Price Point Analysis

Along with the LSM planning stages, price points have to be analyzed and well thought out for any plan to be successful. The question that comes up is usually - "At what price should I market my promotional menu item at?" It is a tough question, but with the price point analyzer, we help you find a ballpark price.

At first glance, when considering the promotion of a discounted item, it appears that we are going to lose money on it. But the real power in profits is One of the most overlooked pieces of the pricing equation, and that is the potential for increased volume.

Let's assume you sell 100 items of menu item A at the regular price of $8.99. You are considering creating a LSM plan in which item A will be featured for $7.99 or $6.99 (you're not sure yet). The question then is how many units of menu Item A do I have to sell at $7.99 or $6.99 to still be profitable or to hit a sales or profit target. The question should be (for your LSM plan) is how many units of menu Item A to increase the profit percent or generate sales dollars of 10%? 20%? 50%?

Take a look at the example below from the Local Store Marketing Guides' Price Point Analyzer:

Based on the forecasted volume, Item A at $7.99 would be the most profitable price point. One note - the calculation is assumed to be based on either a weekly or periodic sales activity. The assumption holds that the only "variable" in the cost calculations are the food cost only. Labor, semi-variable and fixed costs are presumed to be fixed - in the real world there will be some impact on an additional 30 or 40 items in this example, but the impact is too soft for your restaurant calculations.