Menu prices should be calculated such that your target cost of sale is achieved after compensating for waste, loss and damage. The target cost of sale varies based on the style of service and type of product.
The first step in determining the price of a menu item is to calculate the total cost of the item by listing each ingredient as accurately as possible. Often, building block ingredients such as flour, water or salt are not included in this calculation. List the items, determine the approximate cost of each item, and add them to calculate the total cost of the item.
After calculating the item's cost, you must determine what percentage cost of sale you hope to reach with this item. Items vary in cost of sale based on their function within the menu. The cash profit for more costly items may be high enough to justify the higher percent cost of sale. Alternatively, less expensive items might have a lower price point, thereby generating less profit per sale. However, these items may still be valuable as they might sell at a higher volume than the more expensive items.
After identifying your target cost of sale, estimate how much potential for waste or spoilage exists with the item. If the item is particularly delicate, compensate for this in your target cost. Subtract this allowance from your final cost of sale, then divide your item cost by your adjusted cost of sale to reach the final menu price.