A Single Digit Percentage Can Double Your Restaurant Profits

Steve O'ConnorBusiness Operations, Cashflow, Restaurant, Small Business FinancingLeave a Comment

A Restaurant Report article
demonstrates how a restaurant can double its profit margin when it cuts
expenses by a single digit percentage point. The authors assert that the “restaurant
industry is a penny business—some would even say a half-penny business,” and as
a result, cost-cutting strategies can be tricky. Restaurant owners are
rightfully reluctant to sacrifice quality menu items and service, but a careful
evaluation of those areas can yield promising results.

Sweeping operational changes aren’t
necessary to create a big impact. In fact, one restaurant consultant suggests
not automatically serving free items, including water, coffee creamer, and
lemons for iced tea. If a customer wants creamer for coffee or a lemon for her
iced tea, you server can happily serve these items—on request. In addition,
servers should be trained to promote paid beverages like coffee, iced tea, soft
drinks, beer, wine, cocktails—again serving water upon request. By taking these
serving processes off “automatic pilot,” restaurant owners may be able to find
one-point changes that deliver big results to the bottom line, as well as
monthly cash flow.

Because food represents money in a
restaurant, savvy owners will want to examine food costs carefully and on an
ongoing basis. The Restaurant Report
article uses this example:

What if [your] vendor was charging $100 for
8 pounds of beef and recently upped the price to $103? Sometimes, a restaurant
operator may ponder, “Is it worth stirring the pot with a vendor over
three dollars?” The answer is YES it is worth it. In this instance, the
three dollars represents 3% percent of $100. If you apply the three dollars to
$3,000,000 in gross sales you have $90,000 that you pick up in profit.

The message is simple: small changes may
not seem to drive an overall change in profitability, but they do, in fact, add
up. But cost-consciousness doesn’t have to be limited to waste, food costs, and
payroll.Restaurant owners will also
want to carefully examine all company financials, including sources of cash
flow. Could a merchant capital advance benefit restaurant operations by
allowing a dining room makeover, which could help attract new customers and
create a better workflow? In an economy where it could be hard to increase menu
prices, creating simple cost efficiencies and a better dining experience
represent effective ways to increase, and maybe even double, restaurant
profits.

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