This document provides guidance on establishing pricing policies for culinary businesses. It discusses calculating cost price by determining raw material, production, and administrative costs. It then presents three methods for setting the selling price: 1) using a margin rate, where the price covers costs and provides a target profit margin, 2) using a food cost method, where the price is based on a percentage of costs, and 3) using a multiplier coefficient to determine price from cost. The document stresses the importance of understanding costs and adjusting prices based on factors like supplier costs to ensure profitability and breaking even.

1. This programme has been
funded with support from the
European Commission
Module 4 -
Encrypting
Define your rates
"The support provided by the European Commission for the production of this publication does not constitute
an endorsement of its contents, which reflects the views only of the authors; the Commission cannot be held
responsible for any use which may be made of the information contained therein.

2. 1
This programme has been funded with support from the European
Commission. The author is solely responsible for this publication
(communication) and the Commission accepts no responsibility for any use
that may be made of the information contained therein.
2
3
4
Pricing Policy
MODULE 3 -
Encrypting
Contents
Cost price
Calculate costs
Establishing the selling
price

3. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
1 - Pricing policy
The price defines the value of a good or service. It is the element of the
marketing mix that allows the company to earn income from its activity.
The selling price :
- allows a profit margin to be generated,
- enhances the product and service offering,
- has a psychological impact on prospects,
It must be consistent with the company's marketing positioning.

4. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
1 - Pricing policy (continued)
There are three main strategies or "pricing policies",
which consist of positioning oneself in relation to the
competition:
• skimming, high prices above the competition's prices,
in order to reach a specific segment of customers with
high purchasing power
• Penetration, relatively low prices to attract a large
share of the potential customer base
• Alignment consists in charging prices close to those of
competitors.
To go further

5. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
Setting the right selling price is essential. Price is at the crossroads of
marketing and profitability, i.e. at the centre of the company's business
model.
Several methods to establish your pricing policy, 3 methods
- the psychological price the client is willing to pay
- the prices of the competition collected during your market research.
- the cost price + a margin rate
As a general rule, the tariff is set by combining the three approaches
How do you set your sales price?
1 - Pricing policy (continued)

6. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
l Setting a price consists of reconciling the constraints imposed by the
market (the prices charged by competitors or colleagues) and the
cost of production.
l Differentiate through prices, creating an image that will enable you to
position yourself in relation to your competitors.
l Propose a profitable offer that is really expected by your customers.
l The customer always keeps a 'price image' of his experience.
Remarks

7. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
Why calculate its cost?
Calculating your cost price will allow you to set your
selling price.
2 - Cost price
In order to calculate your cost price you need :
- the price of your raw materials (suppliers)
- your technical data sheet
- of your direct expenses.

8. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
2 - Cost price
The price of your raw materials
influences the cost of production and
can increase your selling price.
Selling at a loss is prohibited by law.
Hence the importance of knowing its cost price and
not to go below it.

9. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
2 - Cost price
The technical data sheet
The technical sheet will be the identity of your dishes, you will enter
several important information: the name of the dish, the list of all
the ingredients and the quantity used, the origin (suppliers) with the
purchase price excluding VAT (excluding taxes) of your ingredients,
the cost price excluding VAT per portion and also the price excluding
VAT of other foodstuffs not included in the recipe (bread, gas,
waste...).
By drawing up your technical data sheets you will know your unit
cost prices excluding VAT. The next step is to determine your selling
price.

10. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
2 - Cost of goods sold (continued)
The technical data sheet
How to draw up a kitchen data sheet in 5 steps?
o Step 1: To create a kitchen data sheet, start by listing all the ingredients
to make your recipe. This is your raw material.
o Step 2: Next to each ingredient, note its unit price.
o Step 3: Write down the amount of raw material needed for each
ingredient.

11. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
2 - Cost of goods sold (continued)
The technical data sheet
o Step 4: Multiply the quantity
required by the unit price of the
ingredient to obtain the cost price.
o Step 5: If necessary, add flat-rate
costs for certain frequently used
ingredients (condiments, spices,
etc.).

12. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
2 - Cost of goods sold (continued)
The technical data sheet
2 tools are available to help you create
Your technical data sheet
The technical data sheets must be updated regularly
according to the evolution of menus and the purchase prices of the
raw materials.

13. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
Cost of Return
=
The cost of food represents between 28 and 35% of a cost price in the
catering industry, that is :
See your purchasing and negotiation policy with your suppliers
+
Distribution costs delivery or travel costs
+
Production costs related to direct and indirect expenses
+
Administrative costs
2 - Cost price

14. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
2 - Cost price
Example
Whichever method you use to set your tariffs, you must
first of all be able to determine very precisely your cost
of the food resources used. For most methods, therefore,
you need to be able to establish your costing.

15. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY
SECTOR
.
The calculation of the costs for the manufacture of your dishes is done
by adding up all the costs directly linked to the elaboration of your
product, it is also called production cost.
This production cost is made up primarily of direct expenses. These
expenses are directly linked to the production of your dish.
Example of direct charges: raw materials to be processed, dedicated
production tools, cost of packaging items, etc.
3 - Calculating costs
Production cost

16. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY
SECTOR
Certain ancillary costs can also be included in the calculation of the
production cost. These are indirect costs such as rent, electricity, water,
salaries, insurance, maintenance, internet, advertising.
The cost of labour, for example, can be calculated on the basis of a
charged hourly cost multiplied by the time spent producing each dish.
In all cases, to facilitate the analysis, it is important to stick to the actual
costs related to the manufacture of the product.
3 - Calculating costs
Production cost

17. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
Here we offer you three methods to set your rates, there are others
that you can consult by clicking on the Zoom icons
The three methods are as follows:
1. Margin rate
2. The "food-cost" method
3. The multiplying coefficient
4 - Establishing the selling price

18. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
4 - Establishing the selling price
1 - Margin rate
The margin corresponds to the difference between a sale price and a
purchase price, it is calculated net of tax (when you are liable for VAT). The
gross margin tells you whether your product or service is profitable. The
resulting margin rate refers to the percentage of profit made. It can be
analysed and compared with the rates applied in the culinary sector. These
are essential indicators for getting started and steering tools for the
future.
Here's how to calculate the gross margin :
Gross margin = Turnover (forecast) excluding VAT. - Purchase cost (excluding
VAT) of products or services sold

19. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
The margin rate is calculated as follows:
Margin rate = (Gross margin / Turnover (forecast excluding tax) x 100
In the profession it is on average 70% so you can find out if your dish or
menu is profitable and adjust it if necessary.
Simulate your margin rate and define your rates:

20. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
4 - Establishing the selling price
2 - Food-cost
Selling price per recipe = Cost of all food resources used for the recipe ÷
Percentage of theoretical cost of food used that you want to obtain for the recipe
The food cost percentage is your cost of goods sold divided by your sales. It
represents as a percentage (%) the size of the portion of the food cost in relation to the
sales figure, which always represents 100% of it. On average, the food cost is between
28 and 32% in many restaurants.
For example :
Your recipe costs €4.65 and your food cost is 30%. Your calculation
will be as follows: 4,65 € / 30% = 15,5 €.
Your selling price can be 15.5 € on your card.

21. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
4 - Calculating the selling price
3 - Multiplier coefficient
The multiplying coefficient is used to obtain the selling price (including
tax) of a product from its purchase price excluding tax.
Multiplier coefficient = Selling price incl. tax / Purchase price excl. tax.
For example :
A company buys a product 20€ HT and sells it 60€ TTC (i.e. 50€ HT). The
multiplying coefficient applied is 3, the margin is 30€ HT (50-20), the margin
rate is 150% (30/20) and the brand rate is 60% (30/50).
Simulate your multiplying coefficient and define your prices :

22. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
4 - The break-even point
The break-even point is the minimum level to be reached for a
company's activity to become profitable. The break-even point is
expressed in currency (Euro), but also in quantity (number of
covers) or duration (number of days of turnover) or by the date on
which the business reaches its break-even point, also known as the
break-even point.
It is therefore important to set up a tool on a daily basis to know
when you start to make a profit in the month.

23. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
5 - The break-even point
A tool is proposed to you to calculate
your break-even point

24. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
Please note that your rates are not fixed and
your income is not fixed either. You must
regularly re-determine certain ratios in order to
ensure a good follow-up of your activity.
How to maintain profits?

25. BACKING ENTREPRENEURIAL INITIATIVES IN THE CULINARY SECTOR
How can you improve
your profit?
By increasing its selling price according to
fluctuations in the price of raw materials
By looking for suppliers offering better
rates
By reducing charges to improve the cost of
production
(e.g. insurance companies, energy
suppliers, ...)
The greater the
difference between
the selling price and
the cost price, the
better the
profitability of the
product.

26. LEXICO [i][ii]
i]
Source 1: http://www.dictionnaire-commercial.com/, le 26 /06/2020
ii]
Source 2: https://www.definitions-marketing.com/ , on 29/06/2020
Psychological price: The psychological price or acceptability price is the
theoretical price at which the sales of a product could be at its maximum
according to the psychological thresholds faced by the consumer. The
lower threshold is the one which induces fear about the quality of the
product and the maximum threshold is the one for which the consumer
considers the product too expensive.
The acceptability price is obtained by interviewing a sample of potential
customers in order to locate their price thresholds. The term psychological
price can also refer to a price that is voluntarily below a psychological
threshold or that falls below it for small amounts (9990 €, Everything at 2
€...). For more details on this use of the term psychological price, see round
prices and broken prices.