How to set prices
Prices come from combining the cost study, competitors' prices and your commercial judgment.
Profit as one more cost
Many entrepreneurs see profit as "what's left over". It works better the other way around: include the desired profit as one more cost, before deciding to open. If with that profit prices are comparable with the competition, the project is viable; if they're well above, it must be reworked or dropped.
What profit is reasonable? More than the money would earn in a government bond or a term deposit, because opening a business means risk and work. At least twice the yield of a three-year government bond.
The theoretical price
Net price = standard unit cost × coefficient, where the coefficient spreads the other costs and the desired profit over the raw materials.
Taxes and fees on sales are added to the net price to get the menu price.
From theoretical price to real price
- If your price is well below the market, you can raise it.
- If it's similar, don't change it much.
- If it's well above, consider taking the product off the menu.
- Neither the "rule of 3" nor copying competitors guarantees recovering the investment.
Formulas to practice
Pricing coefficient and selling price
The theoretical price of each product: cost × coefficient, plus taxes and fees.
Cost of goods consumed
How much stock was used in the period, from the inventories and purchases.
Omnes' rules
Check whether your menu prices are well spread between cheap, medium and expensive.