How Digital is Changing the Rules of Menu Engineering
May 11, 2022
After suffering through the most recent pandemic wave, restaurant operators aren’t leaving anything to chance. From staffing to food waste, they’re scrutinizing every aspect of operations through the lens of profitability. This is especially true of menu design, thanks to the oversized influence menus wield over what customers order.
Enter the science of menu engineering. First adopted in the 1980s, menu engineering is a methodology to increase the purchase of higher-margin items with the goal of boosting overall profitability. Some say a properly engineered menu can increase profits by as much as 15%.
However, the rise of online ordering is challenging many of the principles of menu engineering once considered sacrosanct in print. In this article, we’ll first go over the basic steps of menu engineering for print, then cover the new best practices for digital menus.
Start by costing your menu
Please note: If this process looks too time-consuming, reach out to your distributor. Many will help you cost your menu as a partner service. If you must do it yourself, consider using an an online tool like Apicbase that automates much of the work and can help you generate nutritionals and allergen reports, too.
Whether your menu is printed or digital, the first step in menu engineering is to sort out the food cost and profit of each item on your menu. Many consultants urge operators to factor in the cost of labor in addition to a recipe’s ingredients, which is called Prime Cost (food cost + labor cost). Some items like prepared guacamole may appear to have high food cost until you factor in labor, then it’s often the better value.
For simplicity’s sake in this example, we’ll stick to just the cost of ingredients and exclude labor.
Let’s say you serve soup.
- Figure out how much the ingredients cost for each batch of soup.
- Then divide that amount by the number of servings you get from each batch. That’s your cost per serving. So, if the total ingredients per batch cost $45 and you get 50 servings per batch, your food cost would be $45/50 servings = $0.90 per serving
- Now calculate your profit per serving by subtracting your cost per serving from your menu price. The soup lists on your menu for $3.50 per serving. A cost per serving of $0.90 leaves $2.60 of profit per serving, also known as item contribution margin.
- Dividing your food cost by the menu price will show your food cost as a percentage ($0.90/$3.50 = 26%). The industry rule of thumb is to keep food costs between 28% and 35% of the menu price.
- Perform these calculations for every item on your menu
Now categorize all items, placing them into relevant groups: appetizers with appetizers, entrées with entrées, etc., so you’re comparing the contributions of like items.
If you’re not a fan of math, let this free menu engineering spreadsheet from Eat1 do the numbers for you.
Find out how much each menu item is really dropping to your bottom line
A menu item with high margins/low food cost sounds great, but if it’s not selling, it’s not helping. Likewise, a popular item with high food costs may be providing relatively little to your bottom line, especially when you factor in the labor cost to produce it.
Total contribution margin considers both the margin (profitability) for each serving and the number of servings sold (popularity).
To calculate it, simply subtract the total food cost (food cost x amount sold) over a given time period from the total sales (menu price x amount sold). If you sold 77 servings of our hypothetical soup from above, the total sales would be $269.50 while the total food cost would be $69.30, leaving a total contribution margin of $200.20.
Use your sales data to perform this calculation for all your menu items.
Please note: Discount promotions like Happy Hour and Taco Tuesday reduce the contribution margin of the menu items on special. They also train your customers to buy these items when they’re marked down. To protect your margins, try to limit the products you sell in these promotions to those you buy on discount via bulk purchasing, distributor closeouts and other incentivized purchasing.
Sort out the superstars from the dogs on your menu
The next step is to calculate the average contribution margin for each menu category: entrées, appetizers, etc. Why? Once you know the average, it’ll be clear which are overperforming (above average) and which are underperforming (below average) in their impact on your bottom line. Then you can take steps to modify what you serve and where they appear on your menu.
Continuing with our example, let’s say your soup is an appetizer, one of five on your menu. You’ve established the food cost and total contribution margin for each of these appetizers and it looks like this:
To calculate the average contribution margin, divide the total contribution margin for all appetizers by the amount sold ($1893/364 = $5.20 per appetizer on average). From this, you can see that your soup and mozzarella sticks are below average for profitability, whereas your loaded fries and cauliflower buffalo wings are raking it in. The poppers are right on average.
However, what matters most is their total contribution to your bottom line in aggregate, not their profit per serving; you have to take their sales into account, too. Calculate the average amount sold by dividing the total items sold by the number of items (364 total sold / 4 items = 91 per item on average). A quick check reveals that Loaded Fries are selling well above average. Everything else is falling below the sales average.
The best way to visualize popularity versus profitability is to plot them on a chart, then divide the graph into four quadrants. Each of your items will fall into one of these four categories:
Superstars (top right): Above average in both profitability and popularity.
Workhorses (top left): Popular but below average in profitability.
Question Marks (bottom right): Profitable but with below-average popularity.
Laggards (bottom left): These have low profitability and low popularity.
Now design your menu with these insights in mind
A powerful exercise like this can reveal important insights into your pricing, food costs and sales performance. Using it to inform the design of your menu is one important use for it.
Generally speaking, leave your Superstars where they are on the menu—they’re already doing what you want them to do: raking in the dough.
Workhorses should remain in their location, too—they’re selling well. However, try increasing their contribution margin by lowering their food cost, increasing the price or reducing the portion size until they become superstars.
Your Question Marks need tweaking, too.
- The dish itself could be an issue. Check in with your customers on what they do or don’t like
- Don’t underestimate the power of suggestive selling. Make sure your servers are promoting it at the table.
- Consider listing them in the golden triangle if they aren’t there already (see below); otherwise, they may continue to languish at the bottom of the menu.
- Consider drawing attention to one by framing it in a box. These steps can transform your Workhorse and Question Marks into Superstars.
- Rethink the menu description. “Vegan Cauliflower Bowl” might not get as much love as “Southwest Meat-Free Fiesta” featuring chili-infused grains and scratch-made guacamole with Oaxacan pico blend.
Your menu’s Laggards should be eliminated or reconceived. If nothing else, move them down the menu to deemphasize them and return more valuable space to dishes that make you money.
The golden triangle. Many researchers believe your patrons’ eyes travel to the middle of your menu first, then move up towards the top-right corner and finally to the top-left corner.
- The top-right corner is considered “the sweet spot” of the triangle, making it a great place to position an expensive, high-margin item. Sometimes these expensive items can serve as a “decoy” followed by a less expensive (though also high-margin item) that, by comparison, may seem like a better value.
- The middle of the menu, being the first viewed, is an excellent location for specials and high-margin items.
- The top-left corner is best stocked with profit-building appetizers.
- The least-viewed real estate on the menu is always toward the bottom.
- The most viewed items in any category (like appetizers, for example) are generally the first and last listed. So make sure you have profitable items in these slots.
- How many items should each section have? Research indicates that seven should be the limit. Listing more than seven can induce “choice paralysis” and leave patrons feeling less satisfied with their ultimate choice.
- Use visual techniques like boxes, shaded areas, increased type size, or white space to highlight your most profitable items.
- Use evocative language in your menu descriptions that play up the quality of your ingredients. Include a story about the recipe to increase its desirability and authenticity, helping it command a higher price. Try to keep your descriptions about the same length. However, you can use a longer description for an exceptional (and profitable) item to draw attention to it.
- Never list your menu prices in a straight line down the right side of the page—it draws too much attention to the price and prompts decisions on price alone. Instead, tuck that price at the end of the description, just the dollars—no cents, no dollar sign—so your customers can “get to know” the item before considering the cost. According to a Cornell University study, treating prices this way has been shown to deemphasize cost, generating a positive effect on sales and check averages.
- Consider grouping specialty items like vegan and vegetarian dishes to make them easier to find.
- Save space on your menu by relegating desserts to their own menu that the server delivers toward the end of the meal. If you have an expansive beverage menu, it may be wise to keep it separate and reduce menu clutter.
- Limit any images or illustrations to one per page. Any more tends to cheapen the menu.
How digital menu engineering differs from print
Digital menus have to solve the same challenges as printed menus, though in far less space (plan on optimizing your menu to work well on the average smartphone). So what’s different?
- There’s no golden triangle, just the top of the page. The sweet spot on a digital menu is toward the top of the page; the higher, the better. This means you may want to place popular, high-margin meal combos first rather than starting with appetizers like traditional menus.
- Reduce the number of menu items. When customers order online, it’s usually for takeout or delivery. Edit your online menu down to only your high-profit items that you can make money on (despite delivery fees) and those that travel well, so your customers aren’t disappointed.
- More pictures, please. In the online ordering world, pictures are a good, building appetite and anticipation for the meal. Include one with every item on your menu. They’ve been shown to increase orders by as much as 50%. Some white-label ordering platforms go beyond pictures for items, including spaces for category photos, as well as a theme photo that captures the spirit of your whole establishment. Here are some helpful photo tips.
- Name your items with search engine optimization (SEO) in mind. Customers tend to use very basic, universal terms in searches for food. Think of simple terms like “french fries” versus more unconventional names like “pomme frites.” Save that for your dine-in menu. That said, keep your descriptions inviting and colorful.
- Include prompts for add-ons. After a customer has selected an appetizer, help them “complete their meal” with a short menu of profitable add-ons like beverages, sides and dessert. Consider a prompt with “suggested pairings” of specific wines or cocktails to go with specific dishes. These additional items can quickly ramp up your check averages and profits. Use them!
- Test, test, test. While you can certainly test the effectiveness of printed menus, digital ordering platforms like ChowNow and Upserve make it extremely easy to test all kinds of parameters, including menu placement, pricing, descriptions and more.
Making your menu work harder
Menu engineering has come a long way since the 1980s. With digital tools and your POS data, you can uncover critical insights into the dishes driving revenue, profits and repeat business. And as restaurants recover from COVID-19, few things are more important.