Key points
- Selling price = COGS ÷ target COGS percentage. The result is the lowest price that still meets your target.
- Markup is worked out from COGS, margin from the selling price. On the same COGS, a 40% markup and a 40% margin give different prices.
- If dine-in and takeaway share one price, base it on the average COGS for your mix of orders.
- Round up, check the COGS percentage again, and review the price whenever an ingredient cost goes up.
In the guide to COGS per menu item, one cup of Kopi Susu Aren has a COGS of Rp8,400 for dine-in and Rp9,200 for takeaway. That's only half the answer. The next question is what to charge for it.
Price it too low and each cup earns very little, however busy you are. Price it too high and customers may go somewhere else. This article uses the same Kopi Susu Aren numbers to work out a price from COGS, round it, and check it against prices near you.
Example: Every price, percentage, and target in this article is an example. The math uses prices before tax, as in the COGS guide. Swap in your own numbers.
The most direct way is to decide first how much of the selling price can go to COGS. That number is your target COGS percentage. The formula:
- Selling price = COGS ÷ target COGS percentage
Say your target is 40%. For a dine-in Kopi Susu Aren, Rp8,400 ÷ 0.4 = Rp21,000. For takeaway, Rp9,200 ÷ 0.4 = Rp23,000.
This formula gives the lowest price that still meets your target. A higher price brings the COGS percentage down. A lower price pushes it over the target.
Where does 40% come from? Not from a general rule, because no percentage fits every business. Pick a target, then check the result against your average gross profit target per serving, which comes from your operating costs and the profit you want. The COGS guide shows how, and the operating costs to count are listed in the article on gross and net profit. In that guide's example, each serving needs to earn an average gross profit of Rp10,000. A price of Rp21,000 gives a gross profit of Rp21,000 − Rp8,400 = Rp12,600, so it's above that target. If many of your items earn less gross profit than that target, lower your target COGS percentage.
Markup and margin aren't the same
When someone says "a 40% profit," ask first: 40% of what? There are two ways to work it out, and they give very different prices.
- Markup is gross profit divided by COGS. Selling price = COGS × (1 + markup).
- Gross margin is gross profit divided by the selling price. Selling price = COGS ÷ (1 − margin).
A target COGS percentage of 40% is the same as a 60% gross margin, because the other 60% of the price is gross profit.
Here's what happens when you apply "40%" three ways to a COGS of Rp8,400:
| Method | Formula | Selling price | Gross profit per cup |
|---|
| 40% markup | Rp8,400 × 1.4 | Rp11,760 | Rp3,360 |
| 40% gross margin | Rp8,400 ÷ 0.6 | Rp14,000 | Rp5,600 |
| 40% COGS percentage | Rp8,400 ÷ 0.4 | Rp21,000 | Rp12,600 |
The gap between a 40% markup and a 40% margin alone is Rp2,240 a cup. With a 40% markup, COGS takes up 71.4% of the price (Rp8,400 ÷ Rp11,760). You only reach Rp21,000 with a 150% markup.
If you need to convert one into the other:
- Margin = markup ÷ (1 + markup). A 150% markup is a margin of 1.5 ÷ 2.5 = 60%.
- Markup = margin ÷ (1 − margin). A 60% margin is a markup of 0.6 ÷ 0.4 = 150%.
When you talk prices with a business partner or your head barista, agree first on which percentage you mean. The rest of this article uses the COGS percentage.
Dine-in and takeaway prices
Takeaway COGS is higher because of the plastic cup, lid, and straw. With a 40% target, the lowest price is Rp21,000 for dine-in and Rp23,000 for takeaway. You have three options:
- Two prices: Rp21,000 for dine-in, Rp23,000 for takeaway. This matches your costs best, but your cashier has to use the right price every time.
- One price based on takeaway COGS: Rp23,000 for everyone. This is the safest for your target, but dine-in customers pay more.
- One price based on average COGS, weighted by your mix of dine-in and takeaway orders.
For the third option, look at your orders from the last few weeks. Say 30% of Kopi Susu Aren orders are takeaway:
- Average COGS = (70% × Rp8,400) + (30% × Rp9,200) = Rp5,880 + Rp2,760 = Rp8,640
- Lowest price = Rp8,640 ÷ 0.4 = Rp21,600
If takeaway orders grow, the average COGS goes up with them. Check your mix again every month.
Round the price, then check again
Formula results rarely suit a menu board. Rp21,600 is hard to remember and awkward for cash change. Round up to the nearest Rp500 or Rp1,000, then work out the COGS percentage again.
| Price after rounding | Average COGS | COGS percentage | Meets the 40% target? |
|---|
| Rp21,500 (rounded down) | Rp8,640 | 40.2% | No |
| Rp22,000 (rounded up) | Rp8,640 | 39.3% | Yes |
Rp22,000 is the price used in the COGS guide. At that price, a dine-in cup has a COGS percentage of 38.2%, a takeaway cup 41.8%, and the average is 39.3%.
A few more things to keep in mind when you round:
- Keep your menu prices in a sensible order. A large size uses more ingredients, so it should cost more than a regular one.
- Items with similar COGS should have prices that aren't far apart, so customers aren't confused.
- Rounding down is fine, as long as you know what the COGS percentage becomes and the rest of the menu makes up the difference.
- If you charge tax, decide whether the prices on your menu include it. You can set up both VAT (PPN) and regional tax (pajak daerah) in Kazeer. Check with your tax office or a tax consultant which taxes apply to your business.
Compare with similar places nearby
The formula price is your floor on the cost side. Customers still compare you with other places. Before you set a price, do a simple check:
- Pick three to five similar places near you, with a similar concept and similar customers.
- Write down their prices for comparable items. Note the cup or portion size.
- Put your price in the same table.
Then read the result:
- If your price is much higher, check your COGS first: amounts that are too generous, ingredients bought at too high a price, or high waste. If your COGS is reasonable, make sure customers can see why, such as a bigger size or different ingredients.
- If your price is much lower, you may have room to raise it, or some costs may be missing from your COGS.
- If the prices are similar, make sure your COGS percentage still meets your target.
Don't just copy another place's prices. Their rent, wages, recipes, and customers are different from yours.
Review prices when ingredient costs go up
A price that works today may not work a few months from now. The COGS guide uses the example of UHT milk going from Rp18,000 to Rp20,000 a liter. The milk in each cup costs Rp300 more. With 5% waste, the COGS per cup goes up by Rp315:
| Per cup | Before | After |
|---|
| Dine-in COGS | Rp8,400 | Rp8,715 |
| Takeaway COGS | Rp9,200 | Rp9,515 |
| Average COGS (30% takeaway) | Rp8,640 | Rp8,955 |
| Average COGS percentage at Rp22,000 | 39.3% | 40.7% |
The COGS percentage is now over the 40% target. Your options:
- Raise the price. Rp8,955 ÷ 0.4 = Rp22,387.50. Rounded up to the nearest Rp500, the price becomes Rp22,500, with a COGS percentage of 39.8%.
- Keep the price and bring COGS down, for example by comparing other suppliers' prices or buying a more economical pack size. If you change the recipe amounts, taste-test first, because regular customers will notice.
- Keep the price for now if the gap is small and the rest of the menu makes up for it. Collect a few increases, then change prices once, so your menu doesn't keep changing.
In Kazeer, COGS per item can be calculated from the item's recipe, and COGS is recorded from every sale, for each outlet. Your reports show sales, COGS, and gross profit. After you change a price or a COGS figure, work out the COGS percentage from your reports every week, COGS divided by sales, to see whether it's back near your target. See an example in the reports section.
Start with your five best sellers:
- Take each item's dine-in and takeaway COGS from your costing.
- Set a target COGS percentage, then check it against your average gross profit target per serving.
- Work out the lowest price: COGS ÷ target. If you use one price, use the average COGS for your takeaway mix.
- Round up, then check the COGS percentage again.
- Compare with three to five similar places near you.
- Whenever a receipt shows a new ingredient price, recalculate, then decide: raise the price, bring COGS down, or hold for now.