Restaurant Management Tips:
Sell The Big Contributors

Are you concerned about the average check? How about the food cost percentage? Did you know that neither of these items is the most effective measure of where money is hidden on your menu? It’s true. Of course, the average check is important. And the food cost percent is a fair measure of your efficiency, but neither one of these items REALLY contributes to your bottom line.

No, what you are looking for is contribution margin. Contribution margin is the difference between selling price and variable costs. You know what the selling price is for each item. It is on the menu. And, the variable costs are easy to calculate. They are the food costs, and to some degree, some labor costs, that make each item saleable. You are looking for the items with the largest contribution margins. That is what you want to sell.

Let's take a simple example. Suppose your restaurant only has three menu items. They are listed below, with their selling prices and variable costs.

In the simple analysis above, we see that the item with the highest contribution margin is actually the chicken. But, which item would your WAITER rather sell? The one that gives the highest check average, of course. This will give him/her a better tip. So, it is possible that the most advantageous item for the house is not the one the waiter will push.

Contribution margin falls right to the bottom line. It is one of the MOST important places where money is hidden in a restaurant. It is important for two reasons. First, there is a lot of money hidden in those items! Second, and perhaps more importantly, understanding contribution margin analysis is fundamental to managing a restaurant profitably.

How can you successfully use contribution margin information to uncover hidden money? The first step is to actually DETERMINE what the information is, by conducting a sales mix analysis.

Create a spreadsheet, either by hand or on a computer. (Actually, the table above is a spreadsheet.) On the spreadsheet, list all the items you serve, including desserts and appetizers. To the right of each item, list its selling price, cost, and contribution margin per item. Also list the number sold each week, (get this information from the guest checks), and the total contribution margin per item, (multiply the contribution margin for that item by the number sold). If we used the chart above, it may look something like this:

In this simple sales mix analysis, the restaurant sold 230 dinners for a total of $1,700 in contribution margin. That is an average contribution margin of $7.39 per person.

Yes, I understand that your sales mix analysis will be vastly more complicated. But, can you see the money hidden here? Once you establish your average contribution margin, you can IMMEDIATELY set about raising it. There are two strategies:

1. Sell each person more "extras". This will raise the average contribution, and if you have good stuff, make your customers happier.
2. Change the sales mix. Train your waiters to SELL THE BIG CONTRIBUTORS!
   
   

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