Revenue – Costs = Profit
Simple enough, right?
Sometimes restaurant owners can become obsessed with the profit equation. If we can just sell more filet mignon and get it for cheap, we’ll see a higher profit. But as it is with the most seemingly simple dishes, there’s much more to eat than meets the eye – or, mouth.
Let’s pull back the table cloth to see what it really means to manage restaurant labor costs, food costs, and pricing to really make more dough.
Too often, restaurants make the mistake of trying to get by with the least amount of staff possible in order to save on wages. This quickly backfires when it results in poor service – customers leave with a bad taste in their mouth, don’t return, and share their disappointing experience on social media. Over-staffing can have the same result – when it seems like there’s nothing to do, your employees may find themselves distracted by talking with one another and not attending to customers.
The solution? Forecast sales and staff accordingly. A good rule of thumb: labor cost (not including benefits) should equal 20-25% of total sales.
Your food supply is likely running somewhere between 20 and 40% of total sales. With costs that high, doing everything you can to manage them is so important.
The solution? Again, forecast sales to control your inventory. You should also be regularly reviewing vendor agreements to make sure you’re getting the best prices. Implementing strategies to minimize waste once the food hits the walk-in fridge is also key to controlling food costs.
Increasing prices can be a way to quickly increase your revenue, but it can also be a way to quickly upset customers and have them picking off someone else’s menu. Price changes must be done strategically and over time in order to not dissuade price-sensitive customers. Restaurant owners commonly increase the cost of popular items too much, too fast.
Your customers are smart and sensitive to price increases. Think about making changes in small increments over a period of time. Forecasting sales of your most popular items can help you come up with the right strategy.
As you can see, forecasting sales is a big piece of the pie when it comes to managing your labor costs, food costs, and pricing. But the only way this is possible is to make sure historical financial info is in order. With Xendoo’s bookkeeping and business consulting services, you can spend less time crunching numbers and more time satisfying customers.