The main goal of restaurateurs is to make money, and ideally a lot of money. The difficulty, however, is setting the prices as high as possible, while still making people want to order. For some dishes, the best strategy to increase profits is to increase prices. On the other hand, the less popular dishes should be deleted from your menu or presented entirely differently.
Three ways to improve the profitability of your restaurant
- Set prices according to menu engineering
- Set prices according to costs
- Set prices according to psychological principles
So how do you know which system will work in your restaurant?
The best way to boost a restaurant's profits is to make changes and examine their effect in practice. Even if your establishment already has a decent turnover, there are still strategies to improve the profitability of your restaurant.
Read on to find out how restaurateurs can increase their profit margins with their prices:
Set prices according to menu engineering
The University of Michigan in the United States has devised a menu engineering matrix, which consists of classifying the items on a restaurant's menu according to their popularity and profitability. . The objective is to help restaurateurs and managers to maximize their profits.
The menu engineering matrix helps catering professionals to classify their dishes into four categories:
- "The stars": both popular and profitable dishes
- "Workhorses": very popular dishes, but not very profitable
- " The dilemmas" (or "puzzles"): dishes not very popular but very profitable
- "Deadweight": dishes not very popular and unprofitable
Reading this, you are probably already mentally classifying the dishes on your menu into these four categories ... But wait and see the concrete solutions and strategies for each of them!
1. The “Star” dishes
Dishes belonging to the “Stars” category are both popular and profitable. These are therefore your star products . You have every interest in maintaining their quality and promoting them regularly!
Solution: From time to time increase the prices of these dishes and observe how your customers react. Also continue to highlight them. This will make your restaurant even more profitable!
2. The "Workhorses" dishes
Plates classified as “Plow Horses” sell very well, but are not very profitable. Since they are difficult to produce and the margin they generate is low, it is best not to spend too much money promoting these dishes.
Solution: As with the “Stars” category, you can try increasing your prices and looking at how demand is developing. You can also reduce your costs by reducing the portion size slightly, or you can think about less expensive alternative ingredients, which will not change the quality of the dish.
3. The "Dilemma" or "Riddles" dishes
Dishes in this category ("Puzzles" or "Bronze" in English) are not in great demand, but they are very profitable. Usually, this means that these dishes are overpriced.
Solution: “Dilemma” or “Enigma” dishes are very profitable, but do not necessarily sell well . You can try the following strategies and see which one works best for your facility:
- Offer these dishes in the form of a “dish of the day” and thus make them more visible.
- Reduce the price of these dishes and see if the number of orders increases.
4. The "dead weight" dishes
The "Dead Weights" ("Dogs") are little ordered dishes that must be immediately removed from your menu! Not only will you save time on the storage, preparation, marketing and inventory of these dishes, but you will also save space in your kitchens and be able to devote more time and effort to products that are profitable.
Solution: immediately remove these dishes from your menu . They cost you dearly and require too much work, putting your restaurant in financial difficulty at the same time. If most of your dishes fall into this category, be sure to consult a marketing expert right away. If, on the other hand, your menu only includes a few dishes of this type, you can reinvent them by giving them a new name.
Set prices according to costs
The ideal percentage of food cost
Now that you know how to classify your dishes using the menu engineering method described above, let's see how you can maximize your profits (using the ideal percentage of food cost).
1. Define your desired gross profit margin
The ideal is of course to sell dishes at prices that generate a high profit, but it is also necessary to be realistic. A restaurateur may want to earn a lot of money, his customers still have to order his dishes ... Thus, if a dish is displayed at too high a price, customers will think twice before choosing it.
Is this dish really worth its price? Are your customers willing to pay more to eat at your place? And if no one orders a dish, is the problem with the publicity you are giving or a flaw in the products?
2. Calculate your price
Start by adding up the prices of raw materials, that is, the ingredients needed to prepare the dish. You therefore do not take into account your labor or delivery costs, or your rent. For example, in the case of fish soup, you need to count the price of shrimp, clams, other seafood and fish, broth, spices, aromatic herbs, and oil.
Here is an example:
- The ideal percentage of food cost is 40
- The price of raw materials is R30
Divide the price of raw materials by the ideal percentage of the cost of food. The calculation is as follows: R30 divided by 0.40 or 40%. The price of the dish on your menu must therefore be R75.
Some restaurateurs apply this method, but also taking into account their other expenses (rent, overheads, etc.).
The desired gross profit margin
Another way to price your meals is to define your gross profit. Make sure, however, that the gross profit margin or percentage of profit generated from sales is sufficient to cover your restaurant's expenses.
Calculate your desired gross profit margin as well as the cost of your raw materials:
- The desired gross profit margin is 80%
- The price of raw materials is R30
- The dish is displayed at R72. You must also plan to develop your activities, repay your debts and buy new equipment. As discussed above, some dishes are displayed at high prices.
Desired profit margin = (price of the dish - price of raw materials) / price of the dish
80% = (price of the dish - R30) / price of the dish
The price of the dish is therefore R144.
Next, define your bottom line.
Net profit / net loss = gross profit - (labor costs + operational costs)
Set prices according to psychological principles
The higher the net profit, the longer your restaurant will hold up. Some dishes can work with cheaper ingredients, while others can be taken off your menu altogether.
The Golden Triangle
Putting a restaurant menu together is quite an art! It has in fact been proven that certain areas of the menu are consulted more than others. These are the center, upper right corner, and upper left corner. Psychologists call this the “golden triangle” of a restaurant menu because the dishes listed there are more likely to be ordered.
By dragging a few well-presented “Star” dishes to the top and bottom of your list of dishes, you can increase sales, since these areas are the areas that are most visited by customers. Likewise, a dish that sells well can be placed in a box or accompanied by an attractive picture or photo.
The colours used on your menu can also influence your sales. The colour orange, for example, usually increases appetite. Yellow helps to grab the attention of customers, which is why it is often used by menu designers. They sometimes also opt for green to represent the freshness of the food. Finally, the most popular and profitable dishes are often shown in red, a color that prompts the customer to order those dishes.
Other tips for an efficient restaurant menu
Remember this: the content of your menu is just as important as its layout. A carefully and seductively described dish will make the customer want to order it. Experts in the field also advise incorporating elements of nostalgia and other references to family in restaurant menus. So, you have probably already been tempted to order "Granny's cheesecake" or "Mamita's spaghetti bolognese sauce"...
Avoid superlatives that immediately give the impression of exaggeration. Instead of talking about the “best burger” or the “freshest salad”, prefer adjectives like “sun-kissed”, “full-bodied” or even “with a touch of honey”.
Another, less well-known strategy is to place some cheaper dishes next to other more expensive dishes, to make customers feel like they are saving money by choosing the cheapest dish (while spending when even more than if they had chosen another dish).
Another effective method: limit the number of dishes per page. Some customers are lost when faced with too vast a choice. That's why specialists recommend not to exceed seven to ten dishes per page. Psychologists also advise not to use too many drawings and outlines to emphasize “Star” dishes (those which are popular and profitable).
The presentation of the menu can be such that it encourages customers to opt for the house specialty or to try something new. Plates, different fonts, colors and highlighted elements should be placed strategically. Even before the atmosphere of the restaurant, the experience of customers often begins with reading the menu.