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 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:
1. Choosing a Time Frame
2. Measuring Profitability 3. Measuring Popularity 4. Redesigning the Menu After Menu Analysis 5. Check Results: Determine the new menu’s success.
1. Choosing a Time Frame
● Determine how often you would update your menu and conduct another menu analysis. ● Determine if you would offer seasonal menus.
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
Note: if you don’t have a restaurant point of sale system (POS system) which 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 (ingredients of one plate including oil, garnishes, and seasonings.) ● Calculate plate cost. (Note: Roast Chicken with Mushroom Gravy Exercise Example) ● Get the Purchasing Cost: C ompile delivery fees, transportation fees, return charges, interest or any other expenses related to purchasing foods and inventory EXCEPT labor cost. (Not taught during lecture) Note: Still follow the costing process I taught you for plate cost. (Roast chicken set plate cost example) BUT that exercise does not have the purchasing costs added YET.
So the FINAL Menu Item Food Cost Formula should be:
Note: THIS IS COLUMN D from the Menu Analysis Table (Item Food Cost)
How to calculate the food cost percentage:
● Divide the food cost by the menu price ● REMEMBER: Revenue = Sales without subtracting any expenses yet; Profit = Revenue minus the EXPENSES. ● This means: The higher your Food Cost Percentage is, The higher you spent on food (food cost), which is not good. ---> The higher it will subtract to your Revenue ---> the LESSER the Profit. With that in mind: ● Food Cost Percentage indicates what proportion of your REVENUE is spent on buying food and beverage supplies for your restaurant. ● There are two ways FC% can be calculated: Total Food Cost Percentage and Food Cost Percentage Per Dish.
⇒ Total Food Cost Percentage = (Total Cost of Goods Sold / Total Revenue) X 100
⇒ Food Cost Percentage per dish = (Cost per Portion or Plate cost / Selling Price) X 100
Note: We will only be using the Food Cost Percentage per dish formula for now.
Note: A Healthy Food Cost Percentage should fall within these Ranges:
Industry Benchmark Food Cost
Food and Beverage Category Percentage Range (%)
Overall 20-40%
Food 25-40%
Non-alcoholic Beverage 10-30%
Wine 30-50%
Draft Beer 20-40%
Bottled/canned Beer 30-35%
Liquor 10-20%
Mixed Drinks at bar 5-25%
How to Calculate Contribution Margin / Profit: ● Contribution margin or profit is the difference between the selling price and the item cost.
To find out what the mark-up/contribution margin (“patong” in tagalog) of a menu item is:
Contribution Margin = Selling Price - Cost per Portion
Example: The selling price of a ribeye steak dish is 380.00 php. The plate cost per portion of the dish is 310.00 php. How much is the cost mark-up? (patong).
⇒ Contribution Margin = 380.00 php - 310.00 php
Contribution Margin = 70.00 php
⇒ Contribution Margin Percentage = (Markup / Cost per Portion) X 100 or
{[(Selling Price - Cost per Portion)] / Cost per Portion} X 100
Example: The selling price of a ribeye steak dish is 380.00 php. The plate cost per portion of the dish is 310.00 php. How much is the cost mark-up?
Formula 1: Contribution Margin Percentage = (Markup / Cost per Portion) X 100 ⇒ Markup Percentage = (70.00 / 310.00 php) X 100 = ⇒ Markup Percentage = 0.23 X 100 = 23%
Formula 2: Contribution Margin Percentage = {[(Selling Price - Cost per Portion)] / Cost per Portion} X 100 ⇒ {[(380.00 php - 310.00 php)] / 310.00 php} X 100 ⇒ [(70.00) / 310.00 php] X 100 ⇒ 0.23 X 100 ⇒ 23%
How to determine the selling price:
⇒ Selling Price = Cost per Portion X Cost Mark-up
Note: You have to get the Cost Mark-up first. Follow this formula:
⇒ Cost Mark-up = Selling Price / Cost per Portion
or
⇒ Cost Mark-up = 1 / Food Cost Percentage
Example: The selling price of a ribeye steak dish is 380.00 php. The plate cost per portion of the dish is 310.00 php. How much is the cost mark-up?
After Calculating for the Cost Mark-up, Calculate the Selling Price.
⇒ Selling Price = Cost per Portion X Cost Mark-up
Using the same example: The plate cost per portion of the dish is 310.00 php with a Cost Mark-up of 1.23, food cost percentage is 82%
310.00 php X 1.23 = 381.00 php
Or use this other formula:
Selling Price = Cost per Portion / Food Cost Percentage
Selling Price = 310.00 / .816 (82%)
Selling Price = 379.90 php or 380.00 php
Note: If you want your costs to be exact, Write your percentages to three decimal places. 3. Measure Popularity ● Categorize each menu item by popularity as follows: Stars, Horses, Puzzles, and Dogs.
Stars - High Profitability, High Popularity (High Profit Category, High Popularity Category) 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.
Horses - Low Profitability, High Popularity (Low Profit Category, High Popularity Category) 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 meat 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.
Puzzles - High Profitability, Low Popularity (High Profit Category, Low Popularity Category) 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, Low Popularity (Low Profit Category, Low Popularity Category) 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.
Profit Category *If Item profit < Average Profit Margin = LOW *If Item Profit > Average Profit Margin = HIGH
Average Profit Margin: Total Profit / Total of Items Sold
Popularity Category *If Popularity % < Average Popularity (%) = LOW * IF Popularity % > Average Popularity (%) = HIGH
Average Item Popularity: Total of popularity(usually 100) / Number of Menu Items
