How to Compute & Price Food Products (w/ example) Philippines

How to Compute & Price Food Products (w/ example) Philippines:

It’s no secret that the food service industry is one of the most popular and lucrative ventures in the Philippines. And no global pandemic can stop an army of Filipinos from swarming a restaurant to order their favorite meal. That’s why it remains a solid pick for the best business ideas in the Philippines. Thanks to the industry’s stable market, an aspiring food business owner can make a great deal of profit provided the right conditions.

Again, conditions. Naturally, the food’s quality plays a major part, and so does an accessible location and commendable service. But with a saturated market, you’ll need more than delicious food to be competitive. That’s where reasonable pricing comes into play. But how exactly do we do it? Here, I’ll teach you how to compute and price food products in the Philippines. But first…

Note: This article is about pricing your FOOD PRODUCTS. If you’re interested in knowing how to price your SERVICES, head on to our guide on How To Price Your Services in the Philippines (w/ Examples).

Importance of how to compute & price food products Philippines

Remember that one of the primary business objectives of a restaurant is to maximize sales and profits while delivering quality and affordable products to consumers. Accurate product pricing is a building block to help you achieve that end.

Once you get the right balance that covers your business’ operational costs while not scaring customers away with steep prices, you’ll slowly build your restaurant’s reputation, keep customers craving for more, and increase your profitability. In other words, you’ll be on the right track to cementing the long-term success of your food enterprise.

That said, here are some costing tactics you could try for your business in the Philippines.

Pricing Strategies of Products in the Philippines

Cost-plus pricing strategy

Cost-plus-pricing is the most fundamental strategy when coming up with a selling cost of a product. Essentially, it’s the sum of your capital plus a fixed mark-up percentage added on top to cover both overhead costs and profitability.

It’s a widely used technique but not always the best option for most businesses because it focuses solely on the unit cost of a product and ignores the price set by competitors.

While the strategy applies to the food industry, this is a more popular approach among frozen food business retailers.

Competitive pricing strategy

Competitive pricing is the strategic process of pricing goods or services based on how your competitors price the same within the market or niche. This is possibly the best solution when a food business is competing in a highly saturated market, say, in a given locality.

By this standard, you may sell your food products or dishes in three possible ways:

Lower-price strategy or selling products down a notch at a slightly lesser quality to compensate
Higher-price strategy or selling products at higher costs with added features to justify the price increase
Equal price strategy or selling products with a negligible price decrease to entice consumers

Price skimming

In the food industry, you can employ a price skimming strategy when you monopolize the selling of a sensationalized food option. If your market is composed of high-rollers and trendsetters, you can charge high prices for something trendy, then lower the cost over time as competitors emerge or the product loses popularity.

High-low pricing

High-low pricing entails selling a product at its regular price, then lowering it for certain periods, say, the onset of culturally appropriate events like Valentine’s or Christmas.

The pricing technique utilizes the art of urgency throughout the promotion period. You’ll then bring regular pricing back once the promo ends.

Penetration Pricing strategy

Food industry newbies will benefit the most from this penetration pricing, especially if they’re trying to penetrate a new market. This technique is originally meant when you want to hook consumers into trying a new product but is also applicable to get your brand out in the open.

In this strategy, you’re encouraged to sell goods or services at an extremely low price which will then increase in price once you obtain the desired market share. The key here is to use sensible marketing and run the promo for a short period to prevent hurting the business.

All the pricing formats above are useful, and you can play with each strategy depending on the settings surrounding your food business. But if you want to be specific with your costing approach, I’ll teach you a beginner-friendly pricing template you can use no matter your industry.

How to Compute & Price Food Products (w/ example) Philippines

Here’s how. Let’s try to make our example a bit tangible by assuming that you’re considering opening tapsilog business in the Philippines. Now, this template will not delve deeply into the industry but will give an insight into how to compute tapsilog’s reasonable costing.

STEP 1:

List down all the ingredients you’ll use, their actual quantity, and the average yield produced based on the given. In this example, we’ll only consider the oil, tapa, and egg.

Assumptions:

1 tbsp. of oil = 15 ml
Tapa is pre-cooked before frying

The Thrifty Pinay’s Tapsilog Average Yield = 4 servings
Ingredient	Quantity	Exact Measure
Cooking oil	12 tablespoons	180 ml
Egg	4 pieces	4 pieces
Tapa	¼ kilograms	¼ kilograms

STEP 2:

Determine the price of each ingredient to calculate the cost per recipe. Multiply the unit price by the equivalent measure to get the cost per ingredient.

Assumptions

Oil is ₱30 per 360 ml
Egg is ₱6 per piece
Tapa is ₱300 per kilo

The Thrifty Pinay’s Tapsilog Average Yield = 4 servings
Ingredient	Quantity	Exact Measure	Cost
Cooking oil	12 tablespoons	180 ml	₱15
Egg	4 pieces	4 pieces	₱24
Tapa	¼ kilograms	¼ kilograms	₱75
TOTAL COST	₱114

STEP 3:

Divide the total cost by the number of servings produced. In this case, ₱114/4 = ₱28.5.

STEP 4:

Calculate the selling price per serving of your product. Normally, newbies use markup prices to compute how much revenue they’d make per sale of goods or services. Unfortunately, using markup as a basis to calculate how much you want to sell each item is not always advised as factors like niche, production costs, and demand plays a huge role.

If you use markup, you must stick to the industry standard, otherwise, you’ll risk losing customers if you prioritize profits over consumer preference.

The best measure of profit is by calculating the selling price based on the desired margin. As a rule of thumb, 50% to 70% are healthy margin ranges, so we’ll stick to 50% in this scenario. Here’s how it’s done:

Cost of production ÷ (1 – desired profit margin) =selling price

₱28.51 ÷ 0.5 = ₱57 / serving of tapsilog

Doing so will ensure that with every peso made from selling your tapsilog, you keep 0.5 cents in profits.

Note:

Sometimes, you’ll have to adjust your desired margin based on the market settings. Try to test and see which is a viable margin to assess your product costing!

There will be instances when sticking to the standard (via a markup increase) would be better than aiming for a healthy profit margin, especially in a highly saturated market or for products with no solid market demand.

Buying a machine or equipment:

Ideally, it should be added to your pricing and doing so entails some assumptions. The usual calculations are:

(Cost of equipment ÷ no. of months to depreciate) / product yield per month = Additional cost per production

Let’s say you bought a meat slicer worth P10,000.00 which you think will take 2 years (24 months) to break down and be replaced. Compute and you will get P417 per month as your depreciation cost. Then assuming you make 100 servings per month, so you will have an additional cost of ₱4.17 to your pricing.

In Conclusion

Pricing your food products is essential to the success or failure of your business. Without a solid foundation of how costing works, you may lose potential leads because of undesirable prices or find yourself slowly losing money because of a mistaken foundational knowledge of how profitability works.

We hope this little tutorial on how to compute and price food products in the Philippines has helped you with how to price your business. Good luck!