Wednesday, June 1, 2011

What are Base Prices and Inclusive Prices?

The simple answer (to me, anyway) is that Base Price and Inclusive Price are on opposite ends of the same equation – with tax and other charges in between. So how does that work if you are catering an event?

On a typical menu with catering pricing for a hotel, you will see a price listed next to each item or package. Often, that price is followed by a “++”. As discussed in my post on hidden charges, the “++” (or “plus-plus”) represents taxes and services charges that are added to the Base Price that is listed on the menu. If you cannot find the rates on the catering menus, ask your CSM for that information – you need to know it!

Now, let’s look at an example (warning – math ahead!)…

I’ve chosen to serve a dinner that is listed as $50 per person on the menu. Remember, that is the Base Price for my choice. For this example, taxes are 7.75% and the hotel will add a 20% service charge to the bill as well. That gives me an Inclusive Price of $64.65/person to serve that menu option. So how did I get to that number? Here’s the equation:

Inclusive Price = Base Price x (1 + Service Charge Rate) x (1 + Tax Rate)

Plugging numbers in yields…

Inclusive Price = $50 x 1.2 x 1.0775 = $64.65

So, if Base Price is the amount without tax and service charges figured in, then Inclusive Price is the amount with tax and service charge included.

Here is a simple price calculator that I’ve cooked up in Excel that you can download and play with. It will calculate either Inclusive Price from a known Base Price or Base Price from a target Inclusive Price. The only other information you’ll need to know is the tax rate and service charge amount and it will do the rest.

By the way, does the Inclusive Price appear excessive to you? If so you’re not alone. It seems that way to many people when they compare it to the cost of eating out. However, the same dynamic is at play there, too – people usually just aren’t consciously aware of it. The restaurant menu lists the Base Price for each item; you pay taxes on top of that, and tip on top of that. If you were to order a $50 meal, by the time you add tax and tip to the bill, your final tab will be similar to the amount calculated above (though, obviously, you can control how much to tip…).

~ Karl Baur, CMP • Project Director, RDL enterprises