Menu Engineering: Boost Your Menu Items' Profit and Popularity
By: Allie Tetreault
Jan 30, 2018
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 shouldn’t be a random guess-and-check process. It requires knowledge about customer psychology and, most importantly, 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.
This analysis is called menu engineering. Menu engineering is an empirical way to evaluate current and future restaurant menu pricing, and use real restaurant data to influence design and content decisions.
Whether you’re a fast-casual restaurant or fine dining establishment - whether you have traditional paper menus or drink menus - engineer your menu for maximum profitability by answering these 4 questions.
4 Menu Engineering Questions to Answer Before Your Next Restaurant Menu Design
1. How profitable are my menu items?
Many restaurant owners do not know how to calculate food cost for each menu item. However, completing a food cost analysis is so important if you want to make sure you’re not losing money every time you do inventory. If you don’t have a POS that calculates food cost and profit for specific menu items within the system, you can perform a menu audit by following these directions:
List all ingredients involved in a specific dish. Don’t forget 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 6 cents.
Compile delivery fees, interest, return charges, or other expenses related to purchasing foods and inventory. Do NOT include labor costs.
Add cost of ingredients and costs of purchasing together: this is your food cost for a specific menu item.
Cost of Each Ingredient + Purchasing Costs = Menu Item Food Cost
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
Calculate contribution margin, or profit. This is the difference between the selling price and the item cost. We will use this number when mapping your menu items.
Sales Price - Food Cost = Profit
Again, your POS system may have this functionality integrated within. Toast, for example, is perfecting an inventory module with menu engineering, food cost calculations, menu item reports, and more right within the cloud dashboard.
2. How are my menu items performing?
Now comes the fun part! On a graph comparing popularity to profit, using data from a recent time period such as the previous 30 days, plot your menu items. It should look something like this:
You can then draw a trending line through these items to see whether you’re trending towards stars, dogs, plowhorses, or puzzles. But what does all this even mean? Let’s take a look at these four categories and how they can impact your next menu design.
Stars: High Profitability and High Popularity
Your stars are… well, the stars on your menu! As such, your menu design should highlight them. Rather than experiment with these menu items, keep them consistent, and promote them in any way you can.
Plowhorses: Low Profitability and High Popularity
Plowhorses are popular staples that you’re actually losing money on. The goal is to create more profitable versions of these items without decreasing volume. For example, you may 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. If there’s a larger menu item in this category, see if portion size is 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 product. 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 customers like the taste of these items. You may need to reinvent these items, but sometimes simply lowering prices will increase popularity enough to produce higher overall profits. You may also want to feature these items on your menu, make them specials, or position them in a different way.
Dogs: Low profitability and low popularity
Your dogs are your menu items that just aren’t contributing to profit enough. Consider omitting your dogs. However, be careful. You may have a menu item that is a staple among some customers but not others (your kid’s mac and cheese, for instance). Instead of deleting these dogs, you can de-emphasize them by hiding them on your menu.
3. How can I design my menu with these considerations?
When redesigning a menu, it’s helpful to examine your menu engineering matrix. However, qualitative analysis is just as useful as quantitative analysis. Actually 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?
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 it, a photograph near it, or an asterisk next to it. You could also label items as “Chef’s Special” or “New” to draw the 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 prices 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. You could even omit the $ sign next to the price or consider changing font sizes so the dollar amount is more prevalent than the cents amount. Check out the menu at the top of this post for an example.
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 humanize the dish.
Eye-movement patterns matter. Most people’s eyes will immediately flit to the top of the page or the top righthand corner. 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, lists should be short. Place your stars at the top, your puzzles at the very bottom, and your workhorses, or your most expensive items, in the middle.
Offer meals in two portion sizes. Bracketing your food might be the strategy that makes or breaks your menu design. When customers sees a cheaper, smaller portion size, they will often opt for it immediately, as they will assume it is the best value. However, 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 are being conscientious, while you are able to turn a plowhorse into a star.
4. Is this new menu design successful?
Remember when you completed a food cost analysis at the very beginning of this post? You’ll want to do that again after another 30-day period of using the new menu. Depending on how large your restaurant 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 in your restaurant POS system.
Finally, don’t forget to train your staff on your menu design. They are your best assets, as they speak to customers firsthand 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.
Customers looking at your menu are mostly ready to buy. Why not use menu engineering to make sure they’re more likely to buy your most profitable menu items? There is always room for improvement - on your restaurant's profit, and on your restaurant’s menu design. Run an agile restaurant that focuses on adapting to trends in the market by continually testing new menu designs.
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