From the course: Running a Profitable Business: Understanding Financial Ratios
McDonald's most profitable items
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- Let me ask you some questions about my favorite place to eat, McDonald's. - I know you're a McDonald's connoisseur. Ask away. - What's the single most expensive item on the McDonald's menu and how much is it? I'm not talking about a meal. I'm talking about a single item. - Well, I imagine that would depend on the country and even the location within the country. But I would say that the most expensive McDonald's item is some sort of fancy sandwich with a price of about five US dollars. - That's a good guess. Various McDonald's sandwiches sell for about $5. These include the famous Double Quarter Pounder with Cheese, the Crispy Chicken Club Sandwich. There also some other items. The Southwest Salad with Grilled Chicken, and your favorite, the 20-piece box of Chicken McNuggets. They all sell for about $5. - Well, that's pretty pricey. - I agree, I myself, try to stick to the Dollar Menu. Now, the financial analysis question is this, are these expensive items the most profitable ones for McDonald's? In other words, if you've got $5 does McDonald's want you to spend it on one single, pricey item or on something else? - Well, probably not on one item. I happen to know that the most profitable McDonald's item in terms of profit percentage are soft drinks and french fries. The profit margin for a soft drink is about 90%. Meaning that if McDonald's sells you a drink for $1, McDonald's makes a profit of 90 cents. - You also mentioned french fries? - Yeah, the profit margin on french fries is somewhere between 75 and 90%. - So if I walk into McDonald's with $5 in my pocket, they don't want me to buy one of those big sandwiches. - No, they would rather have you use that $5 to buy a large order of french fries and a couple of drinks to wash it down. This explains why McDonald's employees always ask you, Would you like a drink or fries with that? Or would you like to super-size your meal? They want you to buy more of the high profit margin items, like fries and soft drinks. - This sounds like an example of financial ratio analysis. The profitability percentage of different menu items. - Exactly. Let's learn about some profitability ratios.
