How to Increase the Profitability of Your Restaurant
The Ultimate Guide to Restaurant Profits
How to make your restaurant more profitable.
Essential Tips for increasing the profitability of your restaurant.
As an owner-operator, your restaurant likely sits at the center of your life. It's not only your business and your livelihood— it's also your dream.
Unfortunately, if your restaurant is typical, your profit margins are exceedingly narrow. According to a recent Forbes article, sit-down restaurants make a profit of about 6%. While 6% is actually a high-water mark for this industry in recent years, it's still considered low by most investment standards. Most mutual funds, for example, yield at least a 10% return, your money does all of the work for you!
So, why do it? Why run a restaurant at all? Well, the only reasonable answer can be that you love it. Either that or you're a sociopath.
In any case, if you're going to be there 10/15/18 hours a day, you might as well extract as much value as possible.
Fortunately, driving more restaurant sales isn't particularly difficult. In fact, the basic formula for more profits is universal, regardless of the business you're in. The key is to reduce your costs and increase your sales. This means spending less money on your business and getting more customers to spend more money at your business. Profits equal revenue minus costs.
Below, you'll find a series of actionable tips, tricks, and strategies you can employ today to do exactly that!
How to Reduce Costs
1. Get Organized
The most profitable restaurants run their businesses with diligent attention to detail. Use purchase orders. Conduct daily inventories. Inspect deliveries for accuracy. Create weekly profit and loss reports, etc. The more information you have, the easier it will be for you to identify opportunities for optimization.
2. Spend Less Money on Food
Restaurantrepreneurs who are serious about increasing their profits must conduct a complete supply-chain audit. You've simply got to know how much your ingredients cost and whether it may be possible to make the same delectable dishes for less money.
Once you have a sense of where your money is going, it's time to turn to your suppliers. First, ask them for a discount. If they can't offer a straight discount, consider restructuring your order to optimize costs. This may include delivering bulk orders less frequently and/or slightly reducing the quality of your ingredients.
By the way, even if your suppliers come down on their prices a bit, it's still a good idea to shop around for less expensive alternatives, such a purchasing directly from a local farm, bakery, or co-op.
3. Reduce Food Waste
Once you have reduced the costs of your ingredients, it's time to ensure that almost none of it goes into the trash. Reducing food waste throughout your operation can have a massive impact on your profits.
In the kitchen, develop a laser-focus on food waste. Insist that your chefs and prep team measure or weigh all of their ingredients. Create a culture in which food waste is unacceptable.
One manager we spoke with occasionally removes the trash cans from his kitchen and replaces them with food scrap boxes, labeled with each employee's name. At the end of the shift, the manager would then inspect the contents of the food box. If he saw good, usable product, the manager would provide some instant training.
Similarly, make sure your recipes are optimized to use 100% of the food. For example, have a plan for those carrot stems. Don't just throw them away.
If you offer complimentary appetizers such as bread or chip, train your servers to ask customers whether they would like one prior to bringing it to the table.
And finally, once main dishes go out to the customers, pay attention to how much is getting eaten. If customers frequently leave a few bites of leftovers at the end of the meal, consider reducing the portion size by 5-10%. This change should be subtle enough so as not to offend your regulars.
4. Decrease Overhead
Once you have reduced food costs and waste, you should investigate the costs associated with running your business and paying your employees.
Let's face it, paying your people is expensive and they'll likely mutiny if you try to implement sweeping salary cuts. As an alternative, find ways to get fewer employees to do more work. For example, have your servers and bartenders clean up at the end of the night as opposed to bringing in a separate cleaner.
Stay mindful of your equipment. If you need to purchase additional equipment buy used instead.
Another piece of advice: make sure silverware isn't getting thrown away. If you run a nice restaurant, it's easy for forks and knives to slip into the cloth napkins. Be careful!
If all else fails, consider shifting your restaurant to a fast-casual model, as many have started to do in San Francisco.
5. Prevent Theft
Unfortunately, your employees or your suppliers may help themselves to your inventory in all sorts of ways. Make sure that alcohol is locked up at night, install video cameras throughout your business, limit access to your storage closets, and ensure that only one person can access a cash drawer.
6. Reduce Energy Costs
There are many steps you can take to reduce your energy costs. Start by turning off unneeded burners, fryers, or ovens during off-peak hours. Set your thermostat a tick hotter in the summer and a tick cooler in the winter. If you're feeling ambitious, consider installing motion sensor lights in hallways, storage closets, and restrooms. If you own your building, upgrade your windows and/or invest in solar panels.
How to Increase Revenue
Once you've reduced the costs of your ingredients and decreased your overhead, it's time to turn to your sales. A restaurant's revenue is determined by (a) its number of customers and (b) each customer's average spend.
The former is usually handled outside of the restaurant, in the form of marketing and promotions. The latter involves tweaking your menu or other items on offer. We'll go over how to do both below.
Win the Internet
The first step to growing your customer-base is to make it easy for them to find you. These days, that means investing in an online presence.
Here's how to get your digital house in order:
1. Create a website
Your website should reflect the experience of your customers while they're dining in your restaurant. In other words, an upscale restaurant should have an upscale website. A sports bar should look and feel entirely different. At a minimum, your site should have your menu, prices, location, hours, and some photos of your food. You may wish to also offer delivery, take reservations, and/or sell merchandise.
2. Get listed on business sites
Your customers are already reviewing your restaurant across sites such as Yelp, Foursquare, Restavista, and Google so make sure that you claim those pages and populate them with accurate information about your restaurant — again, including menu items and photos.
3. Take social media seriously
The majority of your customers will do at least a little online research before coming into your restaurant. Thus, it's imperative to think about how your restaurant looks beyond your website and across the social media landscape. At minimum, create an account on Facebook and Instagram that you frequently update and make sure your dishes are sufficiently photogenic for the Snapchat generation. For example, train every barista at your coffee shop in latte art so that your customers will snap a photo and tag your business.
4. Leverage Email Marketing
Proactively collect customer emails so you can send them special birthday discounts or exclusive invitations to special events. This can be done using a simple clipboard at the front desk or via a little card that you give to customers with their check.
Turn your restaurant into a "destination"
Keeping those tables full is an ongoing process that takes creativity and persistence. Remember, your restaurant is more than your food. It is also the experience you provide to your community.
1. Offer a happy hour
The slowest time of the day is perfect to offer discounted drinks or apps.
2. Offer free wifi
Free wifi removes some of the stigma of dining alone and can bring more students or worker bees into your venue.
3. Host special events
Events, when properly promoted at least a month in advance, can bring lots of additional customers to your restaurant on that special day. Consider hosting a Superbowl party, a wine tasting, a free class, or a movie night. When properly promoted, even a live band can bring in more customers.
4. Partner with Local Businesses
For example, hold a 4th of July barbecue with a few other restaurants on your block or cater a local business lunch every Friday. One owner we spoke with caters regular meals at architectural firms. These "lunch-and-learns" are paid for by materials suppliers (think granite or siding) to encourage architects to use their materials in their designs.
Create New Revenue Streams
Once you start driving more and more customers to your shop, make sure you make it easy for them to spend their money. For example:
1. Train your staff to "ABU" — Always Be Upselling
If you run a coffee shop, ensure that baristas are giving every customer a chance to buy a muffin or scone. For more upscale joints, make sure your servers can deftly move your customers from the $8 house wine to the $12 upgrade.
2. Host Parties
If your restaurant can accommodate it, have packages in place for birthdays, weddings, and/or corporate holiday parties. Whether offering a buffet or charging by the plate, make sure to keep the pricing and menu simple. If you are going this route, we recommend you invest in some promotional materials like flyers or a website link that you can easily distribute.
3. Sell Merchandise
If you have a strong brand and/or lots of customer loyalty, consider selling merchandise. Merchandise can be as simple as a gift certificate or as complex as, say, a passport that incentivizes your customers to try all 25 of your beers on tap. Get creative with this and give your loyal customers fun excuses to spend more of their money at your venue. Hats, Recipe books, scavenger hunts. The sky's the limit!
So there you have it. Lots and lots of strategies for making your restaurant more profitable and optimizing its operations.
Despite these tips, it's worth noting that the most important thing you can do for your venue is to serve damn-good food.
Regardless of whether you serve fast-casual on a college campus or Michelin-rated cuisine in the heart of Paris, every restaurantrepreneur must make a commitment to excellence.
Layer those flavors and blow people away, regardless of your price point. At the end of the day, it is your food and the experience you provide your customers that will drive the growth of your business.
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