We’re all looking for ways to improve our restaurant profit margins these days. The costs of food, labor, and energy continue to rise. And, to be blunt, there’s not a lot we can do to control these price fluctuations. So what can we control?
The answer to that question is hidden inside your menu. Your restaurant menu pricing strategy is the key to regaining those margins and offsetting the costs that are outside of your control.
But how exactly can you tweak your menu to protect those margins? Are there ways that your menu is actually costing you profit potential right now? And if so, what can you do about it?
For the answers to those and other questions about restaurant menu pricing strategy, structure, and balance, we turned to our friend Ammar Khan, founder and CEO of menu engineering vendor Menulytics.
As Ammar tells us, “Menulytics started with the simple idea of helping the restaurants we love stay in business. Before we wrote any code, we talked to friends who own and run restaurants. We wanted to understand where the money was slipping away.”
What’s on Your Menu?
Over time, Ammar and his team came to understand that so much of that slippage could be traced right back to a restaurant’s menu. As Ammar explains to us, “Everything we do comes back to menu profitability. Your menu is what connects you to your guests. It’s the first piece of your restaurant they hold in their hands or scroll through online, and it’s where most of your profit is won or lost.”
This led Menulytics to the development of an extremely valuable (and extremely cool) feature — its free, instant menu health scan. If you’re at all curious about what your menu is doing right and what it could be doing better, you’ll probably want to check that out.
“It’s a quick, free check-up for your menu,” Ammar explains. “We scan your public menu, the one guests see on your website or online ordering page, and flag anything that may be costing you money.”
So what kinds of items get flagged? Are you missing out on opportunities for profit because of your menu design? With Ammar’s help, we give you just a glimpse of what you can expect to learn from your free menu scan.
5 Ways to Make Your Menu More Profitable
“Your menu is your most important sales tool. A poorly designed one works against you quietly,” Ammar points out. “If your highest-margin dishes are buried, guests won’t order them. If the menu is too long, you carry more inventory, waste more food, and slow down the kitchen. And if prices don’t reflect what dishes actually cost, every busy night can lose you money on your most popular plates.”
The thing is, you might not even know that your menu is cutting into your restaurant profit margins. As Ammar points out, “None of this shows up as one obvious problem. It’s a few percentage points of margin lost across hundreds of tickets a week.”
So what can you do to prevent an unhealthy menu from crushing your restaurant profit margins?
1. Adjust Your Menu Prices
One of the surest signs that your menu isn’t doing everything it should be for your restaurant is stale pricing. If the prices for ingredients are changing but your menu prices remain the same, your restaurant profit margins are shrinking.
As Ammar points out, “Many restaurants revisit prices only a few times a year. Meanwhile, ingredient costs move constantly. Beef, eggs, seafood, produce, and cooking oil can swing significantly in a matter of weeks. When a key ingredient jumps, every dish that uses it gets less profitable overnight.”
In fact, you could be losing out with your most popular dishes because of this failure to adjust. Ammar says this is actually one of the most common mistakes his team sees.
How Your Most Popular Dishes Might Be Crushing Your Profits
As Ammar tells us, “In menu engineering, we call these popular items plowhorses — dishes guests love that don’t earn much on each plate. Often the dish was priced when its ingredients were cheaper, or it’s the signature item the owner is reluctant to touch. Because it sells so well, it feels like a winner.”
But the truth is, every sale is actually contributing less than you realize to the bottom line. So what can you do? In short, you need to make adjustments based on fluctuations in ingredient costs.
Ammar advises, “You don’t have to reprice every time an ingredient moves, but you should know the moment a dish stops earning what it should. Then you can choose the right fix: a price adjustment, a portion or recipe tweak, or a change to delivery pricing only.”
2. Mind the (Pricing) Gap
Speaking of delivery pricing, this is another area where restaurants are losing money. If your delivery menu isn’t designed to absorb third-party commissions, your margins are getting slammed on every single delivery. Ammar says this is another telltale sign of a menu that isn’t performing optimally.
“If your delivery prices match your dine-in prices exactly, you’re selling the same dish to your delivery customers for less,” Ammar explains. “After a 15 to 30% commission, those orders often earn far less than they appear to on the surface.”
In contrast, a healthy menu is “priced for every channel,” Ammar advises. “Dine-in, takeout, and delivery each have their own math, and your menu needs to reflect that.”
3. Build a Balanced Menu
Ammar notes that another symptom of a menu with health issues is a poor balance of items. Your primary goal is to create the right mix of high-margin items and crowd-pleasing dishes, Ammar says.
But that means you need to make thoughtful decisions about how many items you list on your menu and how you spread them across categories like starters, entrees, and sides.
One of the surest signs that a menu is in need of revamping is that it just keeps growing, as opposed to evolving. Ammar explains that “Every item you add means more inventory, more prep, more waste, and slower tickets.”
A healthy menu should reflect selectivity. As Ammar puts it, “Every item on a healthy menu should earn its place. Each dish is either popular, profitable, or, ideally, both. Items that are neither should be reworked or removed.”
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4. Make Strategic Design Decisions
Effective menu engineering isn’t just about what you include on your menu, but how you present it as well. The way you lay out, sequence, and highlight the items on your menu will have a direct effect on how customers make their decisions.
If your menu isn’t calling attention to the items and add-ons that give you your best margins, you're probably leaving money on the table.
As Ammar explains, you can spot a poorly structured menu because it has no clear anchors or highlights. As a consequence, Ammar tells us, “Guests default to whatever is cheapest or most familiar rather than what’s best for the business.”
A healthy menu, in contrast, “guides the guest to the items that actually drive your business. The layout of your menu, the descriptions of your dishes, and the items you feature should all steer the attention of your customers toward your best-performing and highest margin dishes.”
5. Seize Sales Opportunities
As Ammar noted at the beginning of our chat, your menu is your most powerful sales tool. If you aren’t using this tool to drive additional sales and bigger tickets, then your menu is likely underperforming.
Ammar notes that one of the biggest shortcomings he sees in menus is “the missed opportunity for add-ons, upsells, combos, and price adjustments that restaurants can make with little risk.”
The best way to seize these opportunities is to stay on top of your menu performance. As Ammar tells us, “Healthy menus are watched week to week and adjusted based on real sales, costs and guest feedback. A good menu is one that is managed continuously.”
At a minimum, Ammar tells us, you should be tracking the following data points:
- Item-level sales and recipe costs
- Sales by daypart
- Local market pricing for ingredients
- Local demand signals like nearby events
- Guest sentiment from reviews and social media
- Costs and fees for:
- Dine-in
- Takeout
- Delivery
That’s quite a bit to keep track of, and that’s where the technology comes into play.
Boost Your Menu Performance with the Right Tech
The right menu engineering solution can help you keep track and make sense of this data. If you’re looking for ways to protect and maybe even improve your restaurant profit margins, it may be time to take a good hard look at your menu.
It’s also important to keep one eye on the industry around you. Food costs, consumer trends, and technological innovations are changing all the time. Stay on top of everything by signing up to receive our weekly newsletter.
