Category Archives: Articles

These are articles or other print pieces that contain information I deem very important to independent restaurant owners and other food service operators. They may be written by myself or others.

20 steps to lowering your food or liquor costs

Posted on June 7, 2010 by bodellconsulting| 1 Comment

This article will be one of the most important I’ve ever written for restaurant owners and managers in other food services. In this article, I’m going to do something you won’t see from another consultant. I’m going to share with you the exact steps of an action plan I created to help a restaurant create a food cost fitness program, along with some helpful commentary from me. These steps would be the same for liquor costs, but would focus on different employees in a different area of the restaurant.

Outlining this plan for you may be to me a little like a restaurant owner publishing their secret recipes, but my main interest is not in keeping the things secret that I do to help restaurants. My main interest is in improving the restaurant and food service industry as a whole.

This list may not be completely comprehensive for every restaurant. There are likely considerations that would change the process slightly for another venue, but I believe if you take this list and apply these 20 steps to your efforts in organizing a food cost fitness program in your restaurant, you will be miles ahead of your competition. Some of these steps include spreadsheets and tools you may not have or may not have the ability to create. If you cannot create them, you should be able to find them in several places on the web to download for a small cost or with a membership to a food service website. One of these places is our webstore at www.bodellconsulting.com/webstore.html. If you can’t find the needed Microsoft Excel or Word templates in our store, we likely still have it available or can direct you to another site that does have it.

There are two main objectives that this 20 step process seeks to accomplish:

  1. It gives you the ability to always measure where your cost fitness is at any given time. If you don’t know where you are, you can’t know how to get where you want to go.
  2. It gives you the ability to measure where your cost fitness should be. This is one step in the process that many owners skip. They do not use ideal or theoretic food costs to measure where theirs should be. Instead they use some made up cost percentage goal that doesn’t take into consideration their menu item sales mix which can affect the ideal cost percentage greatly without it being a good or bad thing. If you don’t know where you should be, knowing where you are doesn’t do you any good.

Lowering food costs is also tied directly to three other areas of food production that these steps will help with. These other three areas are:

  1. Production speed – 80% or more of your sales come from peak periods in your restaurant. Your ability to push as much food out of your kitchen during peak periods as possible without affecting consistency or quality is the key to making money in your restaurant.
  2. Food consistency – Food and beverage consistency is the key to meeting your customer’s expectations when they come in your restaurant. When your customers receive food of a certain quality in your restaurant, they will expect that same quality of food every time they come into your restaurant. You need to have a system for reproducing your food or beverages to the same standard of quality for every order.
  3. Food quality - The quality of your food is the key to delivering on your “promise” to your customers on what to expect from you. While customers in McDonalds don’t expect fresh-never-frozen 1/3 lb. beef patties, they do still have a quality expectation. They want their hamburgers still to be juicy and hot. Your marketing, name and implied level of quality set the expectations for your customers. Now, you have to have a system in place to make sure those expectations are met consistently. It’s okay for quality to be lower than another restaurant, like McDonalds might be to you, if that is what your customers expect and they still feel they receive a good value. The key is to make sure they get as good or better quality than you promise. Your customer’s perception of value inside your restaurant is directly attributable to the quality of your food and beverages.

If you see terminology in this article that you don’t understand or think is important, please follow the links to other articles explaining these terms and their importance. If you have further questions, don’t hestitate to contact me.

Now, without further ado……..

The 20 steps to lowering your food costs

  1. Observe a busy service period in the restaurant. Make any suggestions to staff or management that could immediately increase the speed of service until a system is in place. This could include things like adding an expeditor or increasing staff levels or preparing a sauce for a dish during the prep work instead of when the dish is being plated.
  2. Evaluate the talent level of your existing kitchen staff and chef and gauge their ability to use the cost control tools you would be putting in place. If for example you expect your chef to use spreadsheets and data from your point of sale system to evaluate your costs, then that chef must have strong computer skills and the ability to use those tools.
  3. Evaluate the current kitchen, equipment and setup. Do you have enough storage for all your ingredients considering the number of deliveries you get per week? Does your menu have lots of fried items on it while you only have one fryer? Does your line setup require cooks to cross in front and behind each other during the preparation of dishes?
  4. Evaluate your current P&L and customer counts to determine a needed gross profit per person to later be used in pricing a new menu. The only way to make sure your prices deliver enough dollars to not only pay for the cost of the food, but for labor, rent and every other expense of running your restaurant while still delivering a profit, is to consider ALL those factors when pricing your menu, not just the food cost.
  5. Evaluate your soft beverage, alcoholic beverage and food vendor contract and invoices, and current inventory. Are you getting good pricing compared to other restaurants in the market? How do you know? Are your inventory values up to date? Are you doing an inventory weekly so you don’t have to wait until the end of the month to know there was a problem?
  6. Get feedback from servers and bartenders on menu. Ask for evaluation and suggestions they may have from customers. Organize an informal survey to be conducted with customers by service staff to gather suggestions and feedback. Your servers are the people who know your customers better than anyone. You or the chef should be consulting with them when creating a new menu or evaluating an existing one. They are the only employees in your restaurant that truly know what the customer thinks. Get them on board and the whole process gets much easier and more effective.
  7. Create a menu that can be produced quickly within the constraints of your existing kitchen equipment and the talent level of your kitchen staff. Food would of course have to appeal to your target market and taste delicious, while also contributing the necessary amount of gross profit. Create a manageable menu, not one that asks more than your kitchen or staff can deliver.
  8. Create recipe spreadsheets for all the menu items. Creating these recipes in spreadsheets gives you the ability to link individual ingredients to your inventory spreadsheet so your recipe costs update automatically when you update your inventory prices. A good recipe spreadsheet can also be used for batch recipes on items like sauces and mashed potatoes that have to be made in large batches, then costed into portions. Updated recipe costs can then be used to calculate your ideal food cost.
  9. Create a food inventory spreadsheet that assists in calculating recipe portion costs, and also assists the food ordering process with par levels and automatically calculated order amounts. This spreadsheet is the heart of your food cost fitness program. It not only helps you determine your actual costs of food for the period, but it also provides the necessary information to all the recipes spreadsheets you link to it so recipe costs are updated automatically, which then links to your ideal cost spreadsheet to help calculate what your food should have cost you to sell.
  10. Create an ideal cost spreadsheet to help calculate what the food you sell should have cost you to sell. Ideal costs are calculated by multiplying your sales of each menu item by the recipe cost of that menu item. Adding these individual costs together gives you an ideal or theoretic food cost that should then be compared to your actual food costs for discrepancies. Linking your recipe spreadsheets to your ideal cost spreadsheet keeps your theoretic costs up to date all the time so you can do ideal cost evaluations weekly by only entering sales by item data.
  11. Create a menu analysis spreadsheet that helps you evaluate your best selling items and categorize all your menu items by their popularity and gross profit contribution. There are many versions of this spreadsheet available on the web. I believe the first version was created by a professor at Cornell University. It helps you classify your menu items into categories that assist you in evaluating your menu and determining what changes need to be made. My version of this spreadsheet also helps you calculate ideal gross profits for menu items, which is a number that can be used to strategically price your menu for almost guaranteed profit.
  12. Create a recipe book with plate pictures for all menu items, to stay in the kitchen as a training tool. Train on the new menu for two weeks before implementation. Use nightly features to practice the production of the new items during these two weeks. This is also an incredible training tool for new cooks. Good recipe spreadsheets should include complete instructions on how recipes are prepared. They also allow cooks to see the cost of each of your menu ingredients so they can help you better monitor the prep and waste of those items. Tools like this help turn low level employees into leaders and future managers.
  13. Create menu descriptions for the training of wait staff that includes plate pictures. Train on the new menu for two weeks before implementation. It’s just as important for wait staff to see complete menu descriptions as for the cooks. The wait staff are supposed to be the “expert” on your food in relation to your customers. If you waitstaff doesn’t know your food, they can’t sell your food. These menu descriptions should have already been created in the recipe spreadsheets. For the wait staff, all you have to do is assemble each desription with each picture.
  14. Create prep lists for every station in the kitchen. Prep lists tell each cook exactly what items they have to prep for the shift. When you create a list you create accountability. You have a tool that management can use to verify the employee has done their work. This list should have space for your chef or kitchen manager to add prep items for features or specials for each shift.
  15. Create line setup diagrams for every station in the kitchen. Line setup diagrams show cooks exactly where prepped items are placed in steam wells and coolers so their efficiency of motion is maximized. Since speed is so very important in a kitchen, proper placement of prepped items is also very important. Line setup diagrams should also include a description of the exact utensil that should be used to measure the portion for each prepped item. Portioning is very important to keeping food costs where they should be.
  16. Create job descriptions for all positions in the kitchen. Job descriptions not only tell employees what their duties are, but they also define to them the hierarchy of your restaurant, so they know who they answer too. In addition, a good job description should include the physical demands of the job. Creating good job descriptions also gives you a template to create effective job evaluations for employee reviews. When you tell an employee exactly what their job is, you then have a basis to measure their performance. More informed and properly focused employees are more efficient and can greatly affect your food and liquor costs.
  17. Design a menu that features high gross profit items prominently and employs other known psychological selling tactics to direct diners toward high gross profit items and increase sales. A well designed menu tells customers what they want to order. Once you know how many gross profit dollars each menu item contributes, you can know which items to push on your menu. You can then place items on your menu where they will get seen first, highlighting them with boxes, backgrounds, color and icons. You should also make sure your prices are properly placed, NOT listed in a column, NOT bold typed or highlighted, NOT containing a “$”, NOT listed next to “”……..” and rounded to a whole number OR to “.99″ instead of “.95″. That extra .04 per item can add up to thousands of dollars without being noticed by your customers.
  18. Train staff, managers and owners on preparation of new menu items. Now that you’ve created all the tools, the training is organized, focused and much more effective.
  19. Train staff, managers and owners on proper inventory, purchasing and receiving procedures. Having the tools makes the training of key staff and owners much easier, but you also must know the “whys” of inventory, purchasing and receiving. Who should check in the orders? Who should do inventory? Should the chef be the only one purchasing food?
  20. Train staff, managers and owners on use of all spreadsheets and checklists. Any tool you create will be useless without consistent followup, enforcement and discipline. You could have the greatest system in the world, but if no one is managing it, it isn’t likely to work. Likewise, managers need to be managed. They should be regularly questioned and periodically observed on their inspection habits, their use of checklists and their disciplinary procedures. What are the consequences if an employee doesn’t use the checklist? What are the consequences if the manager doesn’t inspect the employee’s work? Set your expectations and let employees and managers know the consequences for not performing up to your standards in advance. The more informed they are and the more consistent you are, the less you’ll have to worry about disciplining anyone.

If you follow these 20 steps to lowering your food or liquor costs, I know your costs will come in line. These are the same steps I use as a food service consultant, and they’ve worked for me many, many times. Remember though that “low” isn’t always the goal with food costs. You are better off selling a $25 steak that costs you $10 to produce ($15 gross profit) than you are an $8 cheeseburger that cost you $2 to produce ($6 gross profit), even though the cost percentage on the steak is 40% while the hamburger is 20%. What you should compare is the gross profit contribution of $15 for the steak to $6 for the hamburger. That extra $9 will go a long ways to pay for labor, rent, expenses and profit. What is more important is that your actual food cost and ideal food cost are within 1.5% of each other. If your food is costing you what it should be costing you to serve, then you know your waste and theft is under control. From there, if you’re not making money, you know the problem is your other expenses or your prices and not your product cost. Without comparing ideal and actual costs, you’re just guessing what the problem is.

Take these steps and implement them in your restaurant. No one solution can make all restaurants profitable, but this one can help eliminate the biggest issue in most restaurants and food service, cost control.

Brandon O’Dell
O’Dell Restaurant Consulting
www.bodellconsulting.com
brandon@bodellconsulting.com
(888) 571-9069

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Who owns your kitchen’s recipes? Has your chef signed an employment contract?

Posted on June 7, 2010 by bodellconsulting| Leave a comment

A popular topic lately in a couple different restaurant discussion forums I participate in is the question of who owns the recipes your restaurant uses?

Let’s look at a couple possible scenarios that could affect your restaurant.

  1. Your executive chef or kitchen manager quits. Maybe one or two members of the kitchen staff leave with her/him. Your chef keeps extensive recipes written down in a book they’ve had since long before they worked for you.
  2. You fired your executive chef and there are no written recipes. Everything comes from the head of the executive chef or the cooks he/she trains.
  3. Your chef leaves your restaurant for a bigger, better opportunity. It’s a benevolent departure. No animosity.

What happens next in any of these scenarios? Do the recipes the chef has written down belong to the restaurant? Does the restaurant get them when the chef leaves? If there are no recipes, can the restaurant make the chef create them before the chef leaves so the restaurant can continue to produce the same food? Are any of the cooks trained enough to recreate the recipes the chef used to make? Is this cook even going to stay when the chef is gone?

No matter the answers to any of these questions, it is very important for the continued success of your restaurant that you are able to consistently produce the same quality of product, tasting the same as before, if you want to keep the loyal customers you have. If the food was horrible, maybe you want to change all the recipes, but you’ll still want to pay attention to the rest of this article to avoid potential pitfalls with the next chef.

All this begs the question, “Can your restaurant survive the departure of your head chef or kitchen manager?”

In addition to helping you evaluate your current situation and the risk you already have if your head chef leaves, I’m also going to help you take the steps to lower your risk and remove the impending doom of losing your top chef.

What are the risks if my chef leaves?

If you are unfortunate enough to lose your executive chef, whether it be a termination, the chef quitting, or the chef moving on to a better opportunity, there are several potential problems they could leave you with and several considerations you may have never made.

  • Recipes can be copyrighted, but copyrighting doesn’t keep someone else from using the same formula or recreating the same food. It may only protect any unique methods or systems of creating the food. In effect, you may not be able to keep a chef from reusing the recipes you use at a restaurant down the street just by copyrighting the recipes.
  • The chef may consider the recipes they create as their own intellectual property. If they were created while working for you, doesn’t that make them your property? Does a researcher for Pfizer get to keep the cure for cancer if they create it while working for Pfizer? “Who owns my recipes?”
  • A chef you have fired or who quits, even one who leaves under good terms, may not feel compelled to leave you with the recipes created while they were working for you.
  • A chef you have fired or who quits may think it’s a good idea to go to work for one of your competitors and make the same food you serve to hurt your business.
  • A chef or cook who leaves your restaurant may think it’s a good idea to start their own restaurant using the recipes they learned at your restaurant.
  • The chef takes half your kitchen staff with her/him, including everyone who knows how to make your recipes.
  • The chef takes their recipe book with them which are the only written copies of the recipes to your food.
  • You’re left without a chef and without recipes. You are in a state of desperation while having to negotiate employment with the next chef you hire.

Any one of these problems could do some serious damage to your restaurant. It’s best to consider these issues before hiring your chef and create an employment contract that protects the quality and consistency of the food you serve. Without that quality and consistency, your restaurant is at great risk to fail.

Now that you know it’s very important to protect yourself from these potential problems, and I’ve told you that an employment contract can help, you’re lead to your next question, “What should be included in a good chef employment contract?”

Here are what I consider to be “must haves” in any chef employment contract. Many of these you will want to include in an employment contract for all your cooks, your General Manager and any other key management staff that have access to your proprietary secrets.

  • A statement of duties, as in a job description. Usually an addendum to an employment contract, a job description helps you define in writing what is expected of the chef or other employee. The job description should be acknowledged and signed by the employee so you have proof the employee was aware of their duties.
  • The job description MUST include “creating and recording recipes in a recipe book owned exclusively by the restaurant” as one of the duties.
  • Intellectual property. This statement declares that any work done by the chef or other employee, recipes or operational tools created, procedures, etc. are the property of the restaurant and remain the property of the restaurant upon termination of employment. The employee is being paid by you to create for you. The creation remains your property just as it would if you commissioned a piece of art or hired a researcher to find a cure for cancer.
  • Conflict of interest statement. For full time, key employees, you will want a statement in their contract saying that while under your employment, they cannot hold another job or engage in any business or activity that conflicts with the interests of your restaurant. This is not a reasonable expectation for part time employees in my opinion though. If you are not providing enough hours so that the employee does not need another job, you should not try to prevent them from having one. Your employees have to eat too.
  • Confidentiality agreement. This statement in your employment contract forbids the employee from divulging any of your proprietary secrets to anyone else. These secrets include recipes, financial information, operations tools and manuals, policies, vendor agreements, training practices, technology, food and service methods, techniques, processes, studies and any and all records kept by the restaurant or any of it’s employees. This statement specifically helps you prevent your chef or cooks from taking your recipes or procedures down the street to your competitor.
  • Surrender of company documents. Upong separation of employment, this statement requires that the employee surrender any and all documents and property belonging to the restaurant, including recipes, checklists, operating tools, manuals, agreements, and any document whether printed or digital that was created on the clock while working for the company or was provided by the company to the employee.
  • New employer notification. This states that you reserve the right to contact the employee’s new employer to divulge to them the terms of the employee’s employment contract with you. This is meant to help you let the new employer know that their new hire is under contract not to divulge your proprietary secrets, procedures and recipes.
  • Non-compete agreement. The greatest risk of a good employee leaving is that they will go to a direct competitor and try to compete with you. A non-compete agreement helps you prevent them from doing just that. A non-compete should state that an employee can not work for, consult with or own interest in a similar business in your market. Basically that they can’t compete with you. A non-compete cannot keep an employee from making a living however. If you create a non-compete that tries to prevent an employee from performing any job even remotely similar to the one they held with you, you may have trouble enforcing it. Laws regarding non-competes vary from state to state and your ability to enforce yours may vary greatly from a restaurant in another state. In reality though, you are not trying to prevent your chef from finding a job somewhere else. You are trying to prevent them from taking your trade secrets and competing against you with them. A non-compete normally contains a time limit. 24 months is customary for most non-competes.
  • Employee solicitation statement. This statement forbids an existing employee from soliciting your other employees to work for them. This includes not only a direct job offer, but any sort of enticement, encouragement or pressure of any sort.

There are several other statements you should include to create a good contract. Make sure to use a qualified lawyer experienced with labor law and restaurants when creating any contract of any sort. I am not a lawyer and you shouldn’t consider this article legal advice. What this is however, is a good place to start when trying to protect proprietary information like recipes.

Until you have an employment contract in place, and a job description letting a chef know they are creating recipes for you that you will own, you are at the mercy of their ethics. A great chef knows that they are only as good as they left their last kitchen. They should have the moral drive to set any kitchen they run up for success long after they are gone. They shouldn’t try to steal employees or hide recipes. After all, a great chef can recreate a recipe anytime they wish, and there’s a never ending supply of recipes inside a great chef’s brain. You can’t depend on every chef you hire being a great chef however. You need to protect yourself and create an atmosphere that benefits not only your chef, but every employee in the kitchen.

Use employment contracts. Use job descriptions. Create and maintain up-to-date recipes on all your menu items, including the specials. Make sure you have copies too. Don’t be held hostage by any one employee. Create an atmosphere where chefs will be beating down your door to work in your organized, well run operation, just for the opportunity to express their own creativity. For the opportunity to work for a successful brand, and to have the freedom of creating to their hearts content because you’re not holding them back from insecurity that they may some day move on to bigger and better things. After all, if you hired a great chef, they will eventually move on to bigger and better things.

For help writing an employment contract for your chef or cooks, visit our webstore and look for our Employment Contract for Chefs and Cooks. This same contract can be amended to use for any employee.

Brandon O’Dell
O’Dell Restaurant Consulting
www.bodellconsulting.com
http://blog.bodellconsulting.com
888-571-9068
brandon@bodellconsulting.com

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How do you control food and liquor costs?

Posted on December 12, 2009 by bodellconsulting| Leave a comment

This is probably the most often asked question by restaurant owners, managers and chefs. If you are smart enough to be calculating your actual food and liquor costs by performing a physical inventory, then you are half way there.

This article will discuss a very important part of controlling food and liquor costs, one that most restaurants do not do. To many of you, this will be new information. To many others, this is something you’ve heard myself and others talk about, but have never known how to actually perform the task. This article is about ideal costs, why they’re important, how to calculate them and what to do with the information.

What are ideal costs?

Ideal costs are the dollars that the product you’ve sold should have cost you to sell. They tell you that if you’ve sold 20 hamburgers and 10 steaks, that it should have cost you “x” amount of dollars.

Why are ideal costs important?

Ideal costs are important because they give you a scale to measure your actual food costs against. When you perform a physical inventory at the beginning of a period and calculate it’s value, add your purchases for the period, then subtract the value of your physical inventory for the end of the period, you are calculating your actual costs. This is the amount of dollars the food you sold during that period actually cost you to sell. This number is imperative to know if you want to control your product costs. However, most operators make the mistake of using this number all by itself to determine if they have cost problems. They only compare it against a budgeted cost percentage. With only doing this, there is absolutely no way to know if your actual cost is good or bad, only that it is higher or lower than some arbitrary budget number. It’s relativity to the budgeted number does you no good because your budget number does not take into account your sales mix. If you set your budgeted food cost for example, at 35%, and your actual cost is 40%, many chefs/managers/operators will assume there is a problem with the costs. The error with this assumption is that a simple change in your sales mix could have created this variance, and there may be absolutely no problem with waste, theft or any other issue. As a matter of fact, what you’ve experienced could be a desirable situation where you’ve sold a higher number of high cost percentage, high gross profit menu items during that period. This would cause your actual food cost to be higher, but it will also drive your profit higher, creating a situation where you might actually reprimand your staff for doing something good! After all, you’d rather sell 5 steaks that cost $10 and sell for $20 ($50 gross profit) than you would 5 hamburgers that cost $2 and sell for $8 ($30 gross profit), wouldn’t you?

How do you calculate ideal costs?

To calculate ideal costs, you need to know how much your menu items cost to make, whether they are food items, liquor drinks or beer (luckily the recipe for a bottle of Bud is pretty easy to cost out). This requires that you make recipes for all your food items, and calculate costs per pour for all your liquor and tap beer. Bottle beer costs what you buy it for. If you know how, liquor and beer costs can be calculated right in your inventory spreadsheets. I have spreadsheets that make these calculations automatically when you enter in bottle and keg costs, in addition to pour sizes. Food items should have a recipe spreadsheet created for each of them. To make recipe calculation easier, you can link recipe spreadsheets to your inventory spreadsheets which will update your costs as you update your inventory prices. If you don’t know how, just do the math by hand and update your recipe costs at least every six months, or you can email me at brandon@bodellconsulting.com to help you.

Once you know what every item you sell costs you, you have to track how many of each item you sell. I suggest using a spreadsheet to track these numbers to keep things organized. When you know how much of each item you sold for a period, and you know how much each of those items cost you to sell, you can multiply those two numbers together to come up with an ideal cost for those items sold. This is what those items should have cost you to sell.

What do you do with all this information?

When you calculate your ideal costs for a period, and you also have performed a physical inventory and calculated an actual cost for the same period, you have the information to truly control your product costs. Convert your ideal costs to a cost percentage by dividing your ideal cost by your sales for the period. Convert your actual costs to a cost percentage by dividing your actual cost by your sales for the period. Compare these two percentages. There should be no more than a 1.5% difference between the two. The smaller the better. If you have a larger variance, you know that you have product getting wasted or stolen, unless there is an error in your calculations. Without using ideal costs to compare actual costs to, you may think there is waste or theft when there isn’t.

 

Comparing ideal and actual costs is an incredibly powerful cost control tool for your business. You can learn to know when you have a problem, or when you just may need to raise prices.

Not every operator, chef or manager has the ability to create the spreadsheets necessary to calculate ideal costs. To save you time and provide you with a cost control tool that can save you thousands of dollars, I’ve already created this tool. You can visit my webstore at http://www.bodellconsulting.com/webstore.html to find a downloadable file with spreadsheets for tracking your sales by item and calculating not only your ideal food costs, but also your ideal liquor, beer and tobacco costs. If you need help setting up your spreadsheets, you can reach Brandon O’Dell at 1-888-571-9068 to purchase telephone consultations.

Spreadsheets for calculating ideal food, liquor, beer and tobacco costs 

If you would like to purchase the Ideal Food, Alcohol and Tobacco Tracking Spreadsheets directly, just follow this link. We process payments through Paypal. If you do not have a Paypal account, simply follow the “continue” link next to the credit card icons on the bottom left of the page:

Brandon O’Dell
O’Dell Restaurant Consulting
www.bodellconsulting.com
1-888-571-9068
brandon@bodellconsulting.com

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What should you pay a manager?

Posted on August 21, 2009 by bodellconsulting| 3 Comments

One of the most frequent questions I hear soon-to-be, and existing, restaurant owners lament, is how much to pay a manager.

“Most” owners asking this question are working owners. After being in the business for awhile, owners start to realize that they can’t be in all places all the time, and still be able to market their business. Working “in” their business keeps them from working “on” their business. Eventually, many of them decide to hire a general manager or assistant managers. Inevitably, the same question always comes up, “What are the industry averages for manager pay?”

Much to the chagrin of the person asking the question, the correct answer to that particular question is, the industry averages are of no use to you in determining what to pay your manager.

Reinforcing and explaining that point is the intent of this article. First, I need to discuss why industry averages are of no use to you in determining manager pay. Then, we’ll discuss what you should be doing to determine what to pay your managers.

Why shouldn’t industry averages be used to determine the pay for my managers?

Every restaurant has a unique financial situation unlike any other restaurant, even if those restaurants are the same concept. Your profit and loss statement looks like no other. The combination of your rent, labor, sales, even cost of goods can be completely different from the same concept in a different location, with different employees, even if you are both McDonalds.

Industry averages are just that, “averages”. They combine figures from small 200 square foot burger huts run by 3 employees, with that of a $1.5 million per year quick service giant with 40 employees. All the numbers from thousands of operations that are nothing like each other are lumped together to create industry averages. While these averages are great to illustrate trends in the industry, and to even compare your own restaurant against and alert you of a potential problem that needs further investigation, they shouldn’t be seen as a guide to use to determine pay. Your operation is different than any other, and more importantly, you are located in a market that is different than the market of most or all of the restaurants used in those averages.

Setting your pay based on industry averages could very well yield a situation where you are drastically overpaying, or underpaying, that employee for that job in your market. You could end up losing money for your decision, or worse, losing a great manager.

What should I do to determine what a manager should make?

Ask yourself these questions:

  1. What are the businesses paying that I am competing with for employees?
  2. What can I afford to pay?
  3. How easy is the job?

Good managers are hard to come by. Landing a great manager is probably going to require you to pay that person more than they can make somewhere else for equal work. To take the first step in figuring out what to pay a manager, you need to figure out what other restaurants in your market are paying. Those are the restaurants your potential manager will be comparing you to. Find similar concepts in the same town and look for their help wanted ads. Call the restaurants themselves and ask to speak to someone about hiring. Pretend you are in the market for a job, that you are an experienced manager, and ask what the potential for earnings are. You won’t always get a straight answer, but if you approach enough restaurants, you’ll get a good idea what everyone else is paying. The key to this being an effective strategy is to only approach businesses in your market. You are competing for employees with the other businesses those employees are likely to go to for a job. Any business too far away for that employee to drive to work to, is completely worthless for information purposes. You aren’t competing with them. You may however, be competing for employees with businesses other than restaurants that are in your market.

The second step to figuring out what to pay a manager is calculating what you can afford to pay. It doesn’t do you any good to go out and get the most incredible manager in the world, and have to pay him/her a $1,000,000 a year if your business only brings in $500,000 per year. You have to be able to afford the manager.

A good “rule of thumb” for management pay, is to keep all combined management salaries (including GMs, assistants, bar managers, chefs, sous chefs, etc.), including their taxes and benefits, under 10% of your gross sales. This is a common figure used in many business models across many industries. As with any rule of thumb, there are exceptions though.

In some instances, a restaurant can have “working managers”. These are managers that fill a position usually filled by hourly employees, in addition to having management duties. When calculating whether your salaries are affordable or not, you should only include the portion of a working manager’s salary dedicated to management duties as part of that “10%”. For example, if you have a shift manager who is also a server, calculate how much you would have to pay another server without management duties to fill the server part of that managers role. Then, subtract what you would pay that server from the manager’s actual pay to calculate how much of the working manager’s pay you should contribute to your “10%” calculation.

Another exception to the rule you might find is in particularly profitable operations with simple business models. These businesses may not have to pay out 10% of their gross sales to attract high quality managers. In their case, they just have to offer higher pay than the businesses they are competing for employees with. Lucky them.

Some restaurants will run into the dilemma of not having a large enough budget for managers when they only use 10% of their gross sales. One option to come up with a more attractive compensation package for these restaurants is to offer a profit sharing bonus structure based on sharing any profit above the minimum profit the restaurant budgets. While the 10% rule of thumb should normally include taxed AND benefits, a profit sharing bonus structure gives you a little flexibility because it is based off potential profit above the budgeted profit. Any part of this “extra profit” is affordable for you to share because it requires the restaurant to be profitable before there is any sharing, and it also requires that you already make the minimum profit you’ve budgeted for. This also incentivizes the employee to earn you more money so they can make more money themself. You can find more detail about this type of bonus structure in a download from our webstore titled “Bonus plan”.

 Based on the 10% rule of thumb, you should have a good idea now what you can afford to pay a manager.

The last consideration is the complexity of the job you are hiring a manager for. Not all manager positions are equal. In a restaurant with a working owner who does all the marketing, bookkeeping, hiring and firing, a manager’s job may be fairly simple. They might just be there to watch the floor and help count the registers. You should adjust what you’re offering accordingly, and you should also be very forward about the complexity, or simplicity, of the job when you are interviewing potential managers. You want applicants to be comparing you to other management positions knowing full well what you expect in a manager.

Other factors that make a manager’s job more complex or simple include:

  • How organized your business is
  • The hours you expect from a manager
  • The flexibility needed from the manager
  • Whether you are a working owner or “hands off”
  • Staff turnover and the resulting demand on the manager
  • Whether there are “re-structuring” tasks to be done and whether or not the manager will help
  • Whether the manager is also helping market the restaurant
  • How much work is required of the manager “outside” the restaurant itself, like catering events or participating in expos and festivals

Just as you would expect yourself, the more you require from a manager, the more you will have to pay that manager to keep them happy. Creating a job description for a manager is a great way of communicating all that you expect from that manager, so you can be up front during the interview process and give them the necessary information to compare a management job with you to a management job with your competitors.

If you do your part by figuring what others in your market are paying managers, what you can afford to pay, and whether your manager position is harder or easier than the ones you are comparing it to, you should be able to come up with a reasonable salary for a manager that keeps them happy and you profitable.

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Who is the target market for your restaurant?

Posted on October 17, 2008 by bodellconsulting| 4 Comments

This may be the most important question you can answer when designing a restaurant concept. It is definitely the most important question to answer when creating a marketing plan.

One of the biggest mistakes restaurants make is trying to appeal to everyone. If you think that your target market includes everyone, you are setting yourself up to fail. If you want to be successful in any business, especially the restaurant business, then you need to define who it is that is most likely to buy your products, and focus your concept to appeal to that defined market.

First off, let me tell you what a target market or target demographic is and what it isn’t.

A target market IS the portion of the population most likely to buy what you are selling.

A target market ISN’T the portion of the population you want to sell your food to.

Do you see the difference? You must realize that your target market picks you, you don’t pick it.

When creating a plan to market your restaurant, focus on these points.

    1. Realistically define what type of person is most likely to enjoy what you want to offer.
    2. Assess whether that particular demographic works or lives in large enough numbers within 3 miles of your location to support your concept.
    3. Make sure your marketing is communicated in a manner that demographic can understand, and broadcast via a medium that demographic uses.

 

 

Here is how you use those points to build your marketing plan.

Point 1: Realistically define what type of person is most likely to enjoy what you want to offer.

This isn’t the time to be politically correct. You need to examine gender, age, race, religion, income, background, prejudices and sexual orientation among other things if you want to get a clear picture of who you should be marketing to. No matter who you want as a customer, kosher Jews and Muslims aren’t going to eat at your BBQ joint. Lower income Asian families aren’t going to eat at your bistro, and upper income, white yuppies aren’t likely to visit your diner in the hood. If you have a “quiet” atmosphere, don’t expect to attract families of any type. If you have a “noisy” atmosphere, don’t expect seniors.

Until you throw political correctness out the window and truly define exactly who is most likely to eat what you offer, in the atmosphere you are offering it, at the price you are charging for it, you aren’t ready to move on to the next step.

Point 2: Assess whether that particular demographic works or lives in large enough numbers within 3 miles of your location to support your concept.

Once you know who it is that is truly most likely to buy your food, you’ll need to consider whether or not they live or work in large enough numbers in your area to support your business. This is a feasibility exercise. With this point, you are determining whether or not it is even possible for your idea of a restaurant to make it in the location you are considering.

If your concept appeals to low income seniors on a fixed budget, you shouldn’t be putting it in an upscale shopping center surrounded by neighborhoods full of high income families. You also don’t want to open a bistro appealing to high income white people in the ghetto. While these examples seem obvious, I’ve seen many restaurant make the mistake of putting their concept in an area where their target market does not live or work in great numbers.

A good rule of thumb is to only consider the initial 1-mile and 3-miles radius around your restaurant when evaluating the presence of your target market. Whatever the sex, age and income of the persons most likely to eat your food, those persons need to be living or working in great numbers within a 1 to 3 mile radius of your restaurant. The closer the better.

On to the next point.

Point 3: Make sure your marketing is communicated in a manner that demographic can understand, and broadcast via a medium that demographic uses.

Email marketing isn’t going to produce customers for a breakfast diner appealing to seniors. Radio ads on an easy listening radio station aren’t going to bring in 20 and 30 year old hipsters. If you haven’t defined who it is most likely to buy your food, it’s not likely you are using marketing mediums most likely seen/heard by your most likely customers.

In marketing, you must use the language your target market understands. Speak your target market’s language and only create offers that target market values. $10 off a meal isn’t going to attract high income middle aged married couples, but a complimentary bottle of wine with any food ticket over $50 might. While any demographic appreciates a good deal, each demographic has a different set of values. What is valued by middle class high school kids won’t be the same as what is valued by humble German country folk. The language each of these groups understands will also be different.

Communication with your potential customers is just as important as communication with your employees. If you are speaking a language your customers don’t understand, or designing offers your target demographic doesn’t value, then your marketing will be a big waste of money. If your current marketing isn’t working, there is a good chance you’re doing one of these two things.

I hope I’ve driven home the importance of defining your target market. Marketing can be an expensive undertaking, but if you define exactly who it is you should be marketing to, you can greatly reduce the cost involved in reaching the customers most likely to eat at your restaurant. With the right approach, you can not only compete with chain restaurants with big marketing budgets, you can beat them.

Brandon O’Dell
O’Dell Restaurant Consulting
www.bodellconsulting.com
blog.bodellconsulting.com
brandon@bodellconsulting.com
Office: (888) 571-9068

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Who's in charge of your restaurant?

Posted on October 14, 2008 by bodellconsulting| 2 Comments

Charlie said….. Marla said….. Patrice said…..

He said, she said. It’s a game that gets played in a lot of businesses. Not having a defined “pecking order” that is understood by every person in your organization can lead to a lot of unneccessary headaches. Here’s a quick lesson about avoiding this business pitfall.

Who is in charge when you’re not in your restaurant? Who is your second when you are/aren’t there?

Every good business structure includes a management tree. At the top is the owner(s). Just below, the CEO or General Manager. Underneath may be assistant managers, shift supervisors, trainers, tenured employess and new employees. Any which way the hierarchy of your restaurant shakes out, it’s very important that your entire staff understands who is in charge at any given time.

Not having a set chain of command leads to confusion. To a new employee, any person in your business is someone to be obeyed and learned from. As I’m sure you know, different employees of yours have different methods for doing the same thing. One may be better, one may be worse. Either way, the only way things should be getting done is yours. This is only possible with accountability through creating a chain of command that allows you to police your systems and correct errors within the system.

When creating a system of hierarchy, avoid this one common mistake; do NOT give equal, shared authority to two different employees. Sharing authority equaly creates stalemates and sets you up to lose track of who is accountable when the wrong decisions are made. He said, she said.

Create a management tree. Don’t split authority. Hold your staff accountable.

Brandon O’Dell
O’Dell Restaurant Consulting
www.bodellconsulting.com
blog.bodellconsulting.com
brandon@bodellconsulting.com
Office: (888) 571-9068

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Are your dirty bathrooms scaring customers away?

Posted on August 6, 2008 by bodellconsulting| 2 Comments

The bigger a city gets, the more small restaurants with great food and dirty bathrooms there are it seems. I noticed this phenomenom recently when visiting Kansas City from Wichita, Kansas. In Wichita, we have a shortage of independently owned, small, interesting restaurants. There are a load of chains here, and plenty of restaurants to choose from, but most independents are either simple Mexican, Chinese or burger joints.

I visit Kansas City quite often, and while it isn’t a huge metropolis like Chicago or New York, it does have it’s share of small, interesting, independent restaurants. The type of restaurants I like to eat at. To that point, Kansas City scores big. What I have noticed though, is a serious lack of cleanliness in these small restaurants. Bathrooms are normally smelly and not stocked. Furniture and fixtures are in disrepair, menus have food stuck on them, and glasses are often dirty. I’m not sure if it’s my poor luck or not, but I seem to have an easier time finding scary restaurants I’ll never go back to than truly impressive ones.

Its these experiences that have inspired me to write a blog about cleanliness. Cleanliness is an area of running a restaurant that is often ignored by small restaurant owners, but ranks very high in importance to customers. A small restaurant owner tends to spend as much or more time at their business as they do their home, and it leads them to sometimes overlook the cleanliness of their business as they would their home. While they don’t feel they live/work in filth, they do get complacent about every day tidying up and small project cleaning which tends to build up after time.

Bathrooms in particular get overlooked in small businesses. Paint gets old and dirty. Floors are mopped with the same mop used on the greasy restaurant floors. Mirrors are broken and never fixed. the hot water doesn’t work, and soap/towel dispensers aren’t kept full. Disinfectants are used regularly to clean toilets and sinks, and the bathroom ends up smelling like a porta-potty.

While you may see a bathroom as more of a necessity (and maybe a nuisance) than your customers, it’s their opinion of them that matters. They have to be able to make it out of your restaurant feeling clean enough to touch bread before putting it in their mouths. They’re the ones who don’t want to have to leave and go somewhere else if they have to do something in the bathroom that requires them to sit down.

One thing that independent restaurant owners can learn from chains, is how important it is to keep a clean bathroom. McDonalds has one person on every shift designated to keep the bathrooms clean. They make hourly forays into the bathrooms to clean up excess water. Mop up any “spills”. Replenish soap. Empty the trash. Make sure paper towel dispensers are full. They wipe down a dirty toilet if necessary, and basically do everything they can to make sure their customers know they will always have a clean, stocked restroom to use. Without having any studies to quote, I’ll bet a significant portion of McDonald’s business is gleaned from people who stop just because they know they can use the bathroom there. A very successful regional convenience store named Quiktrip also applies this philosophy. Their bathrooms are always clean, and they are rewarded with residual business from people stopping to use the bathroom. This policy builds respect from their customers, and a reputation as a clean, upstanding company.

You may feel I’m overstating the importance of cleanliness, but I assure you I’m not. I would suggest asking yourself all these questions on a daily basis, and take a hard look at how your business may be scaring away customers because it’s just too dirty.

Is there plenty of toilet paper in my bathrooms?
How about paper towels and soap?
Do my bathrooms smell?
Is there buildup on sinks or toilets?
Are the bathroom walls clean?
Are there holes in the walls or ceilings?
Are there missing tiles in the ceiling or on the floor?
Is anything in the bathroom broken?
Is there graffiti on walls or stalls?
When is the last time the bathroom has been painted?
Are the colors and finishes attractive?
Do my toilets and/or urinals leak?
Is there ever standing water on the floor?
Do the appropriate doors lock when they’re supposed to?
Do my bathrooms offer enough privacy for each individual in the bathroom?
How often do I have the bathrooms checked on?
Is there an employee on every shift assigned to keep the bathrooms clean and stocked?

Answering these questions and remedying the situation should provide you with bathrooms that even the pickiest customer will be satisfied with. Take pride in your bathroom’s cleanliness. Sure employees hate cleaning bathrooms, but it has to be done. If you have to, offer the person who cleans them each night a free meal. Do what it takes. Your efforts will be rewarded.

Brandon O’Dell
O’Dell Restaurant Consulting
www.bodellconsulting.com
blog.bodellconsulting.com
brandon@bodellconsulting.com
Office: (888) 571-9068

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New O'Dell Restaurant Consulting Webstore!

Posted on July 9, 2008 by bodellconsulting| Leave a comment

O’Dell Restaurant Consulting would like to announce the opening of it’s online webstore! In our store, you’ll find lots of on-site, email and telephone consulting service packages to help you solve the most pressing problems in your business. You’ll also find some great Microsoft Word, Excel, .pdf and graphic file restaurant tool downloads, most available for only $5 each!

Whether you’re searching for help solving labor issues, trying to lower your food costs, wanting creative marketing and menu ideas, or you just need someone to talk to, you can find it in our webstore!

Here it is……….. O’Dell Restaurant Consulting Webstore

http://www.bodellconsulting.com/webstore.html

Thank you for your time, and check the webstore often. I will be updating it with new downloads and services frequently.

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Pricing food – Why you're doing it wrong and how to fix it

Posted on June 26, 2008 by bodellconsulting| 10 Comments

One thing I’ll never forgive formal culinary schools for, is teaching new impressionable would-be chefs to use a budgeted cost percentage to price food menus. Chain restaurants share an equal responsibility for perpetuating this bad practice by focusing their managers on food cost percentages without letting them in on the secret that the cost percentage is a management tool, not a pricing tool.

Though most culinary programs teach many different methods for pricing food, every culinary student seems to emerge from the Culinary Institute of America or Le Cordon Bleu believing in the world of restaurants, all they have to do to be profitable is serve great food and deliver a 33% food cost, or is it 25%, or 35% or 30% or 19%? The truth is, hitting a budgeted food cost does nothing to guarantee there will be enough money left over from the sale to pay for things like labor, rent, insurance, linens, smallwares, uniforms, utilities, taxes, etc, etc, etc. Hitting that cost percentage really means nothing. Further, not hitting it only means, “I should give things a closer look.” It doesn’t mean there is a problem. On the contrary, a high food cost could mean you’ve been selling a lot of high cost items that contribute more gross profit per sale. Are you going to make more money selling 50 hamburgers priced at $6 that cost $1.50, or 50 lobsters priced at $30 that cost $15? As long as there isn’t a significant increase in the overhead of serving the lobster, gross profit dollars win every time. You don’t want to sell the item with the 25% cost and $4.50 gross profit, you want to sell the item with the 50% cost and the $15 gross profit. Rather than comparing the food costs, you should be comparing the gross profits from each item. Obviously, if you have $15 left over from the sale after paying for food (gross profit) compared to $4.50, you’re going to have a lot more money to pay your overhead and turn a profit.

If you want to create prices in your restaurant that guarantee you’ll have enough dollars left over after paying for food, you’ll need to make three important considerations:

  1. Market price point – What does your market consider a fair price for the food you are preparing, served in the atmosphere you offer?
  2. Menu item cost – I know I said you shouldn’t use cost percentages. That doesn’t mean you don’t include the cost of the food into the price. You need to keep up-to-date recipe dollar costs for every item on your menu, and use those costs to figure into your pricing.
  3. Needed gross profit – What does every person who walks through your door cost you to serve? You have a lot more costs to cover than just food. That’s just a fraction of the picture. You must consider every expense of running your business when pricing menu items, including the profit you need to make.

I guess now the question is, “How do I price by gross profit?”.

I’m glad you asked.

Market Price Point

You can’t throw prices out there, whether based on cost percentages or gross profit, without considering what your market is already paying for those products elsewhere. Just like your potential customers, you must consider what other operations are charging for the same type of food, or even the same dishes, that you are offering. If you are going to charge more for the same dish than your competitor down the street, you have to be able to justify your price with added value. Added value could be larger portions, more exotic ingredients, better atmosphere, better location, live entertainment or something else. It could also be the promise and delivery of a unique selling point that your competition doesn’t have.

Whatever your prices, they must offer value to your customers. If your customers don’t feel your food is worth what you’re charging, you won’t have enough of them to make money no matter your pricing method.

Menu Item Cost

How much does each menu item cost you to make? Ingredient costs go up all the time. When is the last time you updated your menu item costs? Without knowing exactly what a menu item costs you to make, and how many dollars you need to add on to the price to pay for the ingredients, you can’t possibly come up with prices you KNOW are going to make you money.

The easiest way to track recipe costs (menu item costs) in my opinion is with Microsoft Excel spreadsheets. While there are many commercial food costing and inventory programs out there that will help you cost out your items, many use costing formulas based on valuation methods I don’t endorse, or require too much input to keep prices up-to-date. Some do have the capability of linking directly to broadline vendor’s invoicing systems to update prices automatically, but most smaller vendors don’t have this capabibility and you’re still left doing a lot of extra manual input. For my money, there is nothing simpler, less time consuming and easier to use than Excel spreadsheets. That doesn’t mean you shouldn’t use other inventory and costing tools. Any effort you make toward calculating recipe costs and inventory is going to pay off. Even the more expensive softwares will make you money in the end.

Don’t make the mistake of getting lazy with your recipe cost tracking. Many operators only price out menu items when they’re making a menu change (which are normally too few are far between). Between changes, they don’t see how the cost of ingredients is impacting certain menu items, and without that information they don’t have the urgency to make the necessary pricing changes needed when they are needed.

Needed Gross Profit

This is the most important consideration in setting menu prices. You must know what your guests cost you to serve. Without knowing what they cost you to serve, you can’t know how much money you need from each of them to pay all your bills and make a profit.

Look at your financial picture this way. Your food costs make up anywhere from 20-35% of your financial picture in most restaurants. Depending on your labor costs, your food cost could be the largest expense of running your business, and it needs consideration when forming menu prices. BUT…… What about the other 65-80% of your financial picture? It’s not all profit. Most of that picture is expenses other than food cost, and if you’re lucky a little profit left over. Doesn’t it go to reason that you have to include those costs in your pricing? Of course it does. Without knowing those costs are covered, you can’t know you’ll make money.

Before you can know how to add gross profit into a menu price, you have to know how to calculate it. Here are some explanations to try and illustrate how to calculate a needed gross profit per person. The needed gross profit per person is what you add to your recipe cost to arrive at a menu price. Unlike the menu price, the needed gross profit per person is a fluid number. Since it is important to keep menu items within the price point of your market, you will likely have to increase the gross profit you add to some items, while decreasing it on other items. It’s only important that the end result gives you an average gross profit per person that delivers enough gross profit to pay the bills.

You can start to calculate your needed gross profit by looking at your financials and customer count records. It’s best to use financials from months where you achieved as many of your financial goals as possible to establish your needed gross profit numbers. You can use an average of all months by using a year-end profit and loss statement. From your P&L, you need to find how much all your operating expenses for the year were without including product costs. This is your overhead. To this, you’ll add the ideal profit you should have made during that time period.

Total expenses for year - product costs + ideal profit = Total needed gross profit

Once you know how much gross profit you would have needed to collect during the last year to make the profit you should have made, you have the beginnings of your pricing method. Before we go any further, you need to take into consideration any inflation or cost increases you can assume for the following year. Operating costs will always go up, and you need to price for those cost increases. If you’re smart, you’ll re-price your menu every 3-4 months to make sure those costs are covered, but that is another article. To be on the safe side, I add a 5% cost increase into the total needed gross profit to come up with a target for the next year. With the ever increasing cost of gas, you could either add in a higher buffer, or do what I suggest and evaluate your pricing every 3 to 4 months. It’s much better to do regular, small increases to some menu items than annual large increases to all of them.

Total needed gross profit x cost plus increase (105%) = Total needed gross profit (adjusted for next year)

Now that you have your new needed gross profit, it is very easy to figure out how much of it you’ll need to collect from each person to cover all your expenses. That is, assuming you track how many people come into your restaurant. If you don’t, you need to start doing it now, and you’ll need to estimate how many covers you did for the previous year. Estimate low to be on the safe side.

To find out how much you need to collect from each person, simply divide your total neeeded gross profit for the upcoming year by your total customer count for the last year.

Total needed gross profit ÷ previous year customer count = Needed gross profit per customer

This number is simply the amount of gross profit you would have had to collect from each of last year’s customers to achieve your financial goals for the upcoming year. What this gives you, is a target gross profit to collect from every person this year to achieve profit. That profit will be achieved if you can meet or exceed your customer counts from the year before, or you can exceed the gross profit average per customer.

Gross profit per customer  x customers per year = Actual gross profit

If you can exceed your total needed gross profit per year with your actual gross profit, and you do a good job of controlling your expenses, you will exceed the profit you budgeted for.

Remember in all this that your budgeted food cost percentage hasn’t entered into the equation once. You are adding the actual cost of your menu items to the needed gross profit per customer to come up with a selling price. That’s all it takes.

There are a few other things to consider though. Your needed gross profit per customer is collected from a few different sources. You don’t have to mark up every menu item by your needed gross profit. Your needed gross profit per customer is collected by combining gross profits from everything a customer buys. The markup on entrees, appetizers, desserts, soft beverages, alcohol and merchandise all contribute to gross profit. If you need $7 in markup from 30,000 customers per year to make your total needed gross profit, you have many different avenues to get it from and don’t have to mark up every menu item by $7.

Another factor that majorly affects these averages is your customer count.

If you’ve determined that you need $7 gross profit from each of 30,000 customers that walks through your door to reach your total needed gross profit, then you can also reach that number ($210,000) by serving more customers at a lower gross profit markup. If you could double your covers to 60,000, you could theoretically collect $3.50 in markup from each to collect the same total gross profit. Whenever considering cover changes however, you must also consider how serving more people will change your overhead. If you serve twice as many people, some of your expenses will also increase. They WILL NOT however, increase exponentially. Additional customers are always cheaper to serve than your primary customers, as they are the ones you are covering your fixed costs with. Add your additional expenses to your year end numbers and start over calculating your needed gross profit.

 

I hope I’ve laid out this method in a way that you can understand it. While it isn’t complicated, it does go against the principles being taught in classrooms and kitchens all over the country. If you have followed along well though, you can see how this pricing method takes into consideration every cost of doing business, and leaves no guessing as to what you need to do to make money. This method of more effective planning could do a world of good for your profitability. Try it out. If you need some help, give me a call.

Brandon O’Dell
O’Dell Restaurant Consulting
www.bodellconsulting.com
blog.bodellconsulting.com
brandon@bodellconsulting.com
Office: (888) 571-9068

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