Normally in this space I talk about service most often, but sales are the lifeblood of every restaurant and I am also passionate about simple economics and more specifically about profit. So let me ask you if your menu is maximizing your profits?
Let’s face it, your restaurant menu is your most powerful marketing tool and holds the key to your restaurant’s success. It’s so important, yet many restaurants take 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 won’t dig into the numbers, but I will give you a new take that can make a big difference in your bank account.
Every restaurant menu must strike a balance between three key attributes: appeal, variety to the customer, and profit. Often, however, the profit is sacrificed at the expense of the other two. Let’s take a closer look.
Almost any restaurant can tell you which items are the most popular, but more often than not these owners and managers are not sure which items are the most profitable in each category. I’m talking about appetizers, main courses, desserts and even the specialty cocktail menu. The danger here is finding out that your least profitable items are your biggest sellers, who are getting valuable sales from your most profitable items day in and day out. These restaurants work just as hard to prepare items for low profit as they do for high profit. Thousands of dollars are lost in a matter of months, simply because their menu was not designed for profitability. Your restaurant may be busy and not make any money. No wonder the bank account is not growing!
Here is how restaurants can rethink their menu for maximum profit …
First, there is no exercise more important than evaluating the entire menu, item by item in each category, right down to the garnish. If an ingredient goes into a dish, plate, or drink, it has a cost that must be counted in determining the total cost of your plate or drink to serve that item to the customer. By subtracting this cost from your menu price or what you charge your customer, you get your gross profit for that item. Again, do this for each item so you know exactly how much benefit each contributes to the overall benefit of your menu.
If this exercise seems a little intimidating, don’t worry. Be aware that your major suppliers will be calculating your profit item by item and the percentage of food cost for you as long as you buy from them, so be aware that this option is available to you. But again, I have to stress how important it is to complete this exercise and understand the fundamentals behind it. Your dollars are at stake here and perhaps the survival and ultimate success of your restaurant.
Then run a product line report from your point of sale system. It’s simple and some of the most valuable information you have right at your fingertips. A Product Mix (PMIX) tells you each product your restaurant has sold over a period of time, along with the price you charge for each item and the total amount of sales you made in revenue for each item. The PMIX will ask you to enter a date range and I recommend at least 6 months of data. If you change the menu according to the seasons, three months will be very revealing.
Finally, go to your cost sheets one item and one category at a time and transfer the number of units you sold during that period. Compare each category one by one and see for yourself whether your top profitable items are good sellers or NOT.
What if your top grossing items aren’t the big sellers? You and your restaurant menu have a few choices. You can:
- increase the price of the low-profit item (s) that are selling well to align their contribution margin more closely with the best ones
- adjust ingredients or portion sizes
- abandon the most profitable items entirely
But what I recommend the most is to design a whole new restaurant menu that is varied and appealing to the customer, but contributes equal if not very similar profit, item by item, category by category. Again, your major food suppliers will do this for you. All you have to do is ask.
That way it doesn’t matter what sells, as long as you move the merchandise and absolutely maximize your profit and not leave a lot of money on the table. Go ahead, do the math!