Pricing Out Your Menu Options

November 19, 2012

The prices that you charge for your food truck’s menu items are how you are going to secure profits. However, this does not mean that you will continue to earn higher profits if you constantly raise prices. In general, customers shopping within the food industry are highly price-sensitive, meaning that they will not hesitate to go to other vendors if they believe that your prices are too high.

So, the first step to pricing out your food truck’s menu options is to recognize the two types of costs that are involved in the production of your foods. There are direct costs and indirect costs. Direct costs are costs that are directly linked to the food itself. These costs include the cost of food (ingredients), serving sizes, and foods that are wasted or thrown away throughout the cooking process.

Indirect costs are ones that do not include the costs of ingredients, but instead include the aspects of your food truck’s service that add perceived value or quality. For instance, these costs include the labor that is associated with preparing menu items when items may require higher levels of effort, artistry or talent. These aspects provide a basis for charging higher prices.

Of course, these two costs only feed into how you should price your items; on their own, they do not represent what you should charge.

When you are developing your price points, you must remember to include the added values that your items offer to your customers. Are your serving sizes larger? Do you use exotic ingredients? Here are the following elements that can add value to a particular menu item (or entire menu):

  • Premium ingredients
  • Freshness
  • Uniqueness
  • Portion sizes
  • Organic or natural labels

To calculate how to price your food truck’s menu, the most common way is the food-cost percentage pricing method. The formula is as follows:

Food cost ÷ target food-cost percentage = menu price

Most food service establishments use a target food-cost percentage of 20% to 40%. So, if the item’s total food costs are $2, its sale price should be $10 (20%) and $5 (40%).

Here are some other examples:

Percentage Food Cost Menu Price
20 $1.50 $7.50
25 $1.50 $6.00
30 $1.50 $5.00

 

The target food-cost percentage that you choose should be based off of the direct costs, indirect costs, and added values you have created for each item and on the competition in your market.

All in all, make sure that your prices are reasonable. If you’re going to charge $10 for a burger, make sure that there is $9 of value that separates your food truck from a fast food joint that only charges $1 per burger.

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