Menu engineering and pricing for hospitality start-ups

Starting a new restaurant is exciting, but it can also come with operational and financial challenges.

As a new restaurant owner, you need to balance your costs (such as food ingredients, utilities, staff, and rent) with the prices you charge customers to make sure your business stays profitable.

This balancing act can be tricky, especially when you’re just getting started.

Menu engineering can be a helpful tool that can make this process easier.

Understanding which dishes make you the most money, and which ones customers love the most, can help you design a menu that improves profitability.

Menu engineering is a useful method for any hospitality business that serves food, including restaurants, cafés, food trucks, and takeaways.

With rising overheads, staff, and ingredient costs, menu engineering may offer a way to manage these challenges and help your business grow.

Find out how to open a restaurant with our handy guide.

What is menu engineering?

Menu engineering is a way to design your restaurant or café menu to make more money.

It’s like giving your menu a checkup to see which dishes are performing well for your business and which ones are lacking.

The process is simple: You look at each dish on your menu to determine two things: how many people order it and how much profit you make when they do.

With this information, you and your chef can build a menu that customers love while also helping your business succeed.

Two restaurant experts, Michael Kasavana and Donald Smith, came up with this idea in the 1980s.

They combined three important things:

• psychology – understanding why customers choose certain dishes
• data analysis – tracking which items sell well and make good profits
• design – using layout, colours, and fonts to draw attention to specific menu items

The way your menu looks matters too. 

The right design can guide customers' eyes to dishes you want them to notice, influencing what they ultimately decide to order.

Read the essential guide to opening a cafe or coffee shop.

What are the benefits of menu engineering?

Menu engineering could help your start-up in several practical ways, including:

• increased profits – by putting your most profitable dishes in the spotlight, you could boost your overall earnings without raising all your prices.
• reduced waste – when you know which dishes aren’t selling well, you can order fewer of those ingredients or remove those items completely, potentially cutting down on wasted food.
• better customer experience – a well-designed menu may make it easier for customers to find what they want, improving their experience
• improved marketing – highlighting popular and profitable dishes could lead to more effective promotions and increased sales
• enhanced brand image – a carefully designed menu might better reflect your business’s branding and attract more customers
• adaptability – by regularly analysing menu performance, you can quickly adapt to changing food trends and customer preferences.

You can see examples of successful menu engineering on almost every UK high street.

Menu engineering could limit menu variety, so consider keeping your menu fresh by introducing new items and staying ahead of trends.

How to menu engineer – a step-by-step guide for start-ups

New to menu engineering? Here’s how to get started in simple steps:

1. Collect data

First, you may want to start by tracking sales data – how many times each dish is ordered – along with ingredient costs and food waste for each menu item.

Collecting this information in a simple spreadsheet could help you see which items are popular and which are underperforming.

For example, if a dish costs a lot to make but is rarely ordered, this might indicate that your menu needs some adjustments.

At this stage, you might consider the costs associated with each dish and how they compare to its sales.

2. Analyse menu performance

Next, you could analyse all the data you collected to identify your bestsellers, high-margin items, and underperformers.

Some items might be popular but not very profitable, while others might make good money but don’t sell as well as you’d like.

Calculating how each dish affects your profits could make it easier for you to redesign your menu.

3. Sort your dishes into groups

As part of menu engineering, you could group your menu items using the ‘Stars, Plowhorses, Puzzles, Dogs’ method created by Kasavana and Smith.

Here’s how it works:

• stars – popular and profitable items
• plowhorses – popular but less profitable
• puzzles – profitable but not ordered often
• dogs – neither popular nor profitable.

Once sorted, you can make plans for each group – like removing ‘dogs’ or finding ways to make ‘puzzles’ more appealing.

4. Redesign the menu

The next step is to rework your menu using design elements and wording to give profitable dishes maximum visibility.

You might place smaller, popular choices next to more profitable options to encourage customers to buy them.

Highlighting certain options – placing them within borders, using colours, or using special wording – could help them stand out.

5. Adjust pricing

Once you have redesigned your menu, you may need to review and set new prices.

Consider factors such as the cost of making each dish, what customers expect to pay, and what your competitors are charging.

It may also help to make sure your prices reflect the quality of your food and match the expectations of your target market.

Read about the pros and cons of raising your prices.

6. Reduce waste

The UK hospitality industry generates an estimated 1.1 million tonnes of food waste annually.

This is not only wasted food, but also wasted money.

To help reduce food and cost waste, you could promote dishes that use surplus ingredients, adjust portion sizes to minimise waste, and streamline your menu.

Offering variety while reducing waste may take some trial and error to find the best approach for your business.

7. Keep improving

You may need to review and update your menu regularly to keep your hospitality start-up successful.

Checking sales figures, business costs, and customer feedback could help you make changes so your menu stays relevant and profitable.

You could also ask your staff for insights, as they may often handle customer questions and know which items are popular.

By making improvements over time, you could attract more customers.

Balancing quality and affordability

Maintaining food quality while controlling costs could be essential for any successful hospitality business.
There are steps you could take to help achieve this balance.

Sourcing ingredients from local suppliers may reduce transport costs and improve freshness.

Using seasonal ingredients, which may be more affordable in certain cases, could also make dishes more appealing to customers.

Learn more with our guide to finding green suppliers.

Buying in bulk could help you save money without lowering quality.

You might also attract customers by offering combo deals or specials – including high-margin items could help you maintain profitability.

Clearly communicating the value and quality of these deals in your marketing may also help to encourage more sales.

Plus, regularly reviewing recipes and portion sizes could help control costs while still satisfying your customers.

Discover how to measure customer satisfaction.

Menu pricing strategies

There are different pricing strategies that your start-up could use to improve menu performance and profitability.

Psychological pricing

Using techniques that influence your customer’s perception of cost is known as psychological pricing.

This can include 'charm' pricing, using prices ending in .99p or .95p to make items seem more affordable.

Price anchoring is another technique to consider using. It involves placing an expensive dish next to more moderately priced options on the menu, making them seem to be a better value.

Bundling

Bundling means offering a set of items together at a lower price than if bought individually.

This could encourage your customers to buy more, possibly leading to a higher average transaction value and improved customer satisfaction.

Upselling and cross-selling

Upselling involves guiding customers toward choosing a more expensive version of a dish they are considering, such as a larger portion or an option using more premium ingredients.

Cross-selling means suggesting additional complementary items, like pairing a meal with a drink or dessert.

One example of this could be on a brunch menu, where a drink is offered at a discounted price if ordered with one of several dishes.

Avoiding the 'race to the bottom' on price

Depending on your business strategy, it may be important to avoid lowering your prices just to compete with other businesses in your market, as this could reduce profit margins and even damage your brand’s value.

Instead, you might consider offering excellent value and quality – this could set your business apart and maintain profits without sacrificing standards.

Discover 13 business ideas in the hospitality industry.

Menu engineering could be a vital tool for your hospitality start-up – using a thoughtful menu strategy could help you boost your start-up's appeal and efficiency while remaining competitive.