use the upper limit of the price for your computation instead of the current price, so when price fluctuates, you won’t have to increase your selling prices.
Doing 140% profit margin is also acceptable, but doing what I said above is better.
Lastly, price of raw materials do increase, which means eventually, your products should too – that’s inflation.
excellent! super thank you for this! 🙂
Great Article Sir! 🙂 I am currently running a personal food business at home & expanding it to a restaurant, and I am having a hard time computing for cost with the shrinkage of the raw meat after it’s being cooked. For example: I am cooking a pork belly slab which i bought at P220/Kilo for 5 kilos with bone/ribs. I then strip off the bones (around half kilo) the slab, season and cook as it shrinks about more or less another 1 kilo more. I can get the computation if the weight of the pork belly I get is at a consistent weight, but of course it has different sizes and weight every time someone orders. So may I ask how to get a consistent computation for the food cost this product Sir? Thank you! 🙂
maylag maka 5 me ygmas EXAM AHAHAHAHAH 😀 😀 😀
i think you have to add 10% buffer margin to the raw food cost to determine the shrinkage and other waste of ingredients that should not be included in the recipe or cooking of foods.
Thank you!!! Because of this, I feel confident with my pricing 😀 haha..
Honestly, I stopped my homemade sweets and cookies business because I am not confident with my costing and pricing of my product..
Now, I started again but I am making chorizo,
God bless! THank you!
[…] example, based on my food costing template, an order of scrambled eggs in my restaurant business would cost […]
How to get the 5.80 in the 130%profit margin?
What about the gas how to calculate??? To included the pricing????
Where did you got the 5.80 ?
Is there any sample computation for a buffet business? I am wondering how an unlimited food resto run their business.
hi gud day ,
can i have costing template copy from you & can you pls teach me how to calculate ?hi! how to get the SRP 10.27
4.47*130%=4.80
4.80+4.47 = 10.27
Hi! I tried to compute my ingredients for oreo graham balls but i still dont get it the quantity. I bought 1 packs of oreo crushed, 1 can of condensed milk, and 1 pack of graham crushed. I totally forgot how or do the costing. I used to studies this when i was in college. May I ask for help to explain at give me an example. Thank you so much
[…] and good marketing won’t cut it if you want to deliver business success. A reasonable pricing strategy is also an equally important element to […]
Your figures are incorrect. You have confused profit with mark up
Cost 4.47 plus (130%) 5.80 = 10.27 Sell price. The 5.80 is mark-up
You only make a profit when you sell so your profit (usually called Margin) is:
5.80 divided by 10.27 = 0.5648 X 100 = 56.48%. Confusing the two leads to disaster and I’ve seen businesses close because of this simple mistake.
It is a mathematical impossibility to have 130% profit/margin. The most you can achieve is 99.99%Hi how to compute the retail price to 10.50 when the food cost is 17.86 please give me more formula for that and how to sum up the profit percentage,? Beginner here
Leave a Reply
Blog Sponsors
Search for a Blog Article
Latest Podcast Episode
Curated Blog Articles
- Enemies of Financial Freedom
- Your Allies of Financial Success
- Simple Personal Finance
- On Money, Family and Friends
- All About Credit Cards
- Habits That Lead To Success
- How To Start A Business
- Business Branding Tips
- Business Development Strategies
- How to Become a Freelancer
- How To Invest in the Stock Market
Join our Newsletter
Your subscription could not be saved. Please try again.
Your subscription has been successful.
