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Product Management - Part II
By Rick Braa, CHAE Published: 08/17/2010
What would you rather take to the bank, dollars or percentages? Deposit dollars and the more of them the better. The most misunderstood product cost number is its percentage. Managing product cost percentage is often at the expense of profitability. Managers are encouraged to run great product cost percentages but few are rewarded for running great gross profit. For example, assume other costs are constant, a pasta dish sells for $15 and costs 15%, gross profit is $12.75. Great product cost percentage. Sell a steak for $28 that costs 50%, gross profit is $14.00. Ugly product cost percentage but $14.00 is always better $12.75 in gross profit. Don’t start throwing steaks on your menu but do take gross profit into account. Analyze every menu item including beverages. The idea is to sell the best margin items and/or the desired menu mix to properly reflect your brand/value perception in the mind of your guest. Follow these steps:
1. Set product specifications (builds consistency in product management)
2. Build standardized recipes (test for compliance regularly)
3. Cost out recipes
4. Line up costs of recipes against selling prices
5. Compute gross profit (selling price minus cost)
6. Record the volume sold of each item against gross profit
7. Find the most and least popular and profitable items and engineer
8. Coach your team what to sell and they will coach your guests what to buy, this must come from a place of caring not greed
Analytically, the mistake would be to assume a problem in product cost when in all actuality more money is hitting the bottom line. It is important to have the right information. Managing menu profitability has the highest potential to increase the bottom line of all product management activities. It is not uncommon to add thousands of dollars to the bottom line annually in a short time through menu profitability management and effective coaching. Reach me for assistance at 206.465.1010 or rbraa@braaconsulting.com.
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