Take cash to the bank, not percentages

You’ve already heard us screaming about how having accurate food costs is absolutely crucial to your profitability (and guess what? If you’re still using Excel or the back of a napkin to cost out your recipes, you DO NOT have accurate food costs and you desperately need to check out ReciProfity).

 

So now that you have all that great raw data, what do you do with it?  If you’re calculating your selling price by multiplying the food cost of each item on your menu by 3.3 to get a 30% food cost, that’s a great starting point, but you’re still leaving lots of money on the table.

 

The key to profitability is making sure that your actual sales mix, and not just your menu, averages out to your taget food cost. If your menu averages out to a target 30% food cost but 80% of your sales come from items with a 40% food cost, that’s a problem.

 

It’s like having the fastest grill man in the city but a veg guy who’s just out of culinary school and can’t keep up. The whole line is going to be in the weeds. Similarly, an unbalanced menu will never maximize profits. Each item needs to work in concert with all other items to create a sales mix that just plows money into your pocket.

 

The trick is adjusting your prices based on your real sales mix every month (ReciProfity makes this really easy), not based on your static menu.

 

Here’s how to turn your menu into a serious money maker:

 

At the end of each month, print out a sales mix report and categorize every single menu item into one of the following categories based on its sales volume and profitability:

 

  • Winners: high sales, high profit margin (maximum 28-35% food cost depending on your sector).
  • Plowhorses: high sales, low profit margin (over 28-35% food cost depending on your sector).
  • Puzzles: low sales, high profit margin
  • Losers: low sales, low profit margin

 

Do a little tweaking:

 

  • Look back at your Plowhorses. Are you sure that some of them aren’t actually Winners in disguise? If you’re selling Dover sole with beurre noisette for $45 and it costs you $17, that’s a pretty nasty looking 37% food cost. But that $28 gross profit is probably higher than most of your other items so that’s a pretty sweet sale to make. Since we take cash to the bank, not percentages, go ahead and put that bad boy in the Winners
  • Look at your high profit categories (puzzles and Winners). Do any of these items have obscenely high hidden costs associated with them that aren’t calculated as part of the food cost? An example is house-cured meats like pastrami that need 3 weeks in the fridge. The added electricity and cost of holding inventory can turn it into a low-profit item. This can also happen to items that require intensive prep relative to other items. Make sure these items are in the correct category.

 

Now let’s go through each category and see what we can do to optimize this menu:

 

  • Your Winners are what pay your rent. Your customers love them and they put money in your pocket. You probably don’t have to do too much with this category since right now they sell themselves. Just be careful that, as you jigger around the rest of your menu, the Winners don’t get hidden or you might see some of them turn into puzzles. This is why it’s important to repeat this process every month or whenever you change your menu.

 

  • Plowhorses bring customers through the door but you groan every time they’re ordered because all you see is a table full of people who aren’t really contributing to your bottom line. You can’t take them off the menu because your customers will rebel. But Plowhorses are a great opportunity. You can:
    • Up the price and turn it into a This works well in more expensive markets and higher-end businesses with a less price-conscious clientele.
    • Cut the food cost. Reduce the portion size or streamline the prep process. Just make sure this doesn’t mess up the product and turn it from a workhorse into a bum, or worse, turn off customers who come specifically for that product. Alternatively, eliminate waste (use ReciProfity to calculate differences between actual and ideal food cost to identify where the waste is), or find better prices from a new supplier.
    • Use it as a loss leader. You know that great bar a few blocks away that sells huge, delicious burgers for 6 bucks a piece? That burger isn’t actually making them any money, but it’s good enough to drag people in who then spend lots of money on high-margin items like sides and beer. That’s why the bar has a gorgeous copper draft system in full view with rotating microbrews on tap and why the waitresses push fries so aggressively. If this item is really what makes people beat a path to your business, don’t change it. Just accept that these items will be over your target food cost and need to be balanced out in your sales mix by other items with huge margins. Figure out what your “fries and microbrews” are and how to sell more of them (more on this in the Puzzles section).
    • If none of those tactics work, bury the item. Hide it in the middle of a group of other, more profitable items. It’s still there for customers who really want it but it won’t squeeze out the sales of your Winners and will free up prime menu real estate for your puzzles.

 

  • Puzzles are items that you wish you could sell more of. Coffee, desserts, cocktails, and appetizers are almost always considered puzzles since they have fantastic margins and you can always sell more of them without canceling out sales of other items. They’re most likely what’s keeping you in business, especially if some of your entrees are loss leaders. Other less pleasant puzzles are dishes that might be close to the chef’s heart but never really caught on with customers. Here’s what you want to do:
    • Have your floor staff push the items hard. This doesn’t mean that you’re turning your waitresses into used car salesman, just that you’re making it as easy as possible for your customers to spend more money. You’d be shocked how many customers won’t order a coffee after dinner until somebody suggests it. Make sure the waitress is that suggester. Don’t ask if the table would like dessert, just drop the dessert menus as soon as the table is cleared. Offer cocktails and aperitifs as soon as guests are seated. Point out the high-margin appetizers before the table has even started reading the entrees.
    • Check the item’s placement on the physical menu. Is it buried in the middle of a busy section on the periphery of the page? Switch it with a workhorse that’s hogging the spotlight. Put it in a box. Highlight it. Move it to the top left of the menu, where the eye goes first.
    • Rewrite the description. Remember that even though you know the dish inside and out, customers have no idea how it looks or tastes. All they know is what you tell them. Change “fried” to “crispy” and add some flowery adjectives if that’s your style.
    • Sometimes you just need to make it better. You might love the dish, but you might also be too close to it to be able to keep your opinion impartial. Don’t beat yourself up, we’ve all been there. Do a tasting for a few other restaurant people who you trust and use their honest feedback to improve the dish.
    • If all else fails, kill it. Lots of puzzles are very close to the chef’s heart, so this can hurt. But if you can’t sell the item, you just have ingredients taking up valuable fridge space and most likely contributing to waste. It’s irrelevant how much money this item could potentially make you if nobody’s buying it.

 

  • Losers are what nobody wants on the menu; not you, and not your customers.
    • There’s only one real tactic here: be ruthless and clean house.
    • The only reason to keep some of these Losers around is if they contribute to the business in a different way, like a hilariously named cocktail in a dive bar that makes the menu end up on Instagram or the only item for people with certain dietary restrictions, like McDonald’s Filet-o-fish.

 

 

This process might seem like a lot of work, but these techniques are what take your profitability to the next level. Avoid the temptation to just multiply food cost by 3.3 and you’ll leave your competition in the dust. Check out the reciProfity demo here to see how our new, cloud-based software makes you money and saves you time.

Menu Engineering Blog Post

 

You’ve already heard us screaming about how having accurate food costs is absolutely crucial to your profitability (and guess what? If you’re still using Excel or the back of a napkin to cost out your recipes, you DO NOT have accurate food costs and you desperately need to check out ReciProfity).

 

So now that you have all that great raw data, what do you do with it?  If you’re calculating your selling price by multiplying the food cost of each item on your menu by 3.3 to get a 30% food cost, that’s a great starting point, but you’re still leaving lots of money on the table.

 

The key to profitability is making sure that your actual sales mix, and not just your menu, averages out to your taget food cost. If your menu averages out to a target 30% food cost but 80% of your sales come from items with a 40% food cost, that’s a problem.

 

It’s like having the fastest grill man in the city but a veg guy who’s just out of culinary school and can’t keep up. The whole line is going to be in the weeds. Similarly, an unbalanced menu will never maximize profits. Each item needs to work in concert with all other items to create a sales mix that just plows money into your pocket.

 

The trick is adjusting your prices based on your real sales mix every month (ReciProfity makes this really easy), not based on your static menu.

 

Here’s how to turn your menu into a serious money maker:

 

At the end of each month, print out a sales mix report and categorize every single menu item into one of the following categories based on its sales volume and profitability:

 

  • Winners: high sales, high profit margin (maximum 28-35% food cost depending on your sector).
  • Plowhorses: high sales, low profit margin (over 28-35% food cost depending on your sector).
  • Puzzles: low sales, high profit margin
  • Losers: low sales, low profit margin

 

Do a little tweaking:

 

  • Look back at your Plowhorses. Are you sure that some of them aren’t actually Winners in disguise? If you’re selling Dover sole with beurre noisette for $45 and it costs you $17, that’s a pretty nasty looking 37% food cost. But that $28 gross profit is probably higher than most of your other items so that’s a pretty sweet sale to make. Since we take cash to the bank, not percentages, go ahead and put that bad boy in the Winners
  • Look at your high profit categories (puzzles and Winners). Do any of these items have obscenely high hidden costs associated with them that aren’t calculated as part of the food cost? An example is house-cured meats like pastrami that need 3 weeks in the fridge. The added electricity and cost of holding inventory can turn it into a low-profit item. This can also happen to items that require intensive prep relative to other items. Make sure these items are in the correct category.

 

Now let’s go through each category and see what we can do to optimize this menu:

 

  • Your Winners are what pay your rent. Your customers love them and they put money in your pocket. You probably don’t have to do too much with this category since right now they sell themselves. Just be careful that, as you jigger around the rest of your menu, the Winners don’t get hidden or you might see some of them turn into puzzles. This is why it’s important to repeat this process every month or whenever you change your menu.

 

  • Plowhorses bring customers through the door but you groan every time they’re ordered because all you see is a table full of people who aren’t really contributing to your bottom line. You can’t take them off the menu because your customers will rebel. But Plowhorses are a great opportunity. You can:
    • Up the price and turn it into a This works well in more expensive markets and higher-end businesses with a less price-conscious clientele.
    • Cut the food cost. Reduce the portion size or streamline the prep process. Just make sure this doesn’t mess up the product and turn it from a workhorse into a bum, or worse, turn off customers who come specifically for that product. Alternatively, eliminate waste (use ReciProfity to calculate differences between actual and ideal food cost to identify where the waste is), or find better prices from a new supplier.
    • Use it as a loss leader. You know that great bar a few blocks away that sells huge, delicious burgers for 6 bucks a piece? That burger isn’t actually making them any money, but it’s good enough to drag people in who then spend lots of money on high-margin items like sides and beer. That’s why the bar has a gorgeous copper draft system in full view with rotating microbrews on tap and why the waitresses push fries so aggressively. If this item is really what makes people beat a path to your business, don’t change it. Just accept that these items will be over your target food cost and need to be balanced out in your sales mix by other items with huge margins. Figure out what your “fries and microbrews” are and how to sell more of them (more on this in the Puzzles section).
    • If none of those tactics work, bury the item. Hide it in the middle of a group of other, more profitable items. It’s still there for customers who really want it but it won’t squeeze out the sales of your Winners and will free up prime menu real estate for your puzzles.

 

  • Puzzles are items that you wish you could sell more of. Coffee, desserts, cocktails, and appetizers are almost always considered puzzles since they have fantastic margins and you can always sell more of them without canceling out sales of other items. They’re most likely what’s keeping you in business, especially if some of your entrees are loss leaders. Other less pleasant puzzles are dishes that might be close to the chef’s heart but never really caught on with customers. Here’s what you want to do:
    • Have your floor staff push the items hard. This doesn’t mean that you’re turning your waitresses into used car salesman, just that you’re making it as easy as possible for your customers to spend more money. You’d be shocked how many customers won’t order a coffee after dinner until somebody suggests it. Make sure the waitress is that suggester. Don’t ask if the table would like dessert, just drop the dessert menus as soon as the table is cleared. Offer cocktails and aperitifs as soon as guests are seated. Point out the high-margin appetizers before the table has even started reading the entrees.
    • Check the item’s placement on the physical menu. Is it buried in the middle of a busy section on the periphery of the page? Switch it with a workhorse that’s hogging the spotlight. Put it in a box. Highlight it. Move it to the top left of the menu, where the eye goes first.
    • Rewrite the description. Remember that even though you know the dish inside and out, customers have no idea how it looks or tastes. All they know is what you tell them. Change “fried” to “crispy” and add some flowery adjectives if that’s your style.
    • Sometimes you just need to make it better. You might love the dish, but you might also be too close to it to be able to keep your opinion impartial. Don’t beat yourself up, we’ve all been there. Do a tasting for a few other restaurant people who you trust and use their honest feedback to improve the dish.
    • If all else fails, kill it. Lots of puzzles are very close to the chef’s heart, so this can hurt. But if you can’t sell the item, you just have ingredients taking up valuable fridge space and most likely contributing to waste. It’s irrelevant how much money this item could potentially make you if nobody’s buying it.

 

  • Losers are what nobody wants on the menu; not you, and not your customers.
    • There’s only one real tactic here: be ruthless and clean house.
    • The only reason to keep some of these Losers around is if they contribute to the business in a different way, like a hilariously named cocktail in a dive bar that makes the menu end up on Instagram or the only item for people with certain dietary restrictions, like McDonald’s Filet-o-fish.

 

 

This process might seem like a lot of work, but these techniques are what take your profitability to the next level. Avoid the temptation to just multiply food cost by 3.3 and you’ll leave your competition in the dust. Check out the reciProfity demo here to see how our new, cloud-based software makes you money and saves you time.

The Cost of Goods Sold Confusion

From our resident expert on Cost of Goods Sold , Matthew Starobin,  comes this timely article in Modern Restaurant Management Magazine

In a nutshell, if you don’t know your REAL Cost of Goods sold you’ll never really know how much you are making, or how to increase your earnings.

It can’t all be “in the chef’s head”. What happens when prices go up? Or when you don’t account for trimming and shrinkage? Read the article and get yourself enlightened!

Modern Restaurant Management Magazine

Modern Restaurant Management Magazine