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STEP 1: ANALYZE YOUR MENU INGREDIENTS

Determining the profitability of your menu requires knowledge of some basic formulas. If you take the time to work through these formulas for every menu item, you will have a total view of your menu’s profitability.


  • a) Determine the Cost of Ingredients: Calculate the total cost of all the ingredients used to prepare the dish. This includes both the direct ingredients used in the dish itself and any accompanying components or sides. Be sure to include all ingredients, including spices, oils, garnishes, and any condiments.

  • b) Calculate Portion Cost: Divide the total cost of ingredients by the number of portions the recipe yields. This will give you the cost of ingredients per portion.

  • c) Factor in Overhead Costs: Consider the overhead costs associated with the dish, such as labor, utilities, rent, and other operating expenses. Estimate and allocate a portion of these costs to the dish based on its contribution to overall sales.

  • d) Determine Selling Price: Set a selling price for the dish that takes into account the cost of ingredients, overhead costs, desired profit margin, and the market value of the dish. Consider factors such as the target customer, competition, and the perceived value of the dish.

  • e) Calculate Gross Profit: Subtract the portion cost from the selling price to determine the gross profit per portion. This represents the profit generated from the dish before considering overhead costs.

  • f) Analyze Profitability: Evaluate the gross profit margin of the dish by comparing it to the total cost of the dish, including overhead costs. A higher gross profit margin indicates better profitability. If the gross profit margin is too low, you may need to adjust the selling price, review ingredient costs, or find ways to streamline operations to improve profitability.


Half of operators rank the costing and pricing of an item among the top 3 challenges of menu planning. 1

STEP 2: CATEGORIZE MENU ITEMS

Divide them into four categories:

Now that you’ve gone through this profitability calculation, cross-reference how profitable your items and their popularity are (how well they’ve sold in a given time period). In doing so, you will divide your menu into four categories: Separating your menu into these four categories gives you a shorthand for the profitability of your menu. Based on this categorization, you can try to promote, adjust portions, adjust cost, or cull certain dishes to better increase your menu’s overall profitability.

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92% of operators say their top consideration when making menu planning changes is improving customer satisfaction. 1

Woman sitting at table looking at a menu

STEP 3: STRATEGIZE YOUR PRICES

Balance customer expectations with your own profitability. Check out other restaurants’ menus to get a sense of what similar items are going for. You can also use psychological techniques, such as ending prices with .99 to make items seem more affordable.

34% of customers typically look for restaurants that offer something new. 1

Waiter taking an order for two customer's sitting at a table

STEP 4: TEST AND GET GUEST FEEDBACK

Before you design your physical menu, get feedback on any new dishes or what they think about getting rid of your “dogs.” You can casually ask regulars, check in with employees, and do a soft launch or focus group.

36% of consumers will try new food because it sounds interesting to them. 1

Two printed menus attached to wood with clips

STEP 5: DESIGN IT RIGHT

When designing your menu, try to draw attention to high-profit items – your stars and puzzles. Use easy-to-read fonts, colors, images, and white space to guide the customers’ eyes.

For each menu item, write a compelling description that sells your guests. Highlight unique ingredients, preparation methods, and flavor profiles. Make it informative and enticing. This can help customers decide to try new dishes and increase their perceived value.

STEP 6: TRAIN YOUR STAFF

Get your staff involved in your menu engineering efforts. Brainstorm ideas. Let them experiment. Show them your research findings. Once the menu is finalized, make sure they’re trained and comfortable, and ready to deliver on your menu concept with quality and consistency.

33% of consumers are likely to order a new menu item when dining out. 1

STEP 7: MONITOR AND TWEAK

In between menu engineering overhauls, you can still make small adjustments along the way. Keep an eye on sales data, industry trends, and customer feedback to keep your menu fresh.

While people get into the restaurant business for a variety of reasons, your restaurant has to be profitable – bottom line. By putting menu engineering formulas, models, and principles into practice, you can make your menu work harder for you.

Source: [1] Datassential, Menu Development report, October 2020.