Understanding net profit and your customers’ purchasing habits is key to cooking up a delicious menu for your restaurant.
Stumped as to how you should organize—or, more likely, re-organize—the items on your restaurant’s menu? Here’s a tried-and-true method that Gregg Rapp, a Palm Springs, California-based restaurant consultant and menu engineer, employs while assisting restaurateurs from coast to coast.
It begins, he says, with taking the menu items in question and subtracting the cost, which gives you the gross profit—or "contribution"—of each item. "Then, you lay out your menu items according to their contribution, from highest contribution to lowest contribution—or you could think of it as most profitable to least profitable."
There’s a bit more to it than that, of course. For instance, as he’s working on a particular establishment’s menu, Rapp assigns each menu item one of four labels: star, puzzle, plow horse or dog.
"Items that are high in profit and high in sales are 'stars,'" he explains. "They're the best items on your menu because they pull in the most money and they’re not price-sensitive."
The margarita is a great example of a star in the bar world, Rapp says. "Most customers order one without even asking what the price is."
As such, he adds, "you can take a star up in price and you won't lose sales—because people come into your restaurant for them."
Puzzles, on the other hand, are menu items that are high in profit but low in sales or popularity.
Two prime examples of puzzles, Rapp says, are steak and lobster. "You don’t sell a lot of them, but when you do, you make a lot of money. So, you don’t take them off the menu. Rather, you try to figure out how to sell more of them."
Something to keep in mind while contemplating your restaurant's puzzling menu items: "When you take a puzzle down in price, you sell more of them. For instance, when you take your steak from $50 to $45, you'll sell a few more."
3. PLOW HORSES
Rapp describes "plow horses" as menu items that are high in popularity but low in profit.
A good example of a plow horse in the bar world is a draft beer. Portland, Oregon-based Pizza Schmizza's plow horses, on the other hand, are Hawaiian and pepperoni pies. "We don’t have to work hard to sell them—everyone orders them and loves them," says Jennifer Young, director of marketing. "But if we took them off our menus or didn't offer them anymore, customers would be very upset."
Despite their popularity, Rapp warns that plow horses tend to be price-sensitive. "People know the prices of those items all around town and some will zero in on the cheapest, so you have to be very careful with them."
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Finally, in Rapp's world, "dogs" are low-profit, low-sales menu items. Despite that description, there are a few reasons restaurant owners may want to keep them on their menus. "Maybe grandma started the restaurant, and liver and onions has always been on the menu, and Mrs. Roberts won't come in any more if we take it off."
Pizza Schmizza's menu has its share of dogs, according to Young. "We keep them for a variety of reasons. Sometimes, it’s because they contain a special ingredient that not every customer is a fan of but certain people come in seeking."
Case in point: the restaurant chain’s alligator pie. "We don’t sell a ton of them and they aren't very profitable, but occasionally you get a group of people who want to say they've eaten an alligator pizza," Young explains. "We are able to use that pizza for more promotional stuff, as opposed to actual sales."
Another way to bolster these items: Add an extra dollar to their price, Rapp suggests, "because the few people who buy them will continue to buy them regardless."
Beyond the Basics
"Once you've come to grips with the basics of this and you've categorized your items, you'll know which ones you can and can't take off the menu," Rapp says.
You'll also have a better idea as to which menu items can be bumped up in price and which ones can't. "You want to make sure you're not messing with your plow horses, for instance," he says. "If you have to take up your prices, take them up on your stars."