How To Calculate Profit Margin For Small Business Owners
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Sometimes, a relatively minor change can have a major effect on the profitability of your restaurant. Menu engineering is an example of one such change.
At first glance, it might not seem like tweaking your menu would bring about any change at all. But perfecting your menu can mean the difference between profit and loss for your restaurant.
In this article, the management experts at Sling introduce you to the process of menu engineering, enumerate the benefits, and tell you how to get started.
What Is Menu Engineering?
Menu engineering is the process of evaluating menu pricing and item placement in order to increase profitability per guest.
The process is one part psychology and one part graphic design. These two variables combine in such a way so as to guide your customers’ decision-making process and ensure that they select the most profitable items on your menu.
Does Menu Engineering Only Apply To Menus?
In many ways, this is kind of a trick question: yes, menu engineering applies to your main menu, but it also applies to any listing of items for sale.
You can implement menu engineering for:
- Online menus
- Drink menus
- Table tents that list specials
- Daily specials you write on menu boards
Basically, any time you display, describe, or write about items for sale that have varying levels of profitability and popularity, menu engineering can help you increase profits.
What Are The Benefits Of Menu Engineering?
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Increased Profits
The first and foremost benefit of menu engineering is described in the title of this article: increased profits. That’s the main reason to conduct an overhaul of your menu.
In most cases, when you make the right changes to your menu, you can increase profits by 10 to 15 percent. Even tweaking the initial set of changes you made can increase profits by a further 10 to 15 percent, so it’s beneficial to revisit the process every year or two.
For example, let’s say that your business enjoys $10,000 in profit every month. During your very first round of menu engineering your business pulls in $11,000 in profit ($10,000 x 0.10 = $1000).
A year later, you tweak your menu again and find that your profits go up to $11,100 per month ($1000 x 0.10 = $100).
The law of diminishing returns applies in this case so that, at some point, it’s not worth the time and effort to squeeze out another $10 in profits. But when you start with large numbers, several rounds of menu engineering can make a big difference in your business’s bottom line.
Differentiation From The Competition
When you do everything you can to make your business profitable — including perfecting your menu — you set yourself apart from the competition. Customers will notice.
Most business owners or managers have a tendency to rest on their laurels when things are going well. The restaurant is pulling in profit every month, so why mess with a good thing?
Your restaurant may be pulling in a profit, but there are always new processes you can implement and new ways of doing things that will push that number higher.
Working on the details in this manner will help you stand in a crowded market, bring in more customers, and make your restaurant better overall.
What Does It Take To Get It Right?
Successful menu engineering doesn’t depend on the type of restaurant you run. Nor does it depend on the size.
What really matters is your willingness to commit the time and effort necessary to understand your restaurant and the data it produces, to understand the process as a whole, and to make the right changes.
If you do that, you’ll be better than 90 percent of the restaurants operating today.
How To Engineer Your Menu
1) Calculate Menu Item Food Cost
Cost every item on your menu down to the penny. Calculate exactly how much it costs you — in terms of food, not labor — to create each entree, appetizer, dessert, and drink.
Doing this will reveal how much profit you make on each item.
2) Group Items According To Popularity And Profit
The next step in menu engineering is to categorize your food and drink according to the following criteria:
- Low profitability, low popularity
- High profitability, low popularity
- Low profitability, high popularity
- High profitability, high popularity
Armed with this information, you can begin to think about arranging the most profitable menu items for biggest effect.
3) Design With Popularity And Profitability In Mind
Once you’ve identified the four types of items from the categories above, design your menu with the following considerations in mind:
- Highlight high profitability food and drink (e.g., surround that item with a box)
- Make the menu about the food, not the price
- Omit the dollar signs ($) altogether
- Write appetizing menu descriptions
- Position items according to the “Golden Triangle” (center first, top right second, top left third)
- Use portion size to your advantage
You don’t have to implement each and every one of these suggestions the first time through. Try one or two and see how it goes.
4) Test, Tweak, And Retest
You don’t have to wait for a full round of menu engineering to make small changes on a more regular basis. Change one variable, analyze the results, and then make another small change.
Eventually, you’ll arrive at the best menu for your business.
Perfect Your Menu And Your Schedule For Increased Profits
Engineering your menu for maximum effect is only one variable in the larger equation that leads to profit and success. Perfecting your workforce management is another.
Essential components of workforce management include:
- Scheduling
- Time tracking
- Forecasting
- Budgeting
- Payroll
- Overtime
- Communication
Optimizing all of these components can be a monumental task unless you incorporate a software solution like Sling into your workflow.
The Sling suite of tools offers powerful solutions to workforce management’s most vexing issues, including:
- Powerful and intuitive scheduling
- Comprehensive time-tracking (with geofencing)
- Dynamic reporting and forecasting
- Effective budgeting
- Time-saving payroll processing
- Helpful overtime control
- Customizable communication (e.g., location-specific or team-wide)
And that’s just the tip of the features Sling has to offer. The onboard artificial intelligence even notifies you of problems within your schedule and suggests solutions so you can create the best schedule the first time through.
With Sling, you get an extremely beneficial and flexible set of tools that will help you control your team’s work schedule, improve engagement, control labor costs, and increase profits.
Couple that with menu engineering within your restaurant and you’ve got a recipe for success.
For more resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit GetSling.com today.
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This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice. Please contact an attorney or other professional for specific advice.
