Your restaurant menu represents your brand and concept every time a customer sees it. Restaurant business owners who consistently evaluate their menu can increase profits and improve restaurant cash flow while keeping customers satisfied.
Calculating your food costs is the first step to accurately evaluate your menu. Knowing a restaurant menu item’s contribution margin (that is, menu price minus food cost) is essential to the process. Then, consider the following.
Grouping restaurant menu items
To simplify evaluation, an effective strategy is to perform separate evaluations for common groups of menu items (such as entrees and appetizers). This provides more actionable information when deciding whether to keep or replace restaurant menu items. For example, you wouldn’t want to replace an unprofitable dessert item with an appetizer. Groupings allow you to perform evaluations more often and reduce the potential tor clerical errors.
Evaluate your menu on a regular basis, particularly before reprinting. Another good time to evaluate your menu is when the profit and loss statement shows that actual food costs are higher than projected.
As discussed above, menu evaluations can be done more often if you perform them separately according to groups. For example, one group can be evaluated each month. A consistent evaluation process is a valuable time-saver for identifying less popular or profitable restaurant menu items.
An attractive restaurant menu, enhanced by an intentional reading pattern, can increase profits. Consider these factors when designing a menu that highlights your faire as well as your flair for creative placement.
- Most customers scan a menu in a Z-pattern until their eyes spot an item that looks interesting and yummy. Research shows that a reader eyes the top left corner of a page first and then zig-zags down to end in the lower right corner.
- Place popular and profitable items in “Z” positions.
- Design your menu so that the items you want to sell most are located in one of the “Z” positions. Popular but unprofitable items should not be placed in these positions.
- Use sales numbers to determine how menu location impacts sales of certain items, and then adjust their position based on profitability.
- If your restaurant menu does not have items that are both popular and more profitable, you may want to reduce the price differences between items that are popular but unprofitable and those that are unpopular but profitable.
- Decrease the price spread between two items in order to increase the popularity of the more profitable item. This pricing method can be even more effective if done between very similar items, such as two different fish entrees or two different cuts of steak.
Another advantage of regularly evaluating your restaurant menu is your ability to respond to any changes in your customers’ appetites and demands. It’s important for restaurant business owners to consider customer preferences. For example, even when vegetarian or healthy menu items don’t meet the minimum profitability or popularity standards, excluding them from your menu might mean diners will choose another restaurant.
Look at the numbers
Follow the steps below using the “NAME OF FORM” to help with your menu evaluation:
- List the menu item
- List the menu price in column (a) per unit
- List the food cost in column (b) per unit
- List the contribution margin per unit (menu price minus food cost) in column (c)
- List the unit sales for one week in column (d)
- Multiply (a) times (d) to determine total sales in column (e)
- Multiply (b) x (d) to determine total food cost in column (f)
- Subtract (f) from (e) to determine your contribution margin
- Divide (f) by (e) to determine your “weighted food cost”
Then, rank items based on popularity and profitability.
Look at your unit sales (d), and grade each menu item using A, B, C, or D.
High sellers would be graded an A and low sellers a D, with the rest split into B and C.
Look at the total contribution margin for each unit, and again divide the menu items into the four grades, with A being most profitable, D the least, and B and C falling in between.
Calculate the Scores
Add the popularity ranking with the profitability ranking to determine the combined score for each item.
- An A for popularity plus an A for profitability equals a combined score of A.
- If an item has two different grades, such as A and B, determine whether it is closer to the next one up or down and give it a plus or minus score.
- If an item has two nonadjacent grades, such as A and C, average the score (in this case B).
Evaluate the outcomes
Four possible outcomes exist for each menu item:
1. Popular and Profitable: a combined score of A.
2. Popular but Unprofitable: a combined score of B or C.
3. Unpopular but Profitable: a combined score of B or C.
4. Unpopular and Unprofitable. a combined score of D.
Grade A: These are your top performers and usually require no action. Contribution margins could be improved with small price increases. As with any change on your menu pricing, remember the importance of customer expectations as discussed in TITLE OF BLOG.
Grade D: These are your worst performers and easily eliminated.
Grades B and C:
For items that are popular but unprofitable, consider:
- reducing the portion size
- using less expensive ingredients
- raising the price
For items that are unpopular but profitable, take steps to improve demand such as:
- instructing servers to suggest them to customers
- test different prices by running specials to increase popularity
- lower the price if the item would still be profitable
Hire an expert
Providing delicious food and extraordinary service is a top priority for all restaurant business owners. Let us handle the math to improve your cash flow and increase profits while you handle the restaurant. Our restaurant financial experts can help your restaurant be the success you always dreamed of. Book a discovery call here!