Healthy Kids School Canteen Association

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Are Your Prices Appropriate?

Prices must be set so that items sell, the canteen makes sufficient profit, and the goals in the canteen policy relating to the mark-ups on healthy and less healthy products are followed.

Different schools will set different prices for the same items, since factors such as supplier costs, overheads (wages, equipment, etc.) and the spending capacity of the students will differ from school to school. Before you can make a decision on how much you are going to charge, you need to look at the BIG picture of how your canteen operates.

Each year a target for expected profit should be calculated from the previous year's sales. This is critical to determining the average gross profit required.

An example     

Net profit required by school         $4,000   
Plus expected overheads            $15,000   
Required gross profit                   $19,000   
Expected sales                          $42,000    

Gross profit (%) = ($19,000 ÷ $42,000) x 100 = 45%

This target of 45% gross profit is the average figure around which items may be priced. In this example, the canteen can use a standard gross profit of 45% for all items. The selling price is always given a value of 100%, therefore, if 45% gross profit is needed, the wholesale cost will account for the remaining 55%.

The selling price is calculated by dividing the current wholesale price or the cost of ingredients by the cost expressed as a percentage of the unknown selling price. For example, the cost of the ingredients to make a salad sandwich is 75cents, so the new selling price for the sandwich is calculated:

New selling price = (72cents / 55) x 100 = $1.36 

So the suggested selling price is $1.36, or rounded up to the nearest 5 cents, $1.40. This method saves time when price changes or new lines are introduced. It also eliminates guesswork and ensures target profits are realised.

Source: Management $ense, Food Sense Manual, 1997.