Once you have a fully costed menu there are various next steps that you can take to build on the value that this process provides for your business but I think it’s worth taking a pause to look at this menu you have created and seeing what immediate steps you can take.
If you haven’t costed your menu yet then it might be worth revisiting my last post – ‘How to cost a cafe menu‘
Pricing Your Menu
I am a big believer in charging the highest price that you can for the quality of product and experience you offer in your location. Price, quality and experience come together to deliver value to your guests. The ability to offer your guests great value on a consistent basis whilst making a profit is the recipe for success irrespective of what field your business is in. Prices will vary across the country/world but assessing value is as valid for places at the top of of the market as it is for the lower end.
One thing to bear in mind is trying to make sure all elements of pricing are consistent and that your strategy makes sense for your venue.
If you have a small venue, with limited foot traffic, you will be relying on the seating you have available. You are likely to have a high occupancy (your seats are in use for a large percentage of the day) so with this in mind you want to maximise the revenue for each seat and one way to achieve this is through a higher pricing strategy. If you lose a little volume as a result of higher prices then so be it. There are other levers that can be used in conjunction with this for example increasing your efficiency so that wait times are reduced to the minimum achievable level.
The opposite is also true. If you have plenty of seating and/or lots of takeaway trade you may be willing to trade some margin to try and increase your volume (lower your prices to make more sales). Of course with this strategy you need to bear in mind that increased volume has the potential to increase your fixed and staff costs.
If you play this out to its fullest extent you reach the idea of dynamic pricing. i.e. varying prices according to the level of demand at ay given time. The theory being you could charge higher prices early in the morning or over the busy lunch period, and then lower prices during quieter times. The application of dynamic pricing for hospitality is something that really interests me, and I have experimented with it in the past at our former restaurant Norse. I wrote a blog about it here. In reality most of us do a slightly less ‘pure’ version of dynamic pricing by creating offers at different times of the day that are designed to drive people through our doors. A truly dynamic pricing strategy for a cafe is very difficult to deliver and would take a lot of explaining to guests – I don’t think the market is ready for that at all!
%Margin vs Cash Margin
It is really important to distinguish between the % Margin or ‘GP’ and the cash margin that each dish delivers. It’s easy to become obsessed by hitting a certain percentage target – but certainly for some more expensive dishes this is likely to be counter productive and hit sales volumes.
An example is below:
Poached Eggs on Toast is a high margin dish that is likely to deliver on your % Margin target. When you look at Eggs Royale it has a weaker % margin but delivers a significantly better Cash Margin. If you were to list the Eggs Royale for sale at the same % Margin as Poached Eggs on Toast it would be priced at £12 and would be unlikely to sell well given the comparative difference in price between two reasonably similar dishes. So, my advice here is to accept that lower % Margin for a greater Cash Margin (and probably increase the price to £9.95 because that 45p increase will make no difference to the guest’s decision!).
If you look at the spreadsheet above it is also worth looking at toast as a product. It is below the % Margin target, delivers a small cash margin and requires preparation in the kitchen. Every guest can make toast at home and therefore there is a preconceived limit in their mind in terms of what they are prepared to pay. All in all it’s a pretty terrible product and yet most of us have it on our menus anyway!
KitchenCut (which I mentioned in the last post) has the ability to analyse your sales and will also classify your products in terms similar to the Boston Consulting Group’s product matrix. Here is a rough example of how that looks:
Sales Volume and Contribution to Sales
Space on your menu is valuable and there is no space for items that do not sell well – you should always be looking to make changes to remedy this.
In order to know what your valuable dishes are you’ll need to interrogate your POS system and add some columns to your spreadsheet. You should add a ‘No. of Sales’ column which will then allow you to calculate ‘Cash Contribution’ (No. of Sales x Cash Margin).
Now you can calculate a % contribution across the entire menu by dividing each items’ ‘Cash Contribution’ by the total of the takings for the period you are examining.
I would say it’s more useful to split the menu into categories and compare breakfast dishes or hot drinks within their categories. To do this divide the ‘Cash Contribution’ for an item by the Total Contribution for its category.
You may be surprised to find out what your biggest contributors are.
If you are reading this prior to opening a cafe/coffee shop having extra items on your menu, that guests can add to their dishes, is something you should be looking to include from the start. I recommend this for no other reason that if you don’t have the ability to add extra items guests are guaranteed to ask for them anyway and at that point it becomes awkward to deal with the cost at the till. Anyone that is already open has probably already added these to increase speed at the till and standardise pricing across staff.
We have most of the main options for many of our dishes available as extras and it can add a significant boost to the value of sales.
Changing Dishes to Improve Margins
Now that you have a fully costed menu you should be designing all new dishes to work within your GP targets, but you could well have a reasonable number of dishes that may also be guest favourites that now need some tweaking.
One option is to go with a price rise and that may increase your margin to an acceptable level.
Some dishes will just need to be looked at again and altered. You could decide to serve smaller portion sizes (to increase number of portions at the same cost) or perhaps add an element that allows you to reduce the amount of an expensive item i.e. Prawn sandwich becomes Prawn and Egg. Cuts of meat can be switched for more economical versions.
Keep in mind as you consider dish changes that the idea isn’t to screw the guest, taste and texture need to remain high on the agenda.
One example we have changed in the past is mushrooms. We used to serve pickled girolles with a chicken sandwich, we swapped the girolles out for button mushrooms at a large saving. It hasn’t affected sales or guest perception and we’re regularly complimented on that element of the dish.
Add-on sales are any nice little extra you can tack onto another sale to up that spend and earn a little more profit. Perhaps the most obvious options here are baked items to takeaway and retail coffee. Other ideas would be merchandise, your own ranges of products made in your location and anything else you feel your guests would enjoy.
The best book I’ve read on the subject of retail coffee sales is Colin Harmon’s ‘What I Know About Running Coffee Shops’ and I would thoroughly recommend that title for a whole range of information on running coffee shops/cafes. I intend to write a blog about our recent experience in offering retail coffee shortly so I won’t go into any further detail here.
Some way into writing this post I found this resource online, which actually does a great job of explaining much of what I’ve written above and also gives additional detail. It’s an American resource so some of the terms are slightly different, but it’s a very useful reference.
There is so much more that has been written about engineering a menu, including the psychology of choice and how menus could/should be laid out to drive certain behaviours. Here is one blog with some relatively simple pointers, but there is lots of information available.