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Increasing Restaurant Profits

Increasing Restaurant Profits1. Reduce Food Costs With A Descending Dollar Report

A Descending Dollar Report is a fancy way of saying “Find the 10 food items you spend the most money on every month.”  Once you know what those 10 items are, start looking for ways to cut your costs on each one.

Talk to your distributors and see if you can find a similar or even better product that’s less expensive.  Also don’t be afraid to pursue other distributors to find ones that are willing to bring you quality product at a better price.

If you have the capacity to store items in bulk, do so at every opportunity.  If you don’t, seriously consider investing in bulk storage so you can take advantage of available discounts.

Employ a detailed inventory system so you can make as many bulk purchases as possible while avoiding spoilage.  No matter what, use your buying power to find the best deal possible.  More than likely, food is one of your business’ biggest expenses, and saving even a few cents per pound you buy can translate into significant savings.

2. Train Employees to Make You Money

Your employees are your biggest expense.  They should also be your biggest asset.  Let’s face it: your staff is the face and the soul of your restaurant or commercial kitchen.  That’s why it’s important to give them the tools they need to make them your biggest money maker.  The key to accomplishing this is good training.  Set down standard training procedures for all new employees and carry out regular ongoing training for existing employees.

Follow up this training with regular performance reviews.  However, be careful to avoid making a performance review a litany of problems with the employee that need to be addressed.  Rather, turn a review into a conversation that empowers your staff to offer suggestions on how to improve your business.  More often than not, performance problems stem from training and management problems than employees themselves.  If an Increasing Restaurant Profitsemployee is truly underperforming, set clear parameters for your expectations of improvement, and don’t be afraid to terminate if those goals are not met.

Take employee suggestions and cycle back through your training and operations guidelines.  Modify and improve them so that problems are addressed.  The most effective training is an ongoing process that corrects past mistakes and always strives to be better.

So why does this increase your profits?  Because well trained employees result in happy customers who tend to spend more than the ticket average.  Well trained servers and bartenders know how to upsell menu items or well drinks.  Hosts double as bussers during busy shifts to make sure tables can be turned quickly.  Head waiters double as hosts to make sure customers get seated.  And so on.

Cross-training is another important element of this equation, as the examples above indicate.  The larger the variety of tasks each of your employees can perform in your restaurant, the more flexible and capable your staff will be.

Finally, set the example of a model employee yourself.  If the head waiter sees you bussing a table, she will realize she’s not above that task either.  Maintain a fun, positive work environment that rewards hard work and honestly confronts problems.  And instill a culture of “customer first” so that every guest walks away happy.

3. Use Incentives to Make Employees Stay Longer and Work Harder

Now that you’ve spent all that time training employees to maximize your profits, it’s time to focus on employee retention.  The longer employees work for you, the more efficient they become, which means more profits for you, so use some incentives to keep staff happy and motivated to come to work every day.

There are many ways to incentivize employees to work harder and reward high performance.  Here are a few ideas:

  • Track sales for bar and wait staff and reward top monthly sellers with a bonus
  • Set ticket time goals for kitchen staff and reward them when they meet those goals for an entire shift
  • Share a percentage of profits with tenured employees
  • Implement a rewards program for employees who go above and beyond the call of duty

No matter how you decide to incentivize employees, the goal is always to reduce hiring and training costs and maximize employee performance and efficiency.  In the long run, this is going to translate into more profits for you and your business.

4. Do-It-Yourself Equipment Repairs

Restaurant equipment is the vital cog in the wheel of any business in the food service industry.  You rely on everything from refrigerators to gas ranges to bar blenders to floor mixers to prepare and serve your product every day.  When a piece of restaurant equipment goes down, more than likely your bottom line is going to be affected, not only in repair costs but in lost revenue as well.Increasing Restaurant Profits

Too often restaurateurs turn to a service company for equipment repairs, resulting in expensive labor and parts costs.  Instead, take the time to educate yourself about the most common types of equipment failures and how to fix them.  Often a simple and inexpensive part can get your restaurant equipment up and running again quickly.

Several companies offer large inventories of replacement parts for all the major food service manufacturers, meaning you can order the parts you need and perform the repair yourself with minimal downtime and even less expense.

5. Leverage Technology to Minimize Waste and Mistakes

POS (Point of Sale) and inventory software have become powerful management tools for your business in recent years.  With a POS system, you can:

  • Track inventory and set reordering schedules
  • Manage employee hours and manage payroll
  • Track sales and indentify trends, like best selling items, high margin items, and underselling dogs
  • Reduce waste from spoilage and ordering mistakes
  • Reduce shrinkage from unauthorized employee comps
  • Increase table turnover rates
  • Increase staff efficiency

More than likely your restaurant already uses a POS system to manage inventory and sales.  However, it’s also likely that you are not getting the most out of that technology.  Most vendors have training guides designed to educate you on system features, so take the time and become an expert.  Utilize your POS vendor’s website and customer support to get new updates for your POS system.  Often vendors will also provide free training and tips for their software that will help you get the most out of your investment.

Also don’t skimp on the hardware that goes with a POS system.  Of course, a lot depends on the size of your business, but in general, buying one touch screen terminal for your whole wait staff doesn’t increase their efficiency since they stand around waiting to enter orders.

If you’re about to buy a new POS system, shop around.  There are a multitude of vendors out there, and many specialize in different segments of the food service industry, like quick service, pizza, small independent, etc.  Make sure the vendor you choose offers a free downloadable trial version of their software so you can check out the interface before you buy.  Also look for vendors that offer updates and good customer support for their software.

6. Leverage Technology to Get New Customers

As more and more consumers use the internet or go wireless, it becomes more and more imperative that you use new mediums to reach your customer.  The most obvious element of a 21st century advertising campaign is a website for your restaurant.  A well designed and optimized website can be a great business generator, but make sure you follow a couple basic principles:

  • Include a current, printable menu
  • Make sure your restaurant’s phone number, address, and driving directions are clearly visible on every page
  • Submit your website to local and national restaurant directories

Your website should really just be a launching point for a larger advertising push using new technology.  View it as a platform to which you can drive new customers.  For example:

Start an email list and send out a regular newsletter to loyal customers.  This is a great way to build customer loyalty and keep your regulars updated and engaged.  If you’re putting the time into producing a newsletter, make sure it goes to as many people as possible.  Encourage customers to sign up at the host stand.  Offer a prize for filling out a survey that requires an email address.  You could even hold a raffle that requires only an email to enter.  Those addresses are worth their weight in gold for attracting new customers and bringing old ones back.

Go wireless.  Many restaurants have started moving beyond email and targeting customers via text message as well.  This is an especially useful tool for targeting younger customers.  The National Restaurant Association has endorsed a progressive new marketing company called Fishbowl, Inc., which has been helping thousands of restaurants and chains across the country to use innovative technology to connect with customers wirelessly.

7. Learn From “Regulars” and Incentivize Them To Come Back

Perhaps your best resource for improving operations in your restaurant are your regular customers.  You have spent a lot of time building loyalty with this group and they have spent a lot of money patronizing your business.  So take the time to survey and incentivize your regular crowd.

Building an effective customer loyalty program is the best way to achieve this.  Airlines have been using loyalty programs for years, but the food service industry has only recently gotten into the game.  Some effective ways to implement a loyalty program:

  • A loyalty card that gives rewards for frequent visits (such as eat ten meals get one free)
  • A regular-only e-newsletter with special promos, prizes, and giveaways in exchange for surveys and feedback
  • Bring-a-friend campaigns that give away a free meal to a regular who brings a friend to eat who has never patronized your restaurant before
  • Special buy-in clubs that target specific segments of your customer base.  For example, Hard Rock Café has a Pin Club for fans of the special collectible pins sold at the chain’s locations

Focus on promoting your brand when implementing a customer loyalty program, and be willing to commit the necessary resources to fund an ongoing program.  The cost can eat up a large part of your marketing budget, but the reward in brand recognition, customer loyalty, and regular feedback and customer information are vital to creating a stable base for your business.

8. Promote the Most Profitable Items on Your Menu

Increasing Restaurant ProfitsWhen it comes to analyzing which items to promote on your menu, it’s important to recognize two main categories: best sellers and best money makers.  That’s because the best selling items on your menu, while important, may not be the ones you want to spend the time and money promoting.

For one thing, these items are already a best seller, so why promote them?  Another consideration, and a much more important factor, is that there are probably other items on your menu that have a much higher profit margin and aren’t selling.

A high profit margin menu item is one where a high percentage of the price of the item is net profit.  These items are often made from inexpensive seasonal ingredients combined with easy prep methods.

Utilize multiple marketing strategies to promote high margin menu items.  On menus, highlight them with a box or other attention grabbing graphic.  Use email marketing for promotion, especially if they are a seasonal item.  And train servers to sell high margin items whenever possible.

Every restaurant has bread and butter best sellers that form their reputation.  But often the secret to higher profits lies in the high margin sleepers.  Properly promoted, these menu items can provide a real boost to your bottom line.  Don’t be afraid to experiment with different high margin items until you find a winning lineup that can be regularly rotated in and out of your menu for a year-round bump in profits.

9. Minimize Energy Expenses

Restaurants use a lot of energy in day-to-day operations.  From heating and cooling the front of the house to cranking a charbroiler for the entire dinner rush, the meter is always moving, and every revolution cuts into your profits.

Optimizing your business for energy efficiency is no small endeavor, and initial investment costs can be significant, however, the long term benefits can be substantial.  Here are some tips to making your restaurant more energy efficient:

Update old restaurant equipment.  From reach-in refrigerators and freezers to steamers to ranges to warming cabinets, the newer the equipment the more efficiently it will operate.  Energy Star, a government-run agency promoting energy efficiency, has started rating restaurant equipment based on efficiency standards.  Look for the Energy Star label when purchasing new equipment and use the Energy Guide to compare energy usage.

Manage front of house heating and cooling.  Keeping your customers comfortable should always be your first priority; however, there are several strategies you can employ to accomplish this efficiently.  Some examples:

Use Energy Star rated ceiling fans to circulate heat from the kitchen and from solar sources through the dining area.  Note that you probably don’t want to push hot air directly out of the kitchen, as this air usually smells like cooking food.  Instead, use fans to push heat radiating off shared walls and ducts into the dining area.  Conversely, ceiling fans can also be used to cycle cool air in summer or in warmer climates

Program or install a digital thermostat.  Digital thermostats automatically cut heat or air conditioning during non-business hours, potentially cutting energy costs by as much as a third

Use windows and doors for energy gain, not energy drain.  If you are remodeling or building new, look for Energy Star rated windows and doors that either reduce solar heat gain in warm climates or maximize heat gain in cold climates.  Make sure all windows and doors are well insulated, and use blinds or curtains or both to block the hot sun or the biting cold.  Use door closers to minimize loss when doors are opened

Manage back of house energy usage.  While cutting energy use in the front of the house is beneficial, the real energy hog in your restaurant is the back of the house, which means it’s also the place to maximize energy savings.

Train kitchen staff to reduce idle temperatures on ranges, broilers, and ovens.  Even though this equipment takes a while to reach peak cooking temperature, reducing the heat during idle times can result in significant energy savings

Set shut down and maintenance schedules.  A recent study revealed that over half of the commercial kitchens surveyed left warming cabinets on overnight.  Write, print, and post shut down procedures for all the equipment in your kitchen, and make sure easy to replace parts like thermostats, temp dials, and refrigerator or freezer door gaskets are checked and replaced on a regular basis

Improve water heater efficiency.  Insulate pipes, set the temp to 140 degrees Fahrenheit, program or install a recirculation pump timer, and make sure the flue damper is working.  Also make sure you fix hot water leaks fast and train staff to only run full racks through the dishwasher

A robust energy efficiency program can be costly up front, but as time goes on and energy costs go up, your profit margins will improve because of the money you invested in efficiency.

10. Diversify Your Revenue Stream

Running a successful, profitable restaurant is just like being a stock broker: you must diversify to minimize risk.  This lesson is even more relevant today considering the current economic climate.  So, you have a great concept, some popular menu items, and a decent dinner rush.  Good.  But your profit margins could be better, and your business more resilient, if you took the time to diversify.  Some ideas:

Add retail items.  Loyal customers love creative apparel referring to your restaurant.  Think of all the money the Hard Rock Café has made just from selling T-shirts and hats alone.  And they still have the gall to charge $16 for a burger!  Plus you’ll get some great free advertising for your business

Make your food more accessible.  Customers love your menu, but they may not have the time or the inclination to sit in your dining room and eat.  Consider carry-out for popular items, large party catering services, and even food delivery to make sure your customer can have your food whenever they want

Host special events.  Weddings, corporate functions, and large parties often require specialized menus and pricing, but making your restaurant available for larger functions is a great way to sell out the place on slow days and to take advantage of high seasons, like corporate Christmas parties.  Plus many of the guests at a large event have probably never been to your restaurant before, so impress them so much they come back for more

Create profitable partnerships.  Chances are there are several other local businesses that would like to reach your customer base.  Come up with creative ways to give such partners advertising access to your customers…for a fee.  This could include advertising in menu inserts, banner ads on the emails you send out, or product giveaways at promotional events in your restaurant.  Of course, there is a fine line here between annoying and pleasing your customer, but use constant feedback and modify your strategies until you get the formula just right.  The result will be a great revenue stream that is almost all profit

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13 Responses to Increasing Restaurant Profits

  1. Lenny November 11, 2009 at 7:32 pm #

    Get to know your top 20%…the 80/20 rule applies in all businesses. Identify your top 20% of customers, who control 80% of your business, and make sure you increase the service you provide to each of them. These are your raving fans. They work for you, cheering you on and sharing what you do so well to your future customers. By increasing your fan base you increase the 20% which can drive your growth in a healthy, affordable way.

    Let um know you care!

    • Greg McGuire November 12, 2009 at 7:02 am #

      Good point Lenny. Wowing that 20% is going to be key to your restaurant’s success!

  2. Faisal Iqbal February 22, 2011 at 10:24 am #

    Yes you r right. If we keep on satisfying our regular guest consistently and also sell them our new and hot item from the menu, they will provide us the new guests without costing a penny to us.

  3. DJay August 11, 2011 at 9:02 am #

    These are great tips. I would definitely recommend pursuing promotion of the most profitable items on the menu. Specific menu items can be highlighted through eye-catching menu graphic design or through the use of table tents. I’m sure a menu printing or menu designer can provide helpful tips too.

    • Greg McGuire August 11, 2011 at 11:59 am #

      Agreed DJay. The menu is the most important piece of marketing any restaurant has and yet it often gets overlooked.

  4. Darren December 13, 2011 at 3:40 am #

    Don’t over look the dishwasher as a potential money sucker!
    Interesting article, I have been servicing and selling commercial dishwashing products and machines for the past 20 years. As you mentioned in your article the tendency for dishwashing staff to wash 1/2 full racks is tremendous. People in general want to do good job, in the case of the dishwashing machine operator this means washing everything in sight! That’s his/her job, and all they want to do is keep their station clean.
    The other thing that I have seen in this industry is the wash and re-wash situation. The machine did not clean well the first time, or “we always wash the glasses 2 times” The cause of this is more often then not poor quality detergent,poorly adjusted products or unscrupulous chemical sales people. Detergent companies will make you take too much detergent if you pay per bucket, or not enough if pay buy the wash! The bottom line is too many washes for the number of clients served. The National Average should be 3-4 clients per rack washed. The National Restaurant Association estimates each wasted wash cost an operator $0.50. Just 10 wasted racks per day adds $150 month to the bottom line!
    In conclusion you can’t manage what you can’t measure or monitor. http://www.bolerowireless.com offers a device that connects to any commercial dishwasher and wirelessly transmits, the daily wash counts so restaurant managers and owners can start tracking their waste, and take corrective measure with their staff and chemical suppliers.

    • Greg McGuire December 13, 2011 at 6:04 am #

      Huh, interesting product Darren. Thanks for sharing! How much is installation though? In other words, how long would it take to see a return on investment?

  5. Sara March 20, 2012 at 8:59 am #

    I agree that you should treat employees well in order to retain them. However, I don’t really agree with your suggested methods. As a former server, the best bosses, the ones who made me want to work harder just because I respected them, were the ones who trusted us and treated us with respect. Cash incentives would have just made me feel uncomfortable and stressed.

    • Greg McGuire March 21, 2012 at 4:00 am #

      Interesting perspective Sara. While I can sympathize with your discomfort I think most servers would respond to a cash incentive tied to their sales by selling more, and from the perspective of a restaurant owner/manager selling more is the name of the game – while providing top-notch service and atmosphere, of course.

  6. JOHNSON June 20, 2012 at 1:46 am #

    Indeed it will rely help me in building and expanding my restaurants thanks. More update from you from time to time. cheerssss

  7. Eco Giant September 7, 2012 at 6:25 pm #

    I think all of these are terrific and would like to share some more ways that you can be more profitable by recycling and conserving energy and water use.

    Take a good look at your parking lot and site to see if the lighting can be placed on timers or retrofitted to led or high efficiency lamps. Many businesses can reduce or dim signage lights after 3 a.m. or at times late at night that fully light signage is not needed as no one is driving by your place to see it anyway.

    Rain water collection for irrigation is always a low cost, wise investment if your place has moderate rainfall.

    Low volume irrigation heads. if your sprinklers cause water to run along your curbing or leaves puddles in your parking lot your wasting dollars you only need to water the roots and soil of any plants. use drip lines or misting type heads. This saves a ton of water and money.

    Shade your roof top compressors so they dont have the sun adding additional heat to the outside casings that they have to overcome and they dont have to work as hard

    Recycle your waste heat and melted ice We at Eco Giant produce Waste heat and waste ice recovery units that recycle energy and water and gain multi use of it. Our web site offers more details. http://www.ecogiant.net

    Just a few of many if youd like to discuss more innovations with us please let me know

    • Molly Patterson September 10, 2012 at 5:48 am #

      Thank you for your ideas! These are all great ways that can make businesses more profitable.

  8. Beatrice September 25, 2012 at 9:18 am #

    These are really helpful tips, especially the one about encouraging the regulars to come back and learning from them. I find that becoming a regular in my favorite places, the experience becomes more personable. So it makes me want to come back even more and tell others.

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