Did you know that the most effective tool for restaurant marketing is right under your nose? That’s right: your menu design and layout can increase your restaurant’s bottom line profit by 3-5%.
Designing an effective menu is far from a random guess-and-check process. It requires knowledge about your customers and an in-depth analysis into your restaurant’s food costs, menu item prices, and contribution margins. With a granular view of your menu items’ profitability and popularity, you can identify which items contribute more profit and which items are holding your restaurant back.
What is Menu Engineering?
The best way to design an effective menu is through menu engineering. Menu engineering is an empirical way to evaluate current and future restaurant menu pricing, using your restaurant data to influence design and content decisions.
Customers are already looking at your menu, and you can use menu engineering to guide their decision-making and ensure they select your most profitable menu items. Menu engineering also allows you to continually work to improve your restaurant’s profitability and the effectiveness of your menu’s design.
No matter what kind of restaurant or menu you have, you can engineer your menu for maximum profitability by completing this five-step analysis.
5-Step Menu Engineering Analysis
1. Choose a Timeframe
Menu engineering takes time, but it’s more than worth it to set that time aside.. The average customer spends 109 seconds studying your menu, according to a Gallup poll. That’s almost two minutes going over each description and detail.
Many restaurants have seasonal menus that require new items, descriptions, and cost analysis. You’ll want to take menu engineering into account when you decide how often you want to change your menu. Could you make updates twice a year? Or do you only have time to revamp your menu once a year? The ultimate goal will be to redesign your menu and move different items around on the page, so be honest with yourself about how often you’ll be able to do it.
2. Measure Profitability
The three most important metrics when it comes to measuring profitability are menu item food cost, food cost percentage, and gross profit.
How to Calculate Menu Item Food Cost
Calculating food cost for each menu item might not be as fun as writing the food descriptions, but completing a food cost analysis is necessary to make sure you’re not losing money every time you do inventory. If you don’t have a restaurant point of sale that calculates food cost and profit for specific menu items within the system, you can perform a menu audit yourself by following these instructions:
List all ingredients involved in a specific dish. Don’t forget the cooking oil, seasonings, and garnishes.
Based on what you pay for each item, calculate the cost of each ingredient in a dish. If an onion costs 25 cents, and each one yields eight slices, the onion cost for a dish that includes two slices would be six cents.
Compile delivery fees, interest, return charges, or other expenses related to purchasing foods and inventory. Do NOT include labor costs.
Add the cost of ingredients and the costs of purchasing together.this is the food cost for a specific menu item.
Cost of Each Ingredient + Purchasing Costs = Menu Item Food Cost
There are a few restaurant performance metrics you can also calculate with this information:
How to Calculate Food Cost Percentage
Divide the food cost by the menu price to calculate food cost percentage. Depending on the outcome, you can then determine whether you are pricing meals correctly. For example, if you sell a meal for $20 and your food costs are $8, then your food cost percentage is 40%.
Food Cost / Menu Price = Food Cost Percentage
How to Calculate Contribution Margin
Contribution margin, or profit is the difference between the selling price and the item cost. We will use this number when we map your menu items in the next step.
Sales Price - Food Cost = Profit
Again, your POS system may have this functionality. Toast, for example, has an inventory module with menu engineering, food cost calculations, menu item reports, and more right within the cloud dashboard.
3. Measure Popularity
Now comes the fun part -- measuring popularity is easiest if you plot your menu items on a menu engineering matrix, like the one shown below. Your Y axis will be the item's popularity (or the number of items sold in the timeframe you chose), and the X axis will be the item’s profitability (or that item’s contribution margin). It should look something like this:
You can then draw a trending line through these items to see whether you’re trending toward Stars, Dogs, Plowhorses, or Puzzles. But what do these words even this mean? Each one is broken down below:
Stars: High Profitability and High Popularity
The stars of your menu deserve to be designated as such. Rather than experiment with these menu items, keep them consistent, and promote them in any way you can. Be sure to make them extremely visible on your menu.
Plowhorses: Low Profitability and High Popularity
Plowhorses are popular menu staples that you’re losing money on. The best course of action is to create more profitable versions without decreasing their volume. For example, say you have a signature sandwich special in this category. You might try experimenting with less expensive meats in the sandwich to create a more profitable version. Keep portion size in mind and see if that’s what’s killing profit. Are customers leaving these menu items on their plates? You may want to decrease the portion size slightly while improving the appearance of the dish. Here are some more ideas to combat rising food costs without raising menu prices.
Puzzles: High Profitability and Low Popularity
Puzzles are the items on your menu that are highly profitable, but difficult to sell. Investigate whether or not your customers like the taste of these items. You may need to reinvent the recipe, but sometimes simply lowering prices will increase popularity enough to produce higher overall profits. You may also want to more prominently feature these items in your menu design to make them stand out.
Dogs: Low Profitability and Low Popularity
Dogs are lovable in person, but not on your menu. Your dogs are the items on your menu that aren’t contributing enough to your bottom line and are taking up space on for items that could increase your profits. Consider omitting your dogs, but be careful about removing an item that is a staple among some customers. A great example is your kid's mac and cheese. Not everybody is ordering it, but it will surely be missed by families who come in with little ones. Instead of deleting these dogs, you can de-emphasize them by hiding them on your menu.
4. Design with These Considerations in Mind
When redesigning a menu, it’s helpful to examine your menu engineering matrix. However, qualitative analysis is just as useful as quantitative analysis. Your customers are central to your business after all. Talk to your customers about specific menu items. What types of customers order which items? Do certain meals drive them to your restaurant, or are they attracted by your atmosphere? Do your customers even read your menu thoroughly? Maybe even mention that you're working on a menu redesign, and ask if there are any items they never even consider ordering.
With both empirical and anecdotal information about your customers, you can now adhere to these best practices when designing your menu (and stay away from these menu mistakes).
Highlight specific menu items.
Use visual cues to highlight the items you want to sell the most. You could place a box around them, a photograph near them or an asterisk next to them. You could also label items as “Chef’s Special” or “New” to draw the eye. In this menu example, Rose Foods puts a box around the Fisherman's Feast for two. Because you're now an expert in the process of menu engineering, you can assume that the item is profitable for the restaurant, and they’re trying to draw the customer's eye. Be careful, though, as too many featured specials can cheapen your menu. The best practice here is to highlight one item per category (entree, appetizer, etc.).
Pay attention to your $$$.
Placing dollar signs in a column causes customers to focus on price, not food, and could lead them to choose the cheapest item. Instead, just place prices two spaces after the end of the item description. Make the menu experience more about your food than your prices. You could even omit the dollar sign ($) next to the price, or consider changing font sizes so the dollar amount is more prevalent than the cents amount.
Channel your inner writer and craft beautiful menu descriptions.
According to research from Cornell University, people choose descriptive menu items 27% more than normally labeled menu choices. In your menu descriptions, don’t just list the ingredients; use evocative text that piques the guest’s interest. You could tell the story behind this menu choice or the history of the item to make the dish more enticing.
Keep the Golden Triangle in mind.
When we look at a menu, our eyes typically move to the middle first before traveling to the top right corner and then, finally, to the top left. This has been dubbed the “Golden Triangle” by menu engineers, and these three areas are where you’ll find the dishes with the highest profit margins.
According to a Korean research study, a third of your diners are more likely to order the first item they see on your menu. After that, the last item in the list gets the most attention. Anything in between mostly gets ignored. For that reason, keep your lists short. Place your stars at the top in the middle of your menu, your puzzles at the very bottom, and your plowhorses (or your most expensive items) somewhere in between.
Offer meals in two portion sizes.
Bracketing your food can be the strategy that makes or breaks your menu design. When customers see a cheaper, smaller portion size, they’ll often opt for it immediately, as they’ll assume it’s the best value. But it actually costs you less money to make that smaller portion, and with effective pricing, that smaller item’s return will increase. It’s a win-win situation: your customers think they’re being conscientious, while you’re able to turn a plowhorse into a star.
5. Determine Your New Menu's Success
Remember when you completed a food cost analysis at the very beginning of this post? You’ll want to do that again after using your new menu. Depending on how large your restaurant business is, you may want to test the new menu at one location instead of all of them. However, if you have a single-unit operation, rather than working off of two menus at once, just switch to the new menu and analyze profitability using your restaurant analytics system.
Finally, don’t forget to train your staff on your new menu design. They’re your best assets because they speak to customers every day. Teach your waitstaff which menu items are priorities. They can guide customers to your most profitable dishes and use four-wall restaurant marketing to make the restaurant experience even better.