How do your staff know what to promote? Is it just left to chance, or do you brief them to ensure they focus on the items that make you the most profit? It sounds obvious, but unless you know at any one time how much profit margin you make on each sale, how do you or yor team decide which items to promote?
Here are some of the actions you can take to ensure you know your most profitable items – opposed to your most popular ones. This way you can ensure you are doing everything to promote the right products and services, and playing down your loss leaders. Making you the margin you deserve.
When applied to your menu this process is termed ‘Menu Engineering’. But why limit it to you menu? Apply this tool to any of your offers to wheedle out your poor performers, and ensure you are focusing your resources and energy on the items that make you the biggest margin in all parts of your hotel or restaurant.
There are three stages to determining your most profitable items.
1. The first stage is to identify your profit contributions
2. The second to analyse the popularity or demand
3. And the third to assess your focus of attention
Stage one ~ Margin contribution
Whilst we often focus on a percentage margin (or in the case of menu items we tend to refer to a food costs percentage), it’s actually more useful to look at the margin contribution in monetary terms. For example:
Your Pea and Broad Bean Risotto costs £1.20 per portion to produce and you sell it for £6.00 (excluding VAT), so your food cost is 20%, and your gross margin is 80%. So this appears to be a healthy margin and on the face of it would be a good dish to promote.
Now, on the face of it you’ll want to sell more of the risotto because the margin is higher. However if we think about this in monetary terms, for every risotto you sell you make a £4.80 gross profit, yet for every seabass you sell you make a profit of £9.00. Doesn’t it therefore make sense to be selling more seabass than risotto? Well of course it does; that’s why we need to look beyond the margin percentage.
In order to identify the true contribution of each item or service we need to look at its popularity or demand; in other words how many of these do we sell.
Stage Three ~ Assessing your focus of attention
Using an adaptation of the ‘Boston matrix’ we can now attribute each of your menu items to one of four categories.
A. High contrbution value and popular (Achievers) ~ Thai Seabass
B. Low contribution but popular (Backbone) ~ Venison Sausage and Mash
C. High contribution value but not popular (Challenge) ~ Lamb and Apricot Pie
D. Low contribution and is not so popular (Duds) ~ Pea and Broadbean Risotto
Your challenge with these is how to change them to make them popular, but without compromising the profit margin. Is it the wording on the menu, the perception of value for money, or the dish itself that needs some attention? Maybe your merchandising lets it down, or your staff do little to promote it. Analyse what you can do differently, then test the results.
Clearly not everything will always slot quite so neatly into one of these four categories, but at least it will give you a start of where to focus to revise your offer to help you weed out your poor performers and achieve the best profit margin over all.
The examples given here are for your menu, but exactly the same principles can be applied to any aspect of your operation – so review your bar, spa, conference packages, room tariff, inclusive deals – anything where you can influence the component parts, the cost price or the selling price. And drop the ‘dud’ items so you can concentrate your energies on your top performers your ‘achievers’.