Normally in this space, I most frequently talk about service, but sales are the lifeblood of every restaurant and I am equally passionate about simple economics and specifically profit. So let me ask, is your menu maximizing profit?
Let’s face it, your restaurant menu is your most powerful marketing tool and holds the key to your restaurant’s bottom-line success. It’s so important, yet many restaurants are taking the wrong approach to menu design. I’m not talking about colors, graphics or item placement here, I’m talking about the selection of menu items in each category and the contribution each makes to gross profit. Don’t worry, I’m not going to dig deep into numbers, but I am going to give you a new approach that can make a big difference in your bank account.
Every restaurant menu needs to achieve a balance between three key-attributes: appeal, variety to the customer and profit. Often however, profit is sacrificed at the expense of the other two. Let’s take a closer look.
Most every restaurant can tell you which items are the most popular, but more often than not, these owners and managers don’t know which items are their most profitable in each category. I’m talking about appetizers, entrees, desserts and even the specialty cocktail list. The danger here is finding out that your least profitable items are your biggest sellers, which are taking valuable sales away from your most profitable items day in and out. These restaurants are working just as hard preparing low profit items as high profit. Thousands of dollars are being lost over the course of a few months, simply because their menu was not designed with profitability in mind. Your restaurant can be busy and still not be making any money. No wonder the bank account isn’t growing!
So here’s how restaurants can re-design their menu for maximum profit…
First, there is no more important exercise than costing out the entire menu, item by item in each category, right down to the garnish. If an ingredient goes into a dish, on the plate or in a drink, it has a cost that must be counted to determine your total plate or drink cost to serve that item to the customer. Subtracting this cost from your menu price or what you are charging your customer, equals your Gross Profit for that item. Again, do this for every item so you know exactly what profit each contributes to your overall menu profit.
If this exercise sounds a bit daunting, no worries. Know that your major suppliers will calculate your item by item profit and food cost % for you as long as you are buying from them, so know that this option is available to you. But once again, I have to emphasize how important completing this exercise is and understanding the fundamentals behind it. Your dollars are on the line here and maybe your restaurant’s very survival and ultimate success.
Next, run a product mix report from your point of sale system. This is simple and some of the most valuable information you have at your fingertips. A product mix (PMIX) tells you every product your restaurant has sold over a period of time, with the price you charge for each item and the total sales dollar amount you realized in revenue for each item. The PMIX will ask you to type in a date range and I recommend at least 6 months of data. If you change menus seasonally, three months will be very telling.
Finally, go to your cost sheets one item and one category at a time and transfer the number of units you have sold over that period of time. Compare each category one by one and see for yourself if your Most Profitable Items are strong sellers or NOT.
What to do if your most profitable items are not the big sellers? You and your restaurant menu have a couple choices. You can:
- raise prices of the lower profit item(s) that are selling well to bring its contribution margin more in line with the top
- adjust Ingredients or portion sizes
- drop the Lowest Profit items entirely
But what I recommend most is to design an all new restaurant menu that has variety and appeal to the customer, but contributes an Equal if Not Very Similar profit, item by item, category by category. Once again, your major food suppliers will do this for you. All you need do is ask.
This way, it doesn’t matter what’s selling, as long as you are moving the merchandise and you will be absolutely maximizing your Profit and not leaving lots of money on the table. Go ahead Do the MATH!