Factor in the contribution margin
By Big Dave Ostrander

The average customer spends less than 40 seconds looking over your menu. In that time, the brain kick-starts into overdrive and a purchasing decision is made based on emotion, comfort zone, curiosity and cost.

Some of your menu choices contribute lots more cash to the bottom line than others. Some of your menu items are very popular, as well as profitable. The rest are not.

The trick is to identify which items are winners and which are losers. You may also wonder how you can influence the speed-reading customer to order the most profitable entrees. One thing to bear in mind is this: it is not about selling more pizza — it’s about selling more of the most profitable menu items.

And when you try to identify your most profitable items, here’s another hint: it’s not about the food cost percentage.

I use a system that I call Menu Profit Max. Here’s how the idea works:

Let’s look at your large specialty pizzas. You may offer a Chicken, Taco, Veggie, Margherita, Hawaiian, House Special and my favorite, the Bodacious BLT. You have done the work and have established a Food Cost in percentage and a Food Cost in dollar amount. The cost of ingredients to make the pizza subtracted from the menu price is the ever-important Contribution Margin (CM). These pizzas will typically run between 25-35 percent Food Cost. A few of them will yield higher than average CM ($13-$17 per sale), and some will only yield $7-$11 per pie gross profit. If you were only going to sell a fixed finite amount in an average week’s time, which ones would you like to sell the most of? The high or low CM pizzas?

Let's say my shop sold, hypothetically, 1,000 specialty pies a week. My fliers and menus were redesigned based on historical ordering data from my POS system reports. My new menu design, layout and visual appeal steered my customers to order more of the more profitable pizzas. Twenty cents here, fifty cents there and pretty soon we’re talking thousands of brand-new profit dollars. This procedure is repeated in every category of entrees: appetizers, sandwiches, salads, pasta, beverages and so on.

By renaming, re-pricing, repositioning or removing entrees, your bottom line will balloon with no additional increase of customer counts. This strategy is used by Web-based retailers, airlines, grocery stores and many retail giants. They track the most purchased and profitable items and entice you to order them when you purchase. You only need three pieces of data to make this strategy a reality: menu price, food cost in dollars and the number of times each item was ordered in a month’s time.

Parting thought: 1,000 pizzas times an extra 50 cents CM will add $500 to your bottom line. We haven’t even started on the rest of the menu, like wings and salads. Get started today.

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