Selling more burgers is easy: give them away. The hard part is finding the price that leaves the most money in the till, and it is almost never the one that sells the most.
Learning objectives. After this week you can (1) explain price elasticity of demand; (2) judge a price by contribution, not by units or revenue; and (3) explain loss leaders, add-on sales and pricing against capacity.
Remember this: more units is not more money. Judge every price by contribution.
1) Price elasticity
Price elasticity of demand is how strongly quantity responds to price. Demand is elastic when a small price change moves quantity a lot, and inelastic when quantity barely moves. Elasticity comes from substitutes: on a street full of trucks, the alternative is one truck over. The revenue test follows: cutting price raises revenue only where demand is elastic.
2) The discounting trap
Contribution = Units Sold × (Price − Unit Cost)
Say a truck sells 130 burgers at $8.50 (unit cost $3.20) and tries 10% off, $7.65, the next comparable day:
| Price | Units | Margin per unit | Contribution |
|---|---|---|---|
| $8.50 | 130 | $5.30 | $689 |
| $7.65 | 140 | $4.45 | $623 |
The discount sold 10 more burgers and made $66 less. That is the discounting trap: giving margin to customers who would have bought anyway. A price rise can lose too, if enough customers walk. Only your own reports tell you which side of the line you are on.
3) Loss leaders and add-on sales
A loss leader is priced low to pull customers in so they buy profitable items alongside. On your truck, sides and drinks are add-on sales (also called attach sales) to the main item, and your report prints each one's add-on rate. A cheaper main tends to lift those rates; an overpriced main drags them down. So judge a main-item price by the whole basket's contribution, not the main item alone.
4) Pricing against capacity
Yield management uses price to give scarce capacity to the customers who value it most. When you hit 100% utilization and still log a stockout, a discount only brings people you cannot serve. Price is also a signal: customers judge quality from it before they taste anything.
Quick self-check
(a) Price $6.50, unit cost $2.10, 120 sold: contribution? (b) A 10% cut adds 6% more units but cuts margin per unit by 16%: does contribution rise or fall? (c) At 100% utilization with a stockout, what does a discount add? (Answers: 120 × 4.40 = $528; falls, since 1.06 × 0.84 ≈ 0.89; customers you cannot serve.)
Common mistakes
- Judging a price by revenue. Revenue up with contribution down is a worse business.
- Changing price and district on the same day. You will never know which one did what.
- Raising price to fix a slow day. If traffic was the problem, price was not.
This week in the arena
Each day, compute your main item's contribution: units sold from the report, price and unit cost from the decision form. Write it next to that day's Conversion and add-on rates. If you move a price, move only that one thing, and report which price left more contribution.