The following is a step-by-step guide to carrying out a menu engineering analysis to raise restaurant revenue by 20% or more.
It all started with an article about menu analysis by James Taylor and Denise Brown. In this study, the authors introduced the “BCG Matrix” concept, a strategic analysis tool used since the seventies to calculate growth-share and help a business to decide which areas in which to invest, disinvest or even abandon.
Since that day, many restaurant owners have used the BCG Matrix as a basis for menu engineering studies to analyze their sales and improve their income.
Therefore, O students, study mathematics and do not build without foundations. Leonardo Da Vinci.
The purpose of menu engineering is the analysis of the popularity and profitability of each menu items and how both factors influence the placement of these elements on a menu. It is aimed at boosting restaurant profitability.
Although this menu study is most often used to analyze traditional paper menus, the concept is equally applicable to the menus published on your restaurant website, Facebook page or Twitter profile, or anywhere online.
If you don’t know this concept, it is time for you to find out how it can help boost the sales of your restaurant.
Menu engineering: how to boost the sales of your restaurant
1. Cost your menu
Calculating the costs of the menu is the first step you should take to get the fundamental data you need for your menu engineering analysis.
Getting the cost of your menu is more than clear, isn’t it? To refresh your memory, you have to start calculating the cost of each item on your menu so that:
Food cost: Cost of each ingredient + Purchase cost
The purchase cost includes not only the price you paid for the ingredient, but also any delivery costs, taxes, and other related costs (excluding costs of labor).
If an onion costs $0.25 + $1 for the delivery ($1.25 in total) and it is made up of eight slices, the onion cost for a plate that includes two slices would be $0.30.
If you prepare a tomato soup, the dish will cost a stick of butter ($1) + 2 slices of onion ($0.30) + 3 tomatoes ($2) = $3.30.
The more accurate you are about the cost of each ingredient, the better you will be prepared to carry out the next two calculations.
Unfortunately, most restaurateurs don’t cost their menu as it is very time consuming. As we forketers always say, to bring a restaurant to success you must have passion, a good marketing strategy, and be willing to bend over backwards.
So don’t whine and do your job!
2. Calculate the food cost percentage
To get the percentage of food cost you should know exactly what you’re paying for your ingredients and calculate the cost of your dish like I showed you above.
Then, get the food cost percentage by dividing the food cost menu by dish price on the menu and multiply by a hundred.
Food cost percentage: Food cost/Item selling price * 100
If you sell an Argentinian steak for $20 and your food costs are $5, your food cost is 25%. You can check the food percentage cost either monthly or quarterly.
3. Calculate what each dish contributes to your total revenue earned
It’s time to find out whether these dishes are giving real benefits to your restaurant profits. To do this, we calculate the profit margin.
Profit margin = Item selling price – Food cost
The profit margin is an effective way to measure the benefit, analyze how they affect sales of net income, and, ultimately, explain how the different factors of your business react to the changes. This is basically the net amount you bring to the bank.
The percentage of the food cost and profit margin will help you make better business decisions.
For example, suppose you have two items on the menu:
A beef steak for $20 and a pizza for $10. The first one costs $10 while the second $3. In the case of beef, the percentage of the food cost is 50%, and 30% for the pizza.
However, the profit margin for the beef is $10 while $7 for the pizza. Nonetheless, even though the food costs for beef are higher than pizza, you’re making more money with beef.
4. Measure the popularity of the items on your menu (beyond the amount sold)
To calculate the amount sold, simply count the number of times you’ve sold one of the items of your menu in a given period of time.
This calculation is usually done in your point of sales reports.
Then, identify the percentage that each item contributes to the overall popularity of the menu:
Popularity: Total of the item sold in a certain period/Total of all menu items sold in the same period * 100
How many people ordered tomato soup, pizza, or burger in the last quarter? How do you compare these sales with the previous quarter?
The popularity of the items is a good indicator of the perceived value of a dish, and a signal of whether you’re selling well or not.
5. Generate an “average” to measure your success.
With all these data, it is time to step back and evaluate how you’ve been doing so far. To do this, you need to collect information on each of the menu items, and thus determine if they are providing benefits, and if they are popular or not.
The numbers would look like this:
Average profit margin = Sum of all items profit margins/Total of the items
Average sold = Sum of the items sold/Total of the items
6. Create your menu engineering drawing
Here comes the most fun part of the process. Place the profit margin on the Y axis of your chart, and the quantity sold on the X axis.
Now you can see where each of the menu items are: the best elements appear at the top, while components that are not performing as they should be are at the bottom of the graph.
Such visual data will come in handy when deciding what should remain and what is to be replaced.
What will you do with all these dishes at the bottom of the graph? Are you going to improve them? Change the price? Market them differently? Or just eliminate them altogether?
All these data provide you with the opportunity to take swift decisions about the present and the future of your menu, and identify the elements favored by your customers.