How to Use Menu Engineering to Increase Your Profit Margin

Your restaurant menu is almost like a puzzle. If your goal is profitability, how do you make all the different pieces of your menu fit together?

The concept of menu engineering recognizes that a profitable menu doesn’t just happen by accident. It requires leveraging information from your sales and food costs to make data-driven menu decisions. Luckily, with the right data at your fingertips, you can make the adjustments you need to optimize the profitability of your restaurant menu.

Menu engineering involves many different moving parts, but it’s actually a pretty simple concept. You are trying to maximize your profitability by promoting the menu items that make you the most profit.

Whether or not your restaurant is profitable doesn’t depend only on increased sales. With menu engineering, the way to increase your profit margin is to optimize each menu item and focus on driving up the sales of your most profitable items.

Menu engineering analysis pulls from two principal areas:

1. Your items sold. Otherwise known as sales mix polling, this data comes from your Point of Sale (POS) system.
2. Margin contribution. This data is drawn from your recipe costing, which we’ll explore below.

Comparing these two sets of data shows you the quantities sold, relative to the margin for each item. This relationship is the foundation for all menu engineering decisions.

Costing out your recipes accurately is key to all menu engineering; without it, none of your analysis will actually be useful. To cost out recipes efficiently, automate as much as you can with your restaurant management software and accounting solution.

First, break down the individual ingredients for every item on your menu to the penny (even including the salt, spices, and cooking oil). This not only requires standardized recipes, but it also depends on tracking both usage and yield of different ingredients.

It is incredibly time-consuming, difficult, and notoriously unreliable to calculate menu item food cost by hand. The most efficient and accurate method is to use your POS system to calculate food costs based on the data from two different places: your accounting software and your inventory management software.

These tools can track usage and yield automatically, with the additional benefit of automatically updating recipe costing when there are any supplier price changes.

Your contribution margin of a specific item is the menu price minus the menu item food cost. Through menu engineering, you’ll have a goal of maximizing the average contribution margin of each guest’s order.

Your food costs for a certain period of time are your beginning inventory plus your purchases, minus your ending inventory. Dividing this number by your total sales will give you a food cost percentage. You should be keeping your target food cost percentage in mind as you’re making menu engineering adjustments.

If you were to map your menu items on a matrix of profitability versus popularity, you could divide items into four distinct quadrants. Let’s examine each category:

Stars are the most valuable items on your menu because they are both popular and profitable. You want to increase the number of Star items that you’re selling, which we’ll talk about below.

Your Opportunity menu items are already popular, but you will want to increase their contribution margin. This may require careful or gradual price increases, or you can try to reduce the recipe cost by changing sides, ingredients, or portions.

Puzzle items have a high margin contribution, but for whatever reason, they’re not popular with customers. To optimize the number of items on your menu with a good contribution margin, you want to create more demand for these items using some of our tips below.

“Dog” menu items are the items that are not popular with customers, and also not profitable for your bottom line. These are the obvious items to consider removing from your menu.

The real benefit of menu engineering is leveraging the data to make strategic decisions. With data in hand, you are able to seize new opportunities by redesigning your menu.

Given menu item contribution margins, are certain items overpriced? Underpriced? Price adjustments are a fast, direct way to adjust your profitability with specific items.

If you know your customers may resist a price change, another way to change your contribution margin for a menu item is to adjust the portion size. Alternatively, you can consider switching out certain ingredients.

As mentioned, “dogs” are unprofitable, unpopular items that are “dead weight” on your menu. Unless an item is something that lowers your food costs, like a special that uses leftovers or has low labor costs associated with prep, consider removing these items from your menu.

Menu adjustments don’t need to stop with adding or removing menu items—there are far more updates you can make to your menu to optimize profitability.

Reposition menu items

The position of items on your menu actually has a large impact on what guests order. For example, many studies have shown that people tend to remember the first and last things in a series. If you are trying to direct customers to certain items, consider listing your Star or Puzzle dishes first or last in sections.

To direct guests to your high-margin items, consider using one of your most persuasive tools: your servers. Training your servers to suggestively sell certain items can draw attention to the Star or Puzzle items on your menu.

A limited menu will not only help you direct customers to the items you want them to order, but it will also help you maintain a streamlined inventory in the back of house (BOH).

Guest perception of value depends heavily on how you present your menu items. Consider reevaluating your menu language to ensure it is interesting, descriptive, and appealing.

Another benefit of menu engineering? When done well, it can actually improve guest satisfaction. When you strategically make menu pricing adjustments, rather than increase your prices across the board, your guests are less likely to notice the changes. In addition, by continuing to feature guest favorites, you are helping build future customer loyalty.

Menu engineering is a key tool to analyze your product mix, because each menu item affects your bottom line. By updating your menu engineering analysis frequently, you can better keep up with changing guest preferences and continually improve the guest experience.

Menu engineering is a powerful tool that relies on accurate, timely data. If done properly, menu engineering is a marketing tool that can improve your contribution margin and increase sales. Used as an ongoing process, your menu will drive bottom-line profit.

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