Increase Your Restaurant’s Profitability Through Menu Engineering

January 13, 2014|James Michels

If you are looking for a way to increase the gross profit of your restaurant or thinking about reprinting your menu, consider menu engineering. Menu engineering is the process of evaluating the items on your menu for both popularity and profitability. This evaluation will help you revitalize your menu and decide whether to:

  • Eliminate items
  • Change prices
  • Modify the layout to focus on particular items
  • Change the way you prepare items
  • Add new items

Start by evaluating the profitability of each menu item

To evaluate the profitability of the items on your menu, you have to understand the costs associated with each item. This is a good exercise for your cooks to complete so they realize the cost of the different items on the menu.

  1. Establish a recipe file for each item and list all the ingredients that go into it.
  2. Establish the portion size of each item (such as an 8 oz. NY steak) and arrive at the cost per portion by converting the way you purchase the ingredients to the way you serve the item. For example, because you typically buy steak by the pound, you would convert the price you pay per pound to your cost for each 8 oz. steak.
  3. After factoring in an amount for shrinkage, add up the cost of all the ingredients to arrive at the cost per item on the menu.
  4. Calculate your profitability for each item by subtracting your cost from its sales price on the menu.
  5. Rank each item from most profitable to least profitable.
  6. Keeping this order of profitability, move each item to its category of breakfast, lunch, dinner, or other appropriate category such as appetizers and desserts.

Next, focus on popularity

Evaluating the popularity of each item on the menu can be an easy task if you are using a point of sale system in your restaurant. This step involves ranking each item from highest to lowest based on the number of units sold over a period of time. If you do not have a point of sale system, you will have to manually review all guest receipts to rank each item on your menu. Then rank each item again within the groups and categories discussed above.

After completing your profitability and popularity rankings, dissect the items in each group or category into the following categories:

     A. Items that are both popular and profitable 
     B. Items that are popular but less profitable 
     C. Items that are unpopular but profitable 
     D. Items that are unpopular and less profitable

Now you will have the data in a format to help you make decisions regarding your menu layout and pricing adjustments. For example, you will want to keep items in category A in a prominent spot. Consider changing the location of items in category B and/or increasing their prices as your market permits. You may want to eliminate items in category C, or adjust their price or placement on the menu. Scrutinize the items in category D and consider whether to eliminate them from the menu altogether.

While there are many factors that affect the profitability of your restaurant business, menu engineering is an easy exercise that you should complete periodically to manage your gross profit.

We are available to assist you in maximizing the profitability of your restaurant business.

Jim Michels, CPA, is a shareholder and co-leader of our Retail industry team. In addition to leading accounting and audit engagements, Jim’s experience includes tax planning for closely-held businesses and their owners, succession planning for family-owned businesses, and assisting clients with cash flow analysis, budgeting and projections, cost/benefit analysis, and managing banking relationships.