The restaurant industry is notorious for having narrow profit margins and high costs. How does anyone make a living at it?
While you don’t want to cut corners in your restaurant’s operations to the point of having a negative impact on the customer experience, there are ways you can make more money without doing so. You can improve your restaurant’s profits by adjusting your menu occasionally, focusing on menu items that are popular and drive revenue. Here’s how.
Step 1: Cost Your Menu
If you calculate food cost for a menu item whenever you develop a recipe, you probably already have a good idea of what each item costs in money and labor, as well as your profit margin. It can, of course, be helpful to do so each season if costs for some ingredients go up or down.
You may be surprised, for example, to find that your club sandwich has gone up in cost since the last time you calculated its food cost because the price of bacon has risen. This means that every club sandwich you sell is bringing in less profit than it used to. You’ll need to make a decision about what to do about this in the next step.
Step 2: Decide Whether to Raise Prices
Raising menu prices is a tricky subject. On the one hand, if you raise them too much, longtime customers may get upset and take their business elsewhere. If you don’t raise them for too long, you cut into your profitability and may struggle to make ends meet.
There are a few scenarios where raising menu prices is a good idea:
- When certain costs have risen permanently
- When the market can bear it
- When business is booming
There are a few strategies you can use to improve your restaurant’s profits by adjusting your menu prices. You can raise all prices on the menu slightly (as little as $.25 or $.50), or choose the items that have the least profitability but are still popular enough that people won’t mind paying a little more. You can sell seasonal menu items and charge a premium for those.
Just don’t make the price increase too drastic, because it’s harder to go down in price once you’ve raised it.
Step 3: Get Rid of the Dogs
The Dogs on your menu are items that aren’t very profitable or popular. In other words: there’s not a lot of purpose in you offering them. Clear them out of the way to make room for new or seasonal items and to focus on Stars, those highly profitable, popular dishes.
If you look at your sales history broken down by dish, you should be able to easily see which items qualify as Dogs and remove them.
Step 4: Spruce Up Your Menu
While you can certainly improve your restaurant’s profits by adjusting your menu prices, you can also put some attention on marketing and design to encourage people to order specific menu items. Place items with high profitability in a Specials box to highlight them, or have your servers list the day’s specials.
Also pay attention to where you place certain items on a menu, because layout can impact how a customer decides to order.
A few small changes can help you maximize profit in your restaurant without jeopardizing the customer experience.