Tag Archives: consulting

Conversations about pricing by gross profit

Posted on February 15, 2008 | 2 Comments

The following are excerpts from discussions I had with restaurant owners in the Restaurantowner.com discussion forums regarding pricing by gross profit.

From “Pricing by gross profit” thread – RO.com

Posted Jul 30,2004 1:08 PM

brandon
I realized while typing a post in the bar pricing program thread, I might as well start a thread discussing pricing as a whole and explain how to price by gross profit for food too for those that don’t know how. Pricing by gross profit is really the only sure fire method I’ve found to price a profit into your sales items. Many operators have gotten by from having enough experience working with certain types of food to know if they price by a certain cost percentage and work with menu foods that have worked in their system in the past, they can control cost well enough to make a profit. I have done the same in the past and have made my operations money doing it, but it seemed every once in awhile, something did not calculate right and I would inexplicably lose money or make less in a month I could’ve swore was a good month. By pricing by gross profit, I’ve come to realize the most important factor in my profitability in congruency to how many items I sell, is which items I sell. The majority of our mentors in this business have preached “cost percentage, food cost, liquor cost”. While controlling cost percentages is a needed part of the equation of profitability, it is not the most important part. All too often operators build their marketing around their low cost menu items. While these items return them a great cost percentage, they most often don’t return the gross profit per item that higher cost items may.I would like to start with a question to managers and operators out there. How many of you currently structure your pricing off of a target cost percentage? How many of you already price based on a target gross profit per item? For those of you, likely the majority based on my experience, who price by cost percentage, has anyone ever shown you how to price by gross profit and explained the differences between the two systems?Reply
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Posted Jul 30,2004 8:39 PM Clemmons8085

Brandon
I am going to try your method and see how it works. How do you price your bar items beer, wine liquor?
Kyle

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Posted Jul 31,2004 6:06 AM VirginiaBeach717

I’ve been trying to use your pricing concept since 1980. I’m running a low food cost on most sandwiches and appetizers and a high food cost on dinner entrees. It just makes since that if you sell a dinner with a 45% food cost and make $9.00, that you’d want to sell more of those than a sandwich at 18% that you make $3.50 profit. I keep trying to jack up the sandwich prices to make it easier for the customer to “jump” up to a dinner entre. Over the last four years I’ve become much more aggressive in this marketing attempt. There has been a 2% increase in dinner entrees which is statistically insignificant. The good news that I’m making a lot more money on the low end of the menu. In June I increased prices on the biggest sellers in the sand and app category by as much as 10-15% (with some masking of certain items). There was nary a word said from the customers and I would know because we have a solid group of regulars, daily, weekly and bi-weekly and I talk to most of them. (Sales have continued to grow as well, not just from the price increases.) At that time I raised alcohol prices after 7PM by 10% and it virtually went unnoticed (again our regulars would have let me know and quite vocally at that). Sales taxes increase Sept. 1 and I plan to use this as an opportunity to raise prices for Happy Hour. Again I’ll use “masking” because instead of raising the price of drinks, I’m “lowering” the price two cents but adding the sales tax to the item instead of including it. I realize I have gotten off the original topic but I wanted to share this experience since Jim’s survey and some earlier threads about wholesale price increases and the need to raise retail prices. My advice: If you have a good operation, DON’T BE AFRAID.

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Posted Jul 31,2004 1:49 PM brandon
I think that was right on topic. You seem to be well ahead of the pack on your pricing structure. This obviously isn’t my original idea, many consultants have been trying to educate restaurant owners for years. I have just managed to use it to create my own personal structure and used the pricing method to drive customers toward higher cost, higher gross profit menu items. Congratulations on your forward thinking and resulting success.BrandonReply
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Posted Jul 31,2004 2:35 PM brandon

I’ll continue my explanation of pricing out bar items in the “Bar Pricing Program” thread Kyle. Maybe we can continue with food on this thread. Food is slightly more complicated, but your existing experience with pricing will keep it reasonably simple still.

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Posted Aug 03,2004 11:53 AM lemoyne

Well, i guess it starts with the basic thought of what you are here to do. Maximize profits or minimize costs. Basic economic theory states that the level of maximum profitability is when the marginal revenue meets the marginal profit meets marginal cost. In other words you are here to maximize profit and if by lowering your price outside your target range of food /liquor cost you can sell more then you should as long as the additional gross profit is greater than the reduction in price

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Posted Aug 11,2004 6:42 AM toms
Hi Brandon and everyone else,Brandon- I just joined RestaurantOwner.com based on your advice from another site’s discussion forum. Thanks for the advice. I really believe it’s going to pay off. I realize I need to think of myself as a marketer first and a restaurateur second if there is going to be any success here.Anyway, to your topic. About 4 months ago I changed my price structure from a food cost % pricing structure to a gross profit per item structure. I was tired of worrying about the percentages if we were selling a lot of high cost (%) items. I repriced to achieve about an $8 gross profit on all dinner entrees. Now I don’t have to worry about what we’re selling. It’s all good. And percentages have stay in line as well. From this point forward all menu categories will have an assured gross profit built into the pricing. I think it foolish to do it any other way.Reply
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Posted Aug 11,2004 3:15 PM brandon
Welcome Tom,Good to see you here. Maybe you can help explain pricing by gross profit for food while I’m still posting about beer, liquor and wine. I’m sure people would love to hear from another person who’s already adopted the technique.BrandonReply
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Posted Aug 12,2004 1:34 PM toms
1. Decide on what you want your gross profit in each category. Say on apps you want to achieve a $4.50 gross per item sold, entrees an $8.00 gross and desserts a $3.00 gross.2. Then cost out your menu item by item. Then add your target gross to each item cost to achieve your menu pricing. Of course you will have to raise or lower the prices to based on percieved value and prep times.Example: Spinach & Artichoke Dip with Toasted Ciabatta Bread
Cost: $2.13
Target Gross: $4.50
Total of Cost plus Gross: $6.63 or $6.95 Menu priceReply

 From “Bar pricing programs” thread – RO.com

Posted Jul 28,2004 11:14 AM

brandon
After posting with a couple other members in here, I am curious to see how many members have an actual plan for bar pricing. Do you use formulas? Do you attempt simply to price match with competitors? Do you try to keep your price changes to categories such as well, calls, premiums and super-premiums with liquor and make everything just fit into one or the other? Do you concentrate on selling the lower cost percentage items such as draft beer and well liquors, or do you concentrate on the high gross profit items such as wine and premium scotches or martinis?I think the majority of restaurants and bars price their drinks out on a simple cost percentage markup or maybe with no formula at all, just using their experience in selling alcohol for so long.What do you do?Reply
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Posted Jul 28,2004 10:00 PM Clemmons8085
We price based on cost and also what the market will pay. We also sell alot of martinis, in our town I have seen them anywhere from $5 to $10.
We charge $7.00 for house 5oz
$7.50 call Absolul, stoli, ketele
$8.00 for Goose, belvedere
Beers like Bud lt Bud, miller lt coors $2.75
Imports like Corona ect… $3.25
Draft pints $3.75 for everything from Ultra, New Castle, Sam AdamsHow do you guys charge for rocks drinks and doubles. Are your doubles true doubles or long pours?
ThanksReply
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Posted Jul 29,2004 10:21 AM brandon
When you say, “price based on cost”, what type of formula do you use? Do you mark up to obtain a certain cost percentage?A big martini market helps the profitability a lot. The objective of selling martinis is to get the most money out of one drink as possible while still offering value, saving money on labor, glassware, condiments, garnishes, mixes, etc. You’re fortunate to have a big martini crowd.In your martini pricing and pouring, 5 oz. is a huge pour for any drink, but $7 is a good amount to get for it too. Maybe that is your draw. In your 5 oz martinis, are you stating the glass size, the amount of liquor, or the amount of liquor + vermouth? Or is it 5 oz when talking of martini cocktails in general, but less for the traditional martini? I ask because martinis vary so much regionally. In a certain area, people expect certain things.The tradition martini recipe found in many book call for 2 oz of gin or vodka mixed with 1/2 oz of dry vermouth. In my area, if you put more than a drop of vermouth in a martini, you’ll be strung up. Many operations here drizzle and swirl a small amount of vermouth in a glass or a shaker, pour the excess out, add ice, then add 2 1/4 oz gin or vodka. If the martini is on the rocks, you make it in a glass, garnish, then serve. If it is up, it’s made the same way in a mixing tin, swirled, then strained. In the finished product, most restaurants here only have around 2 1/2 oz of liquid in the drink. In my operations, I serve and price every martini simply as a double. Two 1 1/2 oz shots of gin or vodka, drop of vermouth. When served on the rocks, it fills a 10 oz rocks glass and results in quite a big martini, compared to what other restaurants are serving here. The exceptions are the martini cocktails popularized by martini bars. The amount of booze in these martinis are about the same as a traditional martini, but after adding ingredients like sour mix, grenadine and fruit juices, they come out to around 5 or 6 oz.That should give you a basis for information to compare to my pricing program. I’ll start a new post for that so this one doesn’t ramble on so much.BrandonReply

 
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Posted Jul 30,2004 12:47 PM brandon
PricingHere’s how I price out all my sales items.First thought in pricing is not what kind of percentage cost I want to sell items at, it’s how much gross profit I need to make per item to cover everything other than the product cost including profit. Gross profit figured by simply adding every cost in your restaurant, other than product cost, but including profit (yes, you should consider this a cost of doing business), then determine what proportion of that total cost should be used to cover the sale of a particular sales category.? Not as difficult as it sounds if you keep a good P&L. The easy way to figure this would be use your year end P&L from last year. Take your total expenses for the year. Subtract your product cost for the year. Add the dollar amount of profit you SHOULD have made for the year, maybe 15-20% of sales. Maybe more, maybe less. Your choice. This number equals your Accumulated Gross Profit for the year, meaning, your sales minus product cost (gross profit) should add up to equal your expenses plus profit minus product cost. It will be necessary to add an increase to last year’s expenses to cover costs other than product that may have risen in the last year. (Remember, product cost is not figured into gross profit). Usually a standard cost of living index increase will do, about 4% most years.Now that we’ve figured what we need to make in Accumulated Gross Profit, we need to break it down to figure how much gross profit we need to make in food, beer, liquor and wine separately. This is the reason it is important for operations to track these sales and these costs separately. Each has a different cost structure and requires a different pricing structure. To figure how much gross profit we need for each different area, we simply look at our sales mix from the previous year and determine what percentage of total sales was due to liquor, for example, then divide the Accumulated Gross Profit between each of the sales categories proportionate to their portion of last year’s total sales. These will then show you the Accumulated Gross Profit for Food, Accumulated Gross Profit for Beer, Accumulated Gross Profit for Liquor and Accumulated Gross Profit for Wine.From the Accumulated Gross Profit for each sales category, we need to determine a gross profit per item needed. This is the number that shapes the pricing structure. In order to figure gross profit per item, you need to have accurate sales counts in each of the sales categories. Item counts. This is where a POS system takes a huge load of work from you. Many operators do still track sales items by hand on a daily basis. Those that don’t track at all, there’s a good reason why you may not be making as much money as you could.

The Accumulated Gross Profit for each sales category is then divided by the total item count sold in that category. If you are figuring liquor, for example, each drink counts as one item. Doubles are only one item. Each individual sale counts as one. Food is the same way, if a food item is sold at a separate price, appetizers for example, that item counts as 1, if you charge extra for salads, that counts too. The focus is to get a needed average gross profit per item, no matter how big or small.

The gross profit per item we need is the basis for the pricing structure of every item we sell. If collect the proper gross profit per item, plus the cost we are paying for the product, we will achieve the profit we priced for. This is the only pricing method I know of that allows you to pick how much money you want to make and accurately budget for it.

I was intended to go into detail about liquor pricing in this post, but realized without explaining gross profit, it was pointless. I will continue in another post.

Brandon

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Posted Aug 01,2004 2:15 AM brandon
Pricing Beer by Gross ProfitI thought I’d start with beer since there are less variations in pricing in the beer category.From the “Pricing” post, we have already established a needed gross profit per item on beer from dividing our accumulated gross profit by the sales mix percentage for beer.Ex. -
Total Accumulated Gross Profit = Expenses + Needed Profit + Cost of Living Increase Accumulated Gross Profit*Beer Sales Mix Percentage (% of total sales dollar volume attributed to beer) = Accumulated Gross Profit for BeerAccumulated Gross Profit for Beer/Total Units of Beer Sold = Gross Profit per Item on BeerThis number is what we need to average for every beer sold in order for our beer sales to hold up their end of our profitability program. For the purpose of this post, we’ll say that number came out to be $2.00 per item. That is the amount we need to average above our product cost in order to achieve the amount of profit we budgeted into our needed gross profit.

The first step to pricing based on gross profit is simply to add our needed gross profit per item to our product cost plus tax and waste. We will later adjust up or down from there based on a couple factors to influence our customer’s buying habits and increase our realized gross profit per item purchased.

Ex. -
Domestic draft 16oz – $76.55 after tax and waste / 150 pours per keg = $.51 per draft product cost. $2.00 needed gross profit per item + $.51 product cost = $2.51 needed per domestic draft

Premium draft 16oz – $153.10 after tax and waste (great beer) / 150 pours per keg = $1.02 per draft product cost. $2.00 needed gross profit per item + $1.02 product cost = $3.02 needed per premium draft

Domestic bottle – $.78 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $2.78 needed per domestic bottle

Premium bottle – $1.19 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $3.19 needed per premium bottle

The first thing you may notice when performing this first step in pricing by gross profit is that while lower priced items seem to be about what you are used to seeing, you don’t seem to need near as much for premium items as you were taught to believe. The main point at this stage of implementing this pricing structure is to figure a base price to adjust from that will allow us to obtain our profit margin we calculated into our gross profit. If we sold all of these items at the prices we determined with our gross profit per item markup, we will achieve that profit margin.

Now that we have a profitable formula, next we will try to manipulate it to exceed our profit goals as opposed to just realizing them. That will be our next post.

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Posted Aug 04,2004 7:48 AM VirginiaBeach717

WOW!!!What a concept. Is anyone reading this?? I’ve been waiting days to see if someone would respond. I’m not sure I buy into this concept; heck, I’m not even sure I understand it completely but here goes anyway. Say I want to make $50K more next year. If I follow what you say, then I need to break out my beer percentage sales. So I take 28.19%(beer sales) of $50K which gives me $14095 profit dollars for beer sales. I then divide that by 132,126 unit sales of beer which comes to ten cents per beer. Ten Cents!!! That’s all?? Of course, I’ve got to apply the same theory to all other items. But I just raised the price of beer .25 so I should enjoy a handsome $49,333 additional profit from the beer alone. (Mixed beverages went up a quarter and food prices caught with the increase in cost of goods.) I can see new golf clubs in my future. Am I understanding this correctly?
Which leads to a comment I wanted to make on a previous thread regarding purchasing new autos. I made the mistake of buying a nice boat. Even though the customers got to go fishing for free, it wasn’t enough. I remodeled the bar, new carpet, new dishes and decorations and I then heard from several people “We like how you’re spending our money” I guess it’s important to “share the wealth”.

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Posted Aug 04,2004 8:55 AM VirginiaBeach717

Don’t you hate interruptions? My profit with a twenty-five cent increase is $33031. Sorry about the math.

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Posted Aug 04,2004 8:39 PM Clemmons8085

Virginiabeach, I am with you,
I am trying to break it all down to fit my concept and see how the numbers come out. I hope for your sake that you will enjoy the increases!
Kyle
PS you might not need Roys system!

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Posted Aug 06,2004 3:22 PM brandon
>>>I’m not sure I buy into this concept; heck, I’m not even sure I understand it completely but here goes anyway. Say I want to make $50K more next year. If I follow what you say, then I need to break out my beer percentage sales. So I take 28.19%(beer sales) of $50K which gives me $14095 profit dollars for beer sales. I then divide that by 132,126 unit sales of beer which comes to ten cents per beer. Ten Cents!!! That’s all?? Of course, I’ve got to apply the same theory to all other items. But I just raised the price of beer .25 so I should enjoy a handsome $49,333 additional profit from the beer alone.<<<Not sure I follow your math, but you have the numbers necessary to figure out how to make more money next year. If you are trying to make $50,000 on your bottom line next year, you simply have to increase sales by $50,000 without increasing expenses. A price raise would accomplish this, but the math needs to be a little different. A $.10 price increase across 132,000 units, without a drop in # of items sold, would result in $13,200 straight to the bottom line, not $50,000. To reach $50,000 you divide $50,000 across 132,000 units sold to figure how much more you need per unit. It comes out to just under $.38 per unit in needed price increase without a drop in volume.BrandonReply
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Posted Aug 06,2004 3:23 PM brandon
>>>Don’t you hate interruptions? My profit with a twenty-five cent increase is $33031. Sorry about the math.<<<Sorry, didn’t realize you had already corrected your math.Reply
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Posted Aug 06,2004 4:16 PM brandon
Price StructuringNow that we have a profitable formula, next we will try to manipulate it to exceed our profit goals as opposed to just realizing them. That will be our next post.”We left off by determining a needed gross profit per item and adding it to our product cost to create a formula that will net us the profit we priced for. For many people, this is enough, but you will notice, while bottom prices are somewhat comparable and not necessarily a great bargain in comparison to other operations, the premium prices seem like a steal. This is where many operations run afowl and lose focus on the ultimate goal, increasing the average gross profit per item.By pricing by product cost, most operations come out with comparable prices on the low price items as they would in pricing by gross profit. Their prices on the premium items are usually well above the baseline price for pricing by gross profit though. Pricing by product cost encourages the idea that most people come in your restaurant/bar to drink what’s cheap, then you make up as much as possible on the premium drinks with the people who simply won’t sacrifice quality. We need to set up our pricing structure so it not only increases the perception of value, but encourages the sale of premium products through agressive pricing and results in an increase of gross profit per item through the increased sale volume of premium items. Our goal is to become “The Place” to drink premium drinks affordably.With our baseline pricing, currently we are making the same gross profit per item on premium beers as we are on domestic beers, but we left ourselves a lot of room to manuveur on the premium beer pricing and a little room to use added value on domestic beers to further draw in a crowd.Stated example for our baseline pricing from earlier:
“Ex. -
Domestic draft 16oz – $76.55 after tax and waste / 150 pours per keg = $.51 per draft product cost. $2.00 needed gross profit per item + $.51 product cost = $2.51 needed per domestic draft

Premium draft 16oz – $153.10 after tax and waste (great beer) / 150 pours per keg = $1.02 per draft product cost. $2.00 needed gross profit per item + $1.02 product cost = $3.02 needed per premium draft

Domestic bottle – $.78 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $2.78 needed per domestic bottle

Premium bottle – $1.19 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $3.19 needed per premium bottle”

Now we adjust the baseline pricing to 1) Still meet the average gross profit per item if our sales mix does not change, and 2) Increase our gross profit per item when value in premium beer is realized and sales mix shifts further toward premiums.

We do this by doing two things:
- Slightly decreasing the price of domestic beers to create value for the current bulk of our customers
- Increasing the price, from the gross profit baseline, of the premium products to realize a greater gross profit per item on premium sales, but keeping the price significantly below the competition.

Truthfully, on beer, there is not a lot of room to play with pricing because of the limited range of product sold in the beer category, but there still is some room.

First we set a minimum markup that will still allow us to sustain our average gross profit per item, then we set a maximum gross profit per item necessary. The minimum markup will apply to all items, no matter how little they cost us. The maximum markup will also apply to all items, no matter how much it costs us.

Given the example baseline prices we determined above, here is how I would structure them:

Domestic draft:
baseline price $2.51
structured price $2.25
markup $1.74
This price decrease helps create the perception of value

Premium draft:
baseline price $3.02
structured price $3.50
markup $2.48
This increase still keeps our premium draft well below most our competition, but raises our gross profit per item significantly.

Domestic bottle:
baseline price $2.78
structured price $2.75
markup $1.97
This decrease is very slight, but serves to keep us $.25 or more below most of the competition while still helping to maintain our average gross profit per item until our increased volume of premiums sold increases it.

Premium bottle:
baseline price $3.19
structured price $3.50
markup $2.31
This price is still fairly agressive for a premium bottle and will help us build volume in premium bottle sales.

Our established minimum markup for beer products is $1.74. Our established maximum markup is $2.31. No matter how much we pay for a 12 oz bottle of beer, the most we will mark it up is $2.31.

The focus now that the prices are set is to start marketing our premium beers. Increasing the selection of premium beers and focusing in house marketing, such as a monthly featured beer or beer suggestions with the specials, on the premium beers are going to help draw focus to our new agressive pricing. The low reasonably low prices on domestics in addition to very low prices on premiums serve to break down the resistance of our customers to trying new beers. They know they are always paying a good price, and the more expensive the beer, the better the value (remember, we never mark any beer up more than $2.31). The more you focus on beers that normally cost you too much to make a good product cost percentage on, the more your agressive pricing will be evident to your customers. Instead of having to charge $6 to make your percentage on an expensive imported beer that cost you $2, you now only have to charge $4.31, blowing out the competition.

The ending result is to try and make your place, “The Place” to go for a great beer for a great price not the place to go to drink cheap. People come in because they know everything is a bargain, not because Tuesdays are 2-4-1 drafts or beers are $1 from 4 to 6 on Happy Hour Wednesdays. Your customers focus should be on the special selection, not the deal that’s too good to pass up one day a week.

We started with beer because of the simplicity of the beer pricing. The basic premise of pricing by gross profit should be clear now. Next, we’ll focus on liquor, where the difference in pricing by gross profit and pricing by product cost are easier to realize.

Brandon

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Posted Aug 06,2004 4:20 PM brandon
After re-reading, I see I stated our maximum markup at $2.31 whereas we used $2.48 in the example.The maximum markup stated for any product should be $2.48, not $2.31.

 From “Liquor and Wine cost percentages for fine dining” thread – RO.com

Posted Jul 26,2004 1:21 PM

edfeakum
We are a fine dining restaurant (white table cloth only at dinner)located in the Pittsburgh area. Our Per Person Average is $30.33 (including lunch and dinner). I would like to see Liquor Cost Percent, Wine Cost Percent and Food Cost Percent for similar restaurants. Thank youEd Lewis
Bruschetta’s Restaurant
412-431-3535
edlewis@ifm-pgh.com Reply
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Posted Jul 26,2004 4:06 PM brandon
Percentages are really only useful after you have a profitable formula worked out to determine what your pricing should be in order to make a profit. Comparing your cost percentage to a different operation’s cost percentage could be very misleading. Another operation may have higher product cost percentages but make it up in saved labor, low rent or no advertising costs. Comparing your cost percentage really is not going to give you much useful information.That being said, I’ll still offer what I’ve done at some locations. My background includes quite a bit of time in Country Club settings. Overhead in those settings are completely different, but cost percentages are usually higher than in public settings so they may give you some sort of maximum guideline. With an 8-10% profit margin in a Country Club setting which included 4 ala carte dining rooms, 8 banquet rooms and 4 snack outlets, our year end costs would break down to something similar to this: 35% food cost including soft beverages (free snacks to members and employee meals expensed out), 24% liquor cost, 35% beer cost, 31% wine cost.Our overall alcoholic beverage cost for the year would be around 29.5%. That would be considered high in many restaurants, but the cost reflects a mixture of 60% of our alcoholic beverage sales being wine. 75% if I looked at ala carte exclusively. My beverage program was very, very profitable due to my high mixture of wine sales. My wine cost percentage was not indicative of my wine pricing structure either. I offered very aggressive pricing on wine that showed more value, the more expensive the wine cost was. My members flocked to the wines. Many people that were not habitual wine drinkers started drinking more wine because of the buzz created and the natural resistance that accompanies insecurity about their ability to choose wine. They knew they always received a great value. The increase in sales of our low, low cost, good quality house wines due to the break down of the resistance of fence sitting could-be wine drinkers drove our wine cost percentage down and our sales of all wines, especially the premium wines through the roof. All that despite the fact that outside of my house wines, I never marked a bottle up more than $25 over what I paid for it.1999 Chateau Lafite Rothschild (France)………………$230
Two restaurants down the street sold the same wine for $475 (40% cost)Members would notice my price on the most expensive wines were below the price they paid at the liquor store. The whole focus was to drive everyone toward bottles that returned me a $6.25 gross profit per glass instead of the $3.50 per glass I made on the house wines or the $2 per drink I made on beer. Pricing for liquor was equally aggressive on the high end liquors to push people toward drinks that return a higher profit dollar, not lower cost percentage.I would be more that willing to talk more about structuring your beverage program if you’re interested. I have reproduced my method, even in small towns, to success in every instance.Brandon

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Posted Jul 27,2004 8:11 AM jimlaube
Ed, according to the latest NRA Industry Operations Report for Restaurants with a PPA of $25 to $32.99, the median (half above and have below) is 31.3% for all alcoholic beverages combined. This is not broken down by category so I know it’s of limited value. Sales mix, pricing structure, etc. can have a major impact on beverage costs. From my experience in upper casual and fine dining restaurants, I’ve normally seen a straight liquor cost of 18%-20%, however, I have seen it as low as 14%. Once in a Mexican restaurant that sold LOTS of margaritas and at a high end restaurant in Vail (very high price points). Many restaurant break out bar consumables and reflect those items that includes garnishes, cocktail mixes, etc. in a separate account within the cost of sales category. Bar consumables normally runs 4%-5% of liquor sales.Personally, I like to see draft and bottled beer broken out both as sales and costs because the cost structure is very different. Draft normally runs 14% – 18% while bottled 24% – 28%. Selling a large share of imported or specialty beers can however push these percentages up.Wines cost, as Brandon alluded to, can be all over the board depending on bottled versus by the glass sales and the type of wine list you have. Obviously the more expensive the bottled wine the higher the cost but the greater the gross profit margin. I’ve seen wine sales in higher end restaurants run anywhere from the low 30′s to 40%.I think Brandon’s wine strategy is brilliant and I’ve seen a few restaurant operators take a similar approach in developing a “bargain” reputation on quality wine with much success.Let me know if you have any follow up questions or comments.JimReply

 

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How much should I budget for marketing in my startup?

Posted on February 4, 2008 | Leave a comment

It’s common for startup restaurants to budget an initial 10% of their sales to go toward marketing in the first few months. If no one knows who you are, it can take some $’s to get known.

After that, it’s more common to see 2-4% of your sales being directed toward marketing. As far as how to break that down, that depends on a lot of factors, including your ability to do much of the work yourself. The less you are in the business working, and the greater ability you have to design and print your own materials, the less of your sales you will spend on marketing. Different marketing mediums work differently for each business also.

No matter what you budget, you’ll want to focus your personal effort first on the most inexpensive marketing tactics, like shaking hands and giving out samples with menus to get your name and product in front of people. You’ll also want to concentrate a lot of effort on building your customer database. Marketing dollars spent communicating with anyone who has already been in your restaurant will most likely yield the greatest return on marketing dollars.

Of other factors that will determine how much you need to budget, your location, visibility, and accessability are the most important. A good location, combined with ease of access, and visible, well designed signage can go a long ways to drive traffic into your business, eliminating some of the need for costly marketing campaigns.

Your message itself will also affect how much you will have to spend on marketing too. If you have a good unique selling proposition, and use it effectively, you’ll have to spend less to get people in your door. If your concept is confusing to people, if you try to be too many different things to too many people, or if you fail to follow through with your USP’s promise, you’ll have a hard time filling seats no matter how much you spend.

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Instilling ownership in your employees?

Posted on February 1, 2008 | Leave a comment

You’re not comfortable with the level of effort your staff is putting forth lately. You get the urge to give the “it’s your restaurant too” speech. Is it a good idea?

I don’t know if I’d want my staff thinking they owned my restaurant. While it’s nice to think we can motivate people to behave like they owned the place, without actually owning some place, they simply can’t know how to behave that way. Most employees see owners as lazy, and as someone whose job they could easily do, mainly because they have no clue what their job is.

If you are really looking to get something done that isn’t getting done, the way to do it is through your systems. Add it as someone’s job. That way you’ll never have the “It’s not my job!” excuse. When someone uses that line, the first thing to do to combat that attitude is to make whatever it is you are talking about part of their regular duties. That way, when they say “It’s not my job!”, you can come back with, “It is now.”. The next time they see something that needs done, but it isn’t their job, they’ll be that much more likely to take care of it that one time so it’s not made a permanent duty of theirs.

If you are looking to make your employees understand better what it means to be an owner, make them see the financial picture in your restaurant. Play the “restaurant game”.

Have a staff meeting and hand each of the employees $100, representing your sales. Tell them you are going to let them know what it is like to be in the restaurant business. Talk to them about each of your expenses one by one, and take away a portion of their $100 to signify what you pay for each of those expenses. By the time you take $35 to pay for food, $30 to pay for their wages, $12 to pay your rent and occupancy costs, then dollar after dollar for each of your other expenses and taxes until they are left with $4 or so, if anything, they’ll start to get the picture of what it is you go through. If you are losing money, this is even more effective because you can ask them to pay you after you take all their $100.

Getting your employees to empathize with you is a very powerful motivation tool, especially if they understand that the more money you make, the more money you have to pay them. Further explaining how seemingly little actions, like helping to make sure the restaurant’s appearance is up to par, directly or indirectly effect profitability will help to motivate them to consider things outside of their normal job descriptions to help you, and in turn them, become more profitable.

I don’t think I would want my employees thinking they owned my restaurant. That’s like letting the patients think they own the asylum.

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Unique selling point – vol. 2

Posted on January 31, 2008 | 1 Comment

See “Unique selling points – vol. 1
I hear all the time from owners and operators that companies like Applebee’s are successful because of their big advertising budgets. I say “bull”. Applebee’s, for example, is successful because of it’s branding. It’s the effectiveness of their marketing that gives them their competitive advantage, not the number of dollars they sink into it. Branding yourself is more than just employing millions of dollars worth of repetitive marketing. That is not why the marketing programs for chains work.

Branding yourself starts, the whole marketing program starts, with choosing a unique selling point, choosing that thing that makes you different. Here’s a clue for that thing; It’s NOT your food or service. If you’re running around telling everyone your food is better, you sound just like everyone else. That’s not unique, it’s the opposite of unique. No matter how much you tell everyone how great your food or service is, you’re not giving them any reason to come to you that all your competitors aren’t also giving them. Point of clarification: ALL YOUR COMPETITORS THINK THEY HAVE BETTER FOOD AND SERVICE THAN YOU, AND THEY TELL EVERYONE THEY CAN.

While there are people that will say a certain place has the best food, or the best service, these are only perceptions, and perceptions can be based as much on a businesses marketing as it can it’s product. Keep in mind, there are millions of people out there that think Applebee’s food is better than anyone’s, including yours. Is that an opinion based on any type of objective analysis or professional expertise? NO! It’s an opinion, most likely driven by emotion, the emotional bond Applebee’s has formed with that customer. Let’s face it, 9oz steaks and microwaved vegetables are NOT better than your food. No way. But…. to those people that go to Applebee’s religiously, it’s perceived as better, or at least a better value, and perception is reality.

So Applebee’s has millions of marketing dollars to brainwash their customers, and that’s why so many people think they’re the best, right? WRONG! It’s not the marketing dollars that create the perception, it’s the effectiveness of the message.

One thing Applebee’s did from the beginning, back in 1980 I think, they chose a unique selling point. They created a story or an image that separated them from their competition. Then they created a moniker to support it, and designed their store around that USP. Applebee’s markets themselves as “America’s favorite neighbor”. They sell their customers a sense of community, whether their customers recognize it or not. Notice the unpretentious design to the inside of an Applebees. The stained glass windows in the door. The fixtures that almost make you think of the nice old couple down the block. Notice how they make an effort to decorate their stores with photos and memorabilia from the city or region that the store is in, or when they can’t, other items you would expect to see in that nice old couples garage or house.

Applebee’s sells their customers a sense of community. They want to be viewed as that favorite neighbor on the block, that nice old couple down the street. By doing this, they attach themselves to an emotion present in everyone, the need for community, the comfort of being at a beloved neighbor’s house.

THAT is a USP. Notice, I didn’t once mention food or service anywhere. Food and service can also back up the USP, but it can’t BE the USP, because there is nothing unique about claiming you have better food or service than anyone. A USP separates you from your competition, it doesn’t lump you into the same group. Then, when you have built your concept effectively around a USP, you will begin to make that emotional connection to your customer that is stronger than any connection you can make with your food or service. If you’re really good at delivering on your USP, and you push it in all your marketing from your logo to your ads, you will effectively brand your restaurant as THE place to go when customers want to feel the way your USP claims you will make them feel.

Emotions are the primary reason for humans to make any buying decision. Big corporations know this, and they employ marketing companies that help them exploit this. Armed with emotion marketing, the quality of food and service becomes secondary, as people can be marketed into believing food and service is actually better than it is. As I’ve said many times, that doesn’t mean good food and service aren’t important, it just means they are a minimum requirement for being successful, not the primary reason for it.

Once again, it’s not the big ad budget that makes companies like Applebee’s strong. It’s the effectiveness of that marketing message.

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Stick to the news, Mr. Markel

Posted on January 15, 2008 | 3 Comments

Alex Markels a writer for US News & World Report made the following observations regarding the success of Chipotle Mexican Grill, a high volume fast casual concept.

A Tested Recipe: Five Ingredients
Five lessons for start-ups from Chipotle Mexican Grill
By Alex Markels
Posted January 9, 2008

It’s the food, stupid. Its hip surroundings and green ethic notwithstanding, Chipotle succeeds because its food tastes better than the competition’s. Customers pay an average of about $9 for the privilege.

Keep it simple! With just three menu items, Chipotle takes advantage of a straightforward production process that keeps costs low.

Fast is still important. As good as Chipotle’s burritos taste, customers won’t line up for them if the line doesn’t move quickly. And now they can preorder their food online.

There’s always room for improvement. Chipotle upgrades ingredients and processes. Example: ceo Steve Ells found that salsa tastes better when onions are cut by hand instead of by machine.

Embrace your “enemy.” Ells shrugged off investment bankers and venture capitalists in favor of McDonald’s to grow the business. The chain helped with purchasing and distribution, too.

I’d have to disagree with Mr. Markels first point. While Chipotle does offer better ingredients than Taco Bell and some other fast food, it can’t touch the quality of food put out by authentic Mexican fast food restaurants. I don’t taste the real chiles in the meat (though they’re certainly there in the sauces), and there are some authentic Mexican seasonings I don’t taste in the meat such as cinnamon. I still think their food is good, but I would put them barely in the top 50% of what’s available in my area and many others that I’ve been to as far as food quality goes. They only rank just above the other fast food chains, but below the fast food independents. I will say that their sauces suit my personal taste though.

I would replace “It’s the food, stupid” with two other reasons for success. “It’s the marketing” and “It’s the business model”. Chipotle’s concept design as a “fast casual” themed restaurant instead of “fast food” made it a market leader (once McDonalds gave them the money to go national). They gave customers a better atmosphere to eat Mexican fast food, and they were the first in the market, something that is very important to be a market leader. At the time, this gave them a unique selling proposition, something else extremely important to success.

They are also “masters of the promotion”, and find ingenious ways to attract people to their restaurant on less than well known “holidays” such as Tax Day, April 15th, where many Chipotles handed out mock tax forms called the “BurritoEZ”, which customers could fill out for a free burrito.

The “green” building practice is also a function of marketing, as well as their emphasis on the integrity of their purchasing practices, which get’s promoted in their stores.

Their business model is another huge reason for their success. The single most important aspect of achieving an incredible growth rate is having a business model that offers an incredible return on investment. Partnering with a company with “unlimited” resources like McDonalds doesn’t hurt either, but that partnership wouldn’t have happened if Chiptle didn’t already have a business model that made it a great investment, in a segment (Mexican) that was growing fiercely. Another good example of a company whose marketing and business model overshadow the food they are so proud of is Subway. When you can return an investors total investment in 2 to 3 years, you are going to have a lot more investors interested in opening your concept. In Chipotle’s case, instead of franchising, they attracted McDonalds as a business partner, whose capital grew them from 14 stores to 500 stores. The food didn’t facilitate that, there’s plenty of better fast Mexican food out there. Neither did demand for their product, they were a very small chain when McDonalds got involved. Brilliant marketing and an attractive business model is what made them in my opinion.

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You do have a customer database, don’t you?

Posted on January 15, 2008 | 3 Comments

Communication. In one form or another, it may be the most important thing that happens within a restaurant. Just like your employees, your customers need to know what is going on in your business. How do you communicate with them?

If there is one thing I try to get across to every business owner, it’s that no matter how great your product is, if no one knows about it, it won’t sell. This fact makes marketing your most important job as a restaurant owner. You have an obligation to yourself to build relationships with your guests, and to let them know, with plenty of notice, every special thing that is going to happen in your business. The most effective way to do this is by collecting contact information from your customers and building a customer database.

A customer database is made up of key facts about every customer that comes into your restaurant. Your database should contain first and last names and addresses of your customers at a minimum. Email addresses, telephone numbers, birthdays, and anniversaries can help you make easier contact with customers and tailor special offers to them. You may also want to know favorite dishes, dislikes, and what day you collected the information.

The biggest benefit of a customer database is giving you the ability to spend your marketing dollars on those most likely to come into your restaurant… I’m talking about those who have already been there. To many owners, spending their marketing dollars on people who already know about their business seems like a waste of money, but the truth is that the greatest potential for increasing sales lies with those who already know where you are located, what you sell, and how great a value it is. These are the people who take the least convincing. You already have a relationship with these people.

Think about it, if you were giving away free booze to attract people to your house for a party, who are most likely to come, complete strangers or people who have been to your parties before? Your business is no different. Convincing people to come back more often than they had already planned is much easier that attracting new people, whether it’s a house party or a restaurant.

By collecting information from your customers, you give yourself the means to invite them back more frequently, to try and make them regular guests. You have the opportunity to get them to come back when YOU want them back, not just when the mood hits THEM.

There are several ways to collect customer information. You can simply ask for it, hand out comment cards with blanks to fill in with their information, offer a signup for a “VIP” club, or collect information for a prize giveaway. You may also want to think about contacting other merchants in your area to see if they have customer databases they may want to trade with you. Someone who visits another business close to you is also likely to give you a try since they make regular visits to the area.

Once you collect your customers’ information, you have many options on how to use it. With email addresses, you have an almost free way to communicate with your customers. Not all customers have email though, and some that do may not respond to email advertising. Direct mail newsletters are another option you have to contact customers. Newsletters can be used as more than advertising, you can offer stories about your restaurant, your employees, and your customers. You may even want to start a “Customer/Employee of the Month” contest and publish the winners in your newsletter. Another option is good ‘ol fashioned direct mail offers. You can print a postcard with your latest offer or invitation to come to a special event. Since the people you are sending these print pieces to are familiar with your business, they are more likely to respond to your direct mail than a recipient from a mailing list you bought.

No matter how you communicate with your customers now, if you don’t have a customer database, you’re leaving money on the table.

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Unique selling point – vol. 1

Posted on January 13, 2008 | 1 Comment

Excerpt from a forum post to an Indian restaurant owner: 

A unique selling point stays away from claims about “better food” and “better service”. Those are minimum expectations of your customers, not reasons to choose you over your competition. Sure, you may be able to get that very small market of people looking for Indian food by being the only Indian restaurant around, but you’ll starve to death if you’re depending on that market. Your market must be bigger and transcend your food. Good food and service don’t make restaurants profitable. They’re not even a necessary ingredient though they help. Having good management systems and marketing, then consistently meeting the expectations of your customers whether high or low is what makes restaurants profitable.

I’m not saying all of those points aren’t important to the success of your restaurant, I’m just saying none of them provide your target market with a reason to go to your restaurant over the one down the road.

People DO NOT buy products, they buy emotions. A USP expounds on whatever emotion you are offering to your customers. Talking about your food, and your chef will win over a small amount of people, but the majority of people are looking to get some sort of feeling by visiting your restaurant, or in anything they do for that matter. If you market correctly, whenever they are in the mood to feel the way your restaurant makes them feel, they will think only of you, because your USP is truly unique. Now, you have to decide what feeling you want your customers to associate with your restaurant. Something unique to start. Then you do ONE THING (or more) that none of your competition does and give them that feeling you are selling them. Then, they’ll remember you and you’ll have a competitive edge on your competition. Then, your target market grows past people that just want great Indian food, to people that want to feel the way your restaurant makes them feel.

Think more along the lines of some of these feelings other restaurants sell:

“I’m selling stature, not food.”
Roll out a red carpet. Use crystal glassware. Real silver. Have a valet. Call every guest by name. Make sure the name of the restaurant suggests “stature”. TELL your customers visiting your restaurant will impress their friends.

“I’m selling speed. Not food.”
Offer fast service. Put a time limit guarantee on getting your product to them. Arrange your restaurant to cut steps out getting food to the customer. Have your restaurant’s name suggest “speed”. TELL your customers you are the fastest place in town to eat.

“I’m selling sex. Not food.”
Hire attractive waitresses. Dress your waitresses in short shorts and tight tops. Teach them to flirt. Name your store a sexually suggestive name. TELL your customers it’s the place to go to be waited on by beautiful women.

“I’m selling nostalgia. Not food.”
Collect memorabilia from a certain era or genre. Display it in your restaurant with stories about the pieces. Decorate the store in the style of the era or genre. Give your restaurant a name that suggests “nostalgia” for that era or genre.

“I’m selling accomodation. Not food.”
Encourage your customers to customize your menu items. Allow substitutions and many choices. Adopt a moniker that says you’re accomodating and market the heck out of it. Use a name that implies “accomodation”.

“I’m selling fun. Not food.”
Build a playground in your restaurant. Use cartoon characters and marketing partnerships with kids movies in your menu selections and marketing. Use colors in your restaurant that appeal to kids. Use a name that implies “fun”.

Well established brands realized long ago that only a few people come to them because they like their food better than any other restaurant. They know that people have to be thinking about you when they’re hungry to keep you at the top of their mind when they’re thinking of places to eat. They know that feelings and emotions create stronger memories and associations than any of the 5 senses.

What are you selling? If it’s food and service, don’t expect too many people to get very excited about it. They can get that anywhere.

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Steps to effective problem solving

Posted on January 10, 2008 | Leave a comment

Effective problem solving is not a skill that comes to most people naturally. It is a taught skill that must be practiced to become effective, a structure in the way you approach every problem you tackle. The following problem solving system is derived from a version of the scientific method I was taught at a very young age. One factor that classic versions of the scientific method do not take into account is perceived problems. A few of the problems facing the foodservice industry today are problems not derived from ineffective systems or procedures. They are derived from incorrect perceptions from our target audience.

What is a perceived problem? A perceived problem is a conclusion that some or many of your target audience have come to that may or may not be correct. Sounds confusing, doesn’t it? Ever wondered why you can please all of the people some of the time and some of the people all of the time but never all of the people all of the time? Every person that comes in contact with you or your business will take away a different perception of you no matter how identical you act to everyone who walks in the front door. Every person will have their own perception of you.

Is perception important? Your friends or customers perception is actually more important than the facts. If the service in your restaurant is fantastic, but 2 percent of your clients believe your service is horrible, who’s correct? In the case of that 2 percent, they are. Will you sway their opinion by simply stating that they are incorrect because 98% of your clientele believes you give great service? Probably not. Is there really an actual problem with your service if 98% of the people are satisfied? Once again, probably not. Most lump this hypothetical 2% of customers into the category of people that you cannot please. I say it’s not true. In this case, the 2%’s perception of bad service in your restaurant is their reality, which makes it your reality in relation to them. Perception is always more important than reality.

            Can you change people’s perception of you or your restaurant? Absolutely. Rather than ignoring the opinions of a minority of people who think a different way than everyone else, try to form a different solution of how to please them in comparison with everyone else. Most often the conflicting perception of the minority in relation to the majority is caused by a different set of values they have in relation to a certain subject. While the majority of people may consider great service to mean they receive every item they need to make their meal complete without having to ask for it, other people may simply judge service by how friendly the server was despite a few mistakes here and there. Others still may judge service exclusively on speed while some judge it on formality. The differences in perceptions are infinite, but the reality is; you can change people’s perception of your restaurant if you can identify the cause of their perception. This is where an effective problem solving technique comes in to play.

             Studying and repeating this technique could help you become a more efficient problem solver. You may also find you are able to solve some problems you previously thought unsolvable. These seven steps can be related to personal, professional and scientific problems alike. Keep an open mind.


The Seven Steps to Effective Problem Solving 

  1. Evaluate – Identify your problem first. A problem is an effect resulting from an unidentified cause in a particular scenario.

There are two types of problems

a.            actual – an actual problem is identified by observing a direct and provable correlation between a cause and an effect without variation; the cause always produces the same effect in a given scenario. Perceived problems can always be broken down into one or more actual problems.

b.            perceived – this is a problem identified by witnessing an effect that cannot be created by repeating a cause; a repeated cause creates a different effect in identical scenarios. A perceived problem can be identified but cannot be solved until one or more actual problems are identified that create the perceived problem.To form a correct solution we have to identify the actual problem/s.

  1. Investigate – Ask questions. Who, what, when where, why, how. Ask every one of these questions for each problem identified. Do not assume.
  2. Hypothesize – Form an educated guess based on questions asked. What do you think the cause is?
  3. Analyze – Take apart a problem into base components. What are the most basic parts of the problem? If a problem is too complex to understand, it should be broken into smaller problems that make up the whole problem. Solve all the smaller problems separately to solve the whole problem. Gather information by experimenting with controls and variables using your hypothesis.

a.            controls – perform different tests in an identical scenario to attempt to recreate the same cause and effect; record the results

b.            variables – perform one test in different scenarios to attempt to recreate the same cause and effect; record the resultsThe cause of the problem will be identified when a common cause and corresponding effect is discovered to repeat itself in a particular scenario.

  1. Reevaluate – Identify the problem again to make sure it was correctly evaluated. If it is determined that the problem is perceived, analyze it until the actual problems that make it up are identified and restate the problem. Repeat from step 1 with the restated actual problem. If multiple restated actual problems are identified, the process must be repeated with each actual problem to solve the perceived problem.
  2. Synthesize – Put all information back together in a logical order.

Cause + Scenario = Effect.

  1. Conclude – Test the information. If the problem was correctly identified, and the correct cause of the problem found, the same effect should result from the same cause in the same scenario every time. Include in your conclusion any perceived problems and incorrect causes that were identified before they were broken down into actual problems. Restate the actual problem by identifying the cause and effect in the particular scenario. Identify a solution by changing the cause of the problem in the particular scenario to create a desired effect. Use a formula that you know already works for you or someone else.

  Key Words

Problem – an effect resulting from an unidentified cause in a particular scenario 

Cause – the catalyst that begins a problem Scenario – the conditions necessary to make a particular cause create a particular effect 

Effect – the result of a problem 

Actual problem – an actual problem is identified by observing a direct and provable correlation between a cause and an effect without variation; the cause always produces the same effect in a given scenario. Perceived problems can always be broken down into one or more actual problems. 

Perceived problem – this is a problem identified by witnessing an effect that cannot be created by repeating a cause; a repeated cause creates a different effect in identical scenarios. A perceived problem can be identified but cannot be solved until one or more actual problems are identified that create the perceived problem. 

Control – particular scenario used to prove or disprove a hypothesis with different causes and effects 

Variables – different scenarios used to prove or disprove a hypothesis with the same cause and effect   Memorize these steps in order until they are a natural thought process when confronted with a problem. You will become a more efficient problem solver.

Evaluate

Investigate

Hypothesize

Analyze

Reevaluate

Synthesize

Conclude

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What makes a successful restaurant?

Posted on January 10, 2008 | 2 Comments

You won’t be able to find the answer as to what it is exactly that makes a restaurant successful in any forum. Without experiencing it for yourself, it’s tough to imagine that a restaurant is one of the most complicated businesses you can run. Most businesses are pretty simple. You buy a product, mark it up enough to cover your overhead, and hire people who can sell it effectively and count change, or you manage a warehouse, a sales team, a manufacturing line or a specific service your business offers.

A restaurant is so much more complicated than that. First, you are more than a retailer. You are running a warehouse. You have to have the same skills a good warehouse manager has, including a system for checking everything in and out of inventory, protecting your product from theft, knowing how to keep your vendors honest in their pricing and their service, tracking and recording all your purchases and usage. All of this for a 200 item inventory of PERISHABLE goods, not just pieces that can be stored indefinately.

You are also a manufacturer. You have to run several assembly lines at once, and fill the orders for your product faster than any manufacturing line ever has to. You’re not just making one product either. Usually, it’s at least 20, sometimes as many as 100 different products, all with the same employees. The parts for these products are also perishable. If your warehousing systems aren’t good, it can ruin the manufacturing of the products. If your products aren’t getting made efficiently, consistently, and cost effectively, the whole ship will go down.

You are also a delivery service. You have to have systems for delivering a product with a very short life span to the right place within a time limit, all the while doublechecking that the manufacturing of the product meets standards. The delivery systems inside your restaurant is even more important than any you might offer outside the four walls.

You’re running a sales team too. Your front of house staff have to not only be experts on your product, but also know how to sell customers your highest profit products. You’re margin for error on staffing sales personnel alone could sink you. Without effective sales staff, or staff with the ability to communicate work with the other systems in place, the whole system won’t work.

You are also a service provider. In addition to being your sales force, your front of house staff are also customer service representatives. The number of things that can go wrong within this entire complicated system are enormous. Your FOH staff have to make sure none of those mistakes ever effect the customer. That’s a big task.

You may also be a repair service and a custodian to your own building if you don’t want to pay someone else to do it. There is a lot of equipment in a restaurant to break, and a lot of square footage to keep clean. A breakdown in either of these operating systems could also ruin your business.

All this before we even make it to the management. Managers and owners in restaurants have to know how to run all these different types of businesses under one roof, in addition to being bookkeepers, expert marketers, graphic designers, realtors and human resource pros, while keeping up on legal issues from labor law to health codes, building codes and city ordinances. Not an easy task while you’re supervising a team full of low wage employees. It’s not easy finding managers with all these skills at the wages restaurants can afford to pay. It’s not even easy to have all these skills as the owner. With all the rest of this to consider, how can you even fathom how to price your product to pay for everything? Most owners can’t. They guess, or they use some bad math someone else taught them that doesn’t take into account the unique financial situation of their own restaurant, or the market they are competing in. Then they guess at what a good purchasing contract with their vendors is, they guess at whether their lease is a good one, and they bet on their food being SO good, people will line up at their door to get it.

A lack of experience in any one area of a restaurant can sink it. That doesn’t mean it will, many bad restaurants make money DESPITE the mistakes of their managers and owners, but that doesn’t make it a good idea to try. My advice to anyone opening a restaurant without experience is to use someone else’s. Either pay someone knowledgable to teach you what you don’t know, or open a franchise where all the planning is done for you and the operating systems are already in place.

If you are looking for reasons why restaurants fail, they are easy to find. There are a million of them. If you are looking for reasons why restaurants succeed, that’s a tougher task. I think marketing is the most important thing an owner does, but any one thing they don’t do in their business can counteract their greatest strength, even a natural knack for marketing.

Maybe after all this, you can see why I say that great food just isn’t enough. It’s only the minimum necessary requirement to running a successful restaurant. There is so much more.

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I need a good incentive program that is fair to everyone.

Posted on January 10, 2008 | Leave a comment

I suggest only using one thing to base your incentives on, the only thing that really matters, which is profit.

Whether you are encouraging upselling or controlling food costs, the ultimate goal is more profit to you. So rather than encouraging different segments of the staff to concentrate on different parts of the P&L, and setting the stage for them to fight with each other over what the other one is doing that is hurting their bonus, just cut out all the questions and bonus based strictly on your profit. From there, you have to educate your staff on all the nuances of achieving profitability. Then everyone has a common goal, and you don’t have issues like kitchen staff skimping on portions to try and hit a bonus. Bonusing someone for controlling your food costs doesn’t translate into profit if they also dissapoint your customers.

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