How to Increase Profits and Reduce Loss in the Restaurant Business
The restaurant industry can be fickle industry to own and operate a business in. Brand trends, food trends and customer expectations are ever-changing. These factors create unique challenges in restaurant operations.
But beyond the kitchen, the goal of running a business in the restaurant industry is ultimately the same as any other: increase profits and reduce losses. Because of all the other “kitchen chaos,” we are often distracted from the other business Key Performance Indicators (KPIs), such as Return on Investment (ROI). So, in this article we take you back to the restaurant industry specifics, from restaurant-specific KPIs, to food costs and marketing.
Define Your Specific Goals – and Document Them
I know it sounds so simple. And you’re right, saying it is simple, but actually doing it is a whole different story. What KPIs should you measure? How do come up with a tangible goal? Where do you begin?
To establish what your goal will be, start by looking at last year’s profit margins. In industries with consumer purchasing volatility, such as restaurants, make sure to identify specific sales goals for specific seasons, or high and low dates or weeks – such as upcoming Valentine’s Day!
According to this article, 4 of the main KPIs for the restaurant industry that you should always keep track of are: Food costs, kitchen labor, “basket items” (little things, like coffee that you can upsell on) and seating (see our previous post – there’s a section on “Seating” with tips for turning tables faster).
Switch Up Your Marketing
When it comes to cutting costs, it wouldn’t cross your mind to add more costs. But in terms of marketing, a fresh new approach can go a long way and the added cost will end up increasing your profits tremendously in as little as 3 months. Some of the best marketing strategies for increasing restaurant profits include:
• Bring in existing or past customers through a text message discount campaign. Software like Hubspot, and a few others will allow you to send mass texts. This is a particularly good technique for targeting an audience between the ages of 18-35.
• Bring in existing or past customers through an email campaign. Although many think email is an “outdated” marketing strategy, it is still highly effective. Online software such as Mailchimp and Campaign Monitor are easy and affordable ways to send out email to your list of subscribers.
• Social media paid campaigns are also really great for increasing your number of impressions. Customers need to be hit 5-15 times before they will come in or make a purchase. Organic social media posting, along with paid ads will get you at least a few of those impressions!
• In-person brand awareness campaigns. This can be attending an event, such as having a booth at a local food festival, or stocking up your customers with branded items. Many customers don’t like the idea of paying for a t-shirt or hat, so instead opt to send them off with something free and simple. The most affordable and effective way is to have printed custom cups, that feature your business’s logo on it.
Reduce Your Losses – “Trim the Fat”
In the section about goals, we discussed some of the top restaurant Key Performance Indicators to monitor. Two of these KPIs create the largest loss potential for the restaurant and hospitality industry: the cost of food and labor costs. Which ultimately, higher costs mean lower profits.
Labor has always been the biggest line item for restaurants, so bringing in new tools and scheduling platforms to track hours, payroll and schedules is a great start. A couple that we have worked with in the past are OpenTable and HotSchedules.
To help save on food costs, you of course want to reduce food waste. To measure this, you want to measure food purchases against food sales. The best way to do this is to determine the food cost per head. And make sure these measurements are precise, and specific, accounting for individual food items such as cheese and sauce.
If the percentage goes too high, set a trigger that will highlight this expenditure in red. If this happens, you have a few options. Your customers may not like it, but you can remove the item from your menu, increase the menu item’s price, use less of the costly ingredient/s that’s kicking you into the red zone, or find a substitute.
While the restaurant industry can be notoriously challenging, as a business owner, it is always about finding new ways to cut costs and increase profits wherever you can. Staying consistent with small, positive changes can really go a long way in helping your restaurant have its most profitable year to date.