You’ve written your new menu, and it’s spectacular. You can feel it. There’s just something about this time that’s right.
You’ve managed to encompass the great Australian plate into one, compact menu, and it’s glorious.
But there’s something you’re missing.
I’m not talking about the flavours, you already know they’re fine. I’m talking about some more important, but often overlooked metrics; the COGS.
Either way, it’s a good idea to work out your COGS, and using a food cost calculator is a great place to start.
And, wouldn’t you know it, Lightspeed just so happens to have a very good food cost calculator for you, absolutely free. Seriously, it’s right here. Click it.
Using this very good tool, we can take a look at how to fully utilise it, focussing in these areas:
- The menu
- Toggling between markup percentage & profit margin
- COGS & profit margins of other dishes
- Menu engineering
- Menu psychology & influencing the customers
- The finished menu
Let’s start with a menu
Did you click it? Good.
Now that we’re all in there, let’s have a deeper look at how the food cost calculator works, what information it tells you, and how you can apply it to your menu to boost your profit margins.
Firsty, let’s get a menu. Here’s one I prepared earlier.
It was always my dream to serve a compact menu that spans the breakfast and lunch tastes of the Australian public and, I feel like this menu covers the entire spectrum quite nicely.
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 pick a couple of dishes, and cost them out.
Bacon & egg roll
Let’s start with a breakfast mainstay; the bacon & egg roll.
Not many dishes are as universally liked as 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 far and wide, so it makes sense to see how much of a profit you can make on them.
The best way to price a dish is by weight. Most ingredients are sold by weight, and the beauty of the metric system means the numbers line up really nicely.
Bacon costs around $12 per kilo, which amounts to about 45 slices. For our B&E, we’re going to use 2 slices, because you’re worth it.
So, in the food cost calculator, we’re going to click + Add ingredient, to get started.
Next, we’ll enter all of the information about our first ingredient, bacon.
Fill in the rest of the ingredients following the same method, and you’ll have the total COGS of your B&E in no time.
Now’s the important part.
Toggle between markup percentage and desired profit margin
The food cost calculator has the ability to toggle not only the markup percentage, but also your desired profit margin, and your recommended menu price. Depending on which metric you want to employ, the others will automatically adjust, giving you the whole picture.
So, if we want to adjust by markup percentage, we just adjust that to our desired markup, and that will tell us both how much of a profit margin we’ll make from each dish sold, and how much we should charge for it on our menu.
Applying the average profit margin of 2% (really? It’s that low?), gives us the criminally low profit margin of 5 cents, and a recommended menu price of just $2.80.
Please, don’t do this, for the obvious reason that you can charge a lot more for a bacon & egg roll. I know it, you know it, everybody knows it.
So, now that we’ve got the whole calculating-menu-prices-via-markup-percentage thing out of the way, let’s get onto the more useful stuff.
Adjusting ‘recommended menu price’
For something as fundamental to the Australian cafe menu as a bacon & egg roll, it’s fairly safe to price it based on what other cafes are charging, usually between $8-12.
If we meet in the middle of those prices at $10, you can start to see why this is such a popular dish.
For starters, your markup percentage is over a hundred times higher than the industry average. That means that instead of taking home just 5 cents per roll sold, you pocket a cool $7.25. Not too shabby at all, considering you’re still charging a reasonable amount, meaning that customers will still buy it.
But what about the COGs and profit margins of other dishes?
If we do the same for a dish where the ingredients cost a little more than the iconic bacon & egg roll’s, the Steak Frites, we can see how knowing your profit margin, and markup percentage is helpful.
To make a profit margin approaching that of the bacon & egg roll, we’d have to charge at least $40 per serve which, as good as steak frites is, it’s a little steep for the average consumer to be paying regularly for a lunch.
Let’s do some menu engineering
There’s a couple of tactics that you can employ when writing out your menu.
Firstly, you can use the information gathered via the food cost calculator to decide which items to push and promote (the Bacon & Egg Roll), and which items to kick to the curb.
This is often referred to as menu engineering, and it involves analysing your menu’s COGS with tools like the food cost calculator, and categorising them into one of four groups:
- The plough horse
- The star
- The dog
- The puzzle
The plough horse: low profitability, high transactions
A plough horse is a dish with low profitability, but a high transaction count. On my menu, that would be the $5 Burger.
Using the food cost calculator, you can see, whilst I’d still be making a profit on each one sold, the $5 Burger’s profit margin is much lower than the rest of my menu, with a markup of only 24.83%, and a profit margin of only 99 cents.
The plus side of having such an item on the menu is that at a price of $5, the probability of this selling is greatly increased, meaning that I can make up for any lost profits via sheer volume of sales.
The star: high profit, high transaction
A star would be a menu item with a high profit margin, and a high transaction count. On my menu, this is clearly the Bacon & Egg Roll.
We’ve already established it’s insane markup of 264%, with a profit margin of $7.25, but it’s such a popular menu item, made for a relatively low cost, that it is the undoubted star of the menu. This would be the dish that you would promote to further drive sales, and keep raking in all of those profits.
The dog: low profit, low transaction
The dog would be the menu item that doesn’t sell, and it costs you a relative fortune to produce. This would be the Panzanella salad.
With it’s high COGS, and equally high price tag, this item costs more to produce than most menu items, and doesn’t really sell much.
The puzzle: high profit, low transaction
The puzzle would be the granola.
With a COGS of only $1.36, and a markup percentage of a whopping 633%, that would give us a profit margin of $8.64 per sale.
But that’s the problem, it’s not selling.
Puzzle dishes are the ones that make you pull your hair out as you try and figure out why they’re not shifting. The price is reasonable, the product is top quality, but the people just don’t seem interested.
Menu psychology, how can we influence what customers will order?
There’s a lot of psychology that goes into the layout of a menu. And this psychology can influence what a person does, or doesn’t order, depending on how you lay your menu out.
Removing currency from your prices
For instance, taking away the dollar symbol from your prices can take the emphasis away from money, which can result in the customer spending more than they intended to.
The Golden Triangle
Equally, the positioning of a menu item on your menu is important. There’s an area on a menu that has been labelled ‘The Golden Triangle’. Now, 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 of first, looking to the middle, then to the top right corner, and finally across to the top left, creating a triangle.
It’s here where you want to put your dishes with the highest profit margins.
Another good tool to employ is the decoy dish. This is a dish placed towards the top of a menu that is priced higher than the rest. The goal is that all of the other dishes will look like a better deal in comparison, leading the customer towards ordering them.
So, if you’ve got any unappealing, over-priced dishes (I’m looking at you, black truffles), chuck ‘em near the top and let your customers breeze past it, and order food that actually tastes good.
So, how’s the menu look?
As you can see, I have my ‘Golden Triangle’ in play with 2 of my higher earners taking up the corners.
Hopefully, the Granola’s huge profit margin can be realised through the extra attention, and the Five Dollar Burger’s position (not to mention low price) will drive more sales which are crucial to making it work.
The Bacon & Egg Roll will sell regardless. From experience, most people who order it 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.
The Steak Frites will be my decoy dish. It’s high price will (hopefully) see people breeze past it to order something more profitable, and save them from the bad experience 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 too much to produce, and doesn’t sell, so I’m hoping that by placing it under my decoy dish, I can at least see an improvement. Otherwise, I can remove it, and replace it with something more profitable.
Go forth, and start costing your menus!
So, there it is, a fully costed, purposefully laid out menu.
Soon, my profit margins will be high, my COGS will be low, and I’ll have done my part in the war against black truffles!
My granola will finally sell, perhaps 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 all started with the food cost calculator.