Menu Engineering – A Restaurant Strategy Cheat Sheet
From time to time, you’ll want to examine your restaurant to analyze its performance. Are you hitting your financial goals on every point? Providing the optimal guest experience? And most importantly, are you doing it all in accordance with your brand vision? Though a restaurant owner’s challenges are multifaceted, strategies for improvement are near universal and Menu Engineering can help across the board. Essentially, menu engineering is the process of breaking down your menu item by item, analyzing each item’s performance and then adjusting based on those metrics.
Since menu engineering works by itemization, you can pinpoint specific chokepoints and rework them without sacrificing efficiency, quality or profit in the long run. We think of it like “checking under the hood” to examine the individual parts and ensure it’s all running in tip-top shape. In this article, we’ll show you exactly how to organize your kitchen data, how to analyze your current menu performance and how to engineer it for improvement. Note: Feel free to skip ahead to download our template and input your own data, or work along with us from scratch.
Step 1: Collecting Your Data (Making a Menu Engineering Worksheet)
The first step in Menu Engineering is to create a Menu Engineering Worksheet. We’ve used Microsoft Excel with the calculations built in. However, Google sheets is a good alternative, especially if you need to give access to multiple people.
Now, decide on the time increments for which you want to record. We’ve divided ours into Quarters (Q1-Q4) with a new sheet created for each one. You may choose to record by month by month as well. DO NOT SKIP THIS STEP. Your data is meaningless if you can’t trace it to a specific time frame!
To formulate the “backbone” of your menu engineering worksheet, as well as understanding your budget, you’ll create 4 columns. This is the data upon all other reports will hinge, so be as thorough as possible:
- Title a column Menu Items. This column will include every item you have on your menu. List your menu items out one per line.
- Title a column Number Sold and record the number of menu items sold (remember to keep your data lined up correctly) within a designated time period.
- Title a column Item Food Cost. This is the dollar amount that YOU paid for each menu item. Calculate this number for each menu item and record. Note: some menu items will require you to calculate multiple ingredients to obtain a total. For example the item food cost of a burger constitutes individual prices for raw ingredients like bread, meat, cheese and toppings, and total it. Some level of estimation may be in order, but you really can’t be too granular here.
- Title a column Menu Price. This is the dollar amount that the customer will pay for each menu item. Calculate this data and record.
With these columns, you’re ready to begin analyzing your data. Check the next section for what we call the analysis columns!
Step 2: Making Your Calculations (The Analysis Columns)
You needn’t be a mathematician or data expert to put these numbers to work for you. With your recorded data and some simple automated calculations, you can execute numerous reports to engineer your menu and strategize for your restaurant.
Title a new column Food Cost %. In this column, we will determine the percentage of sales you’re spending on food. The calculation for this report is Food Price divided by Menu Price. As a general rule, menu items with a food price that’s 30-40% of the Menu Price will be profitable, but individual circumstances will vary.
- Title a new column Item Profit. Here, we will determine how much profit a menu item generates and the calculation is the Menu Price subtract the Item Food Cost. Essentially, it’s how much you make on a menu item once costs have been accounted for.
- Title another column Total Food Cost. This calculation gives you a broad sense of the total amount you’re paying for a menu in a designated time period and its calculation is Food Price multiplied by Number Sold.
- Title another column Total Menu Sales. This calculation gives you a broad sense of the total amount of revenue you’ve generated for a certain menu item and its calculation is Menu Price multiplied by Number Sold.
- Title a column Contribution Margin. This is essentially a report to track your “Total Item Profit” and its calculation is Total Menu Sales minus Total Food Cost.
These are the major calculations we’re going to examine here, but there are more reports you can engineer, listed below with their calculations. For our totals, we created a fixed row with the SUM calculations built in (along the bottom)
- Total items sold. Calculated by taking the sum of each item the number sold column.
- Total food cost – Calculate by taking the sum of every item in the total food cost column
- Total menu sales – Calculate by taking the sum of every item in the total menu sales column
- Total contribution margin – Calculate by taking the sum total of every item in the contribution margin column
- Total Food Cost Percentage – Calculate by taking the Total Food Cost and dividing it by Total Menu Sales
For this data, we’ll need to obtain 2 Average metrics. Average Items Sold and Average Contribution Margin.
- Title a row (beneath all your menu items) Averages. In the cell corresponding to the Number Sold column calculate the average by taking the Total Items Sold number and dividing by the number of menu items.
- In this same average row, find the cell corresponding to the Contribution Margin column. Calculate the average here by taking the Total Contribution Margin and dividing it by the number of menu items. (Note: these averages will be a fixed number, and will not change based upon entry. You’ll see why in the next section)
Step 3: Categorizing Your Data
Now that you’ve got your Data columns and your Analysis columns in place, it’s time to start Categorizing your menu items. It helps to decide on a good binary color system here. For ease, we’ve gone with Green for a high indicator and Red as a low indicator.
Title a column Profit Meter. Refer to each menu item, noting its Contribution Margin and then the Average Contribution Margin (remember to look at the bottom for that one). If the item’s contribution margin is higher than the average contribution margin, mark it high in the profit using your designated indicator. If its contribution margin is lower than its average contribution margin, mark it low in the profit meter using your designated indicator.
Title a column Popularity Meter. For each menu item, refer to the Number Sold and the Average Number Sold columns (remember to look at the bottom for that one). If the item’s number sold is higher than the average number sold, mark it high in the profit meter using your designated indicator. If its number sold is lower than the average number sold, mark it low in the profit meter using your designated indicator.
Title a column Menu Item Category. Here’s the really fun part! For each menu item, refer to the Profit and Popularity meters you just created.
- If a Menu item ranks high in both the Profit and Popularity meters, it is a Star. Your customers love it, they order it regularly and it generates a profit for your restaurant. These are the items you want to keep.
- If an item ranks high in the profit meter but low on the popularity meter, it is a puzzle. Think of it like an item with tremendous potential, but whose mystery hasn’t quite been “solved” yet.
- If an item ranks low in the profit meter but high on the popularity meter, it’s a Plowhorse. Think of it like an item that sells itself, but needs some tweaking in order to be optimal to your bottom line.
- If an item ranks low in the profit meter and in the Popularity Meter, it’s a dog and it’s taking up space on your menu.
Step 4: Moving Forward
At this point, you’ve collected a lot of data. Congrats, you’re almost finished! To mark the final menu engineering strategy for your restaurant:
- Identify your Stars. These items are popular and profitable, so examine them to determine what makes them popular and see if you can apply these principles to another menu item.
- Identify your Puzzles. These items are profitable but don’t get ordered very often. These are the items that benefit from a rebrand, be it a new name, promotion or placement on the menu, to jazz them up and jump off the menu.
- Identify your Plow-Horses. These items essentially sell themselves but aren’t great for your bottom line. The key here is to find ways to cut costs without sacrificing the quality that makes it so popular in the first place. One example is to find substitute ingredients or re-examining portion sizes to cut costs.
- Identify your Dogs. These items are neither popular nor profitable. They need a serious overhaul—or the ax.
And there you have it! How to Engineer your menu for optimal performance. Stay tuned for our upcoming blog about Menu Design which will build upon many of the principles here, and teach you some tips for best item placement and design.
- Ensure you’re lining up your data correctly! The more items on your list, the higher risk for inputting data incorrectly. Take your time.
- This process will take some time because a good menu engineering strategy requires solid actionable data. Don’t be discouraged if you need to pull out some scratch paper and a calculator and put a few days into it. (It’s worth it in the long run!)
- Remember to record data AS IS, not how it SHOULD BE. You can’t make accurate changes if your data isn’t accurate
- Color Coding helps for quick and easy identifying
Click below to download our Menu Engineering Worksheet
About the Author
Dylan Chadwick is a Content Marketing Specialist at QSR Automations. He graduated from Brigham Young University with an English degree and journalism focus and loves to write about technology. When left to his own devices, he enjoys loud music, adorable dogs and documentaries about the aforementioned.