Question

Define the term contribution margin. How does it affect menu design and development?

Answer 1

Contribution margin is defined as the term which determines the profitability of the individual products. In the case of food pricing, contribution margin helps to determine the how much each item would contribute towards the cost and profit. Contribution margin in the case of a restaurant can be calculated by finding the sum of non food costs and desired profit and then dividing them by the number of customers. The base selling price of the item is determined by adding the contribution margin with the food cost per customer and it is the minimum menu price that can cover costs and desired profit. Menu design and development is affected by contribution margin because it helps in determining the price of the menu item after determining the desired profit per customer.