Your new menu is spectacular. You can feel it. There’s just something about it this time that’s right.
I’m not talking about the flavours, you already know they work. I’m talking about some often overlooked metrics; your COGS.
It’s never a bad idea to work out your COGS, and there’s not many safer ways to begin than with a good food cost calculator.
And, as luck would have it, Lightspeed just so happens to have a very good food cost calculator for you, absolutely free. Seriously, it’s right here. Click it.
It all begins with your menu
You did click it, didn’t you? Good, or none of what we’re about to go through will make sense.
Now, let’s start by having a deeper look at how our food cost calculator works; what information does it tell you, and how can you apply it to your menu to boost your profit margins?
Firsty, we need a menu. Here’s one I prepared earlier.
Bistro ‘Adaptée à l’objectif’
Granola with seasonal fruit, and your choice of natural yoghurt or milk
Bacon & Egg Roll
Bacon, fried egg, cheddar, barbecue sauce, and mixed leaves on ciabatta
¼ beef patty, cheese, pickles, onion, and secret sauce on a milk bun
Steak Frites with Black Truffle
320g Porterhouse steak, beer battered chips, black truffle, and cafe de paris
Fresh tomato, sourdough croutons, bocconcini, fresh basil, red onion, olive oil, and sherry vinegar
The first thing we need to do is price each of our ingredients. I won’t go into everything (or this article will rival Tolstoy’s best in word length), so I’ll walk you through a couple of dishes, just so you can get the hang on things.
A breakfast mainstay; the bacon & egg roll
Ah, the humble B&E roll. It’s as true blue as a Hemsworth family dinner, and almost as mouth watering. You’ll find it on menus from the greasiest spoons to the crème de la crème of brunch spots. It makes sense to see how much of a profit you can make on them, doesn’t it?
Now, most wholesale ingredients are sold by weight, so with the beauty of the metric system, the numbers tend to line up rather nicely.
Bacon usually costs around $12 per kilo, which amounts to about 45 slices. For our B&E, we’re going to use 2 slices, because anything less is borderline scandalous.
So, we’ll click Add ingredient, to get started, and enter all of the information about our bacon.
Then, you fill in the rest of the ingredients on your B&E and you’ll have the total COGS for Australia’s favourite breakfast sandwich in no time.
Now’s the important part.
Play with your markup percentage and desired profit margin
From here you have the choice to toggle the markup percentage, your desired profit margin, and your recommended menu price. Depending on which metric you prefer, the others will automatically adjust, giving you the whole picture.
Say if we want to adjust by markup percentage? We’d just adjust that to our desired markup, and that will tell us both how much of a profit margin we’ll make, and give us a recommended menu price too.
Applying the average profit margin of 2% (really? That is criminally low), gives us a profit margin of just 5 cents, and a recommended menu price of just $2.80.
For obvious reasons you should not do this. You can charge a lot more for a bacon & egg roll. I know it, you know it, everybody knows it.
Let’s move on.
Adjust your prices
For something as fundamental to the Australian cafe landscape as a B&E, we’ve all got a basic idea of what we can charge without scaring away any potential customers or low-balling ourselves out of business (usually between $8-12).
Let’s meet in the middle and toggle the recommended menu price to $10.
Can you see why this is such a popular dish now?
Our markup percentage has soared to over a hundred times higher than the industry average. Now instead of taking home a measly 5 cents per B&E sold, you pocket a cool $7.25. Not too shabby.
Let’s go through the other dishes
But what about a dish where the ingredients cost a little more than the iconic B&E, I hear you say.
Something like the Steak Frites can illustrate how knowing your profit margin, and markup percentage is helpful.
To get our profit margin approaching that of the B&E, we’d have to charge around $40 per serve which, as good as steak frites can be, is a little rich for the average consumer to be paying for a lunch.
A sprinkle of menu engineering
There’s a couple of tricks you can employ when writing out your menu to make sure everything on there has a purpose.
Firstly, you can use the knowledge gained from using the food cost calculator to decide which items to push and promote (the B&E), and which items not to.
This is called menu engineering. You analyse your menu’s COGS and categorise them into one of four groups:
- Plough horses
The plough horse: high sales, low profitability
The plough horse is a dish with a low profit margin, but the potential to make up for it with high sales. On our menu, this is the $5 Burger.
Using the food cost calculator, you can see, whilst I’d still be making a profit on each one sold, that profit would only be 99 cents.
But that’s not a bad thing here.
The benefit of having a plough horse on your menu is that at a price of $5, the probability of this selling is very high, meaning I can make up for any lost profits via sheer volume.
The star: high sales & high profit
The star is a menu item with a high profit margin and high sales. This takes us back to our old friend, the B&E.
We’ve already established it’s insane markup of 264%, and it’s profit margin of $7.25.
Because it’s also such a popular menu item, there’s really no other candidate for our star, and you should promote it to further drive sales, raking in all of those extra profits.
The dog: low transaction with low profits
The dog would be a menu item that doesn’t sell with the added kicker that it costs you a relative fortune to produce. Please welcome the Panzanella salad.
Just look at it.
With high COGS, and an equally high price tag, the Panzanella Salad costs more to produce than most menu items (due to the relatively short & fickle tomato season), and in my experience doesn’t really sell much.
But it does still have a place on our menu, all of which will be revealed further on, so keep reading!
The puzzle: low transaction but high profits
Let’s talk about the granola.
With a COGS of only $1.36, and a markup percentage of a staggering 637%, that would bag us a profit margin of $8.64 every time we sold one.
But that’s the problem, it’s not selling.
Puzzle dishes have a remarkable ability to make you want to bang your head against a wall as you try and figure out why they’re not shifting. It can’t be the price; that’s reasonable. The product is top quality too, but people just aren’t interested.
How can we influence what customers will order?
Two words: menu psychology.
There’s a lot that goes into the layout of a menu, and psychology can influence what a person does, or doesn’t order.
Get rid of the dollar symbol
Taking away currency symbols from your menu takes the emphasis away from money. This can result in people spending more than they intended to.
Proper placement of your menu items
The placement of an item on your menu is important too.
There’s an area on your menu known as ‘The Golden Triangle’. Dramatic effect aside, this is a very helpful thing to know.
You see, when people are handed a menu, their gaze usually follows a specific pattern. First, they look to the middle, then to the top right corner, and finally across to the top left. This creates a triangle: a Golden Triangle!
This is where you want to put the dishes with the highest profit margins, right where the customer’s already looking.
Okay, sneaky sounds a little sinister. It’s really not, I promise you.
Really, all I’m suggesting is employing a little decoy dish, that’s all. This dish is placed towards the top of our menu and it’s priced a bit higher than the rest. The result is that it’s high price makes all of the other dishes look downright reasonable, ever-increasing the likelihood of the customer ordering one of those.
So, if you’ve got any disgusting, overpriced things on your menu (I’m looking at you, black truffles), put them up top and let your customers balk at the cost as they breeze past it, and order food that actually tastes good.
Presenting your new & improved menu
Have you ever seen anything so beautiful in all of your life? (Don’t answer that).
There’s the ‘Golden Triangle’ in play with my higher earners taking up residence in the top corners.
Hopefully, the Granola’s potentially gargantuan profit margins can be realised via the extra attention. The Five Dollar Burger’s sales will be given an extra nudge too which are crucial to making it work.
Most people who order a B&E don’t even look at a menu (believe me, I’ve had many people try to order one in both of the vegetarian joints I’ve worked at), as they already know what they want, so it’s placement hardly even matters.
The Steak Frites will be my decoy dish.
In putting it top & center I’m hoping people breeze past it to order something more profitable, and save us all from the waking nightmare that is ruining a perfectly good steak with black truffles (this is a hill I’m more than willing to die on, I will hear no arguments).
The Panzanella Salad costs an arm & a leg to produce, and probably won’t sell, so I’m hoping that by placing it under our decoy dish, we can at least see an improvement.
What are you waiting for? Go and cost some menus!
And there you have it: a fully-costed, purposefully designed menu.
In no time at all our profit margins will be high, our COGS will be miniscule, and we’ll finally see an end to the worst thing to hit a kitchen since the Thermomix: black truffles.
Our granola might finally sell, (although not as much as the $5 burger) and the iconic B&E will continue it’s reign as King of the menu items. And it’s all thanks to the food cost calculator.
CTA – Plan your menu today with Lightspeed’s food cost calculator
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