Tag Archives | Restaurant Manager

Key Numbers To Watch In Your Restaurant Business

restaurant-businessTo build and maintain a successful restaurant business, you need to constantly keep your thumb on its pulse and know how fast its heart is beating. You need to be checking the key numbers.

Obviously, your cash registers and your accounting system will provide you with some very important information. That’s the good news. The bad news is, knowing how you did last week or last month may not be a very good indicator of where your restaurant sales will be next week or next month.

Any type of financial data that you can get from the accounting system is known as “lagging” indicators. These indicators tell you what happened. They won’t tell you much about what is about to happen. However, they are still important.

Here are the most important numbers you need to monitor:

  • Weekly sales, total per week/day and also by the hour (you can then create a simple Excel chart and see weekly and daily peaks and valley and also be able to identify over-staffing & capacity issues)
  • Weekly profit (Many restaurant owners mistaken “gross” for “net” and assume that the more gross you have the more money you make. Well, as the song goes, “it ain’t necessarily so.”)
  • Weekly payroll
  • Product group contributions (the percentages of your total sales attributed to drinks, entrees, appetizers, and desserts)

If you manage your restaurant business by relying just on the lagging indicators, you could be looking for trouble. It’s akin to driving a car by looking in the rear mirror all the time.

If you want to have a way of predicting how your restaurant business is going to do in the near future, you need to implement and track a few “leading” indicators.

  • The total number of VIP Club members
  • The number of new VIP Club members added to the list over the last period
  • The number of Birthday Club members on the list
  • The number of catering sales calls made (if you do catering)

Some of the leading indicators are much harder to measure. They tend to be “soft” and qualitative, rather than “hard” and quantitative like the lagging indicators. After all, how do you measure the morale of your staff and how much they enjoy working at your restaurant? How can you confidently know that this week they were greeting guests more cheerfully than a week ago?

Well, these are certainly harder but not impossible to measure:

  • You can use comment cards and evaluation forms that customers fill out at the request of your staff.
  • You can hire a mystery shopping company or — better yet — turn you best customers into mystery shoppers.
  • You can talk to the staff regularly and fill out a simple form at the end of the day, and then tabulate the results weekly and monthly.

There you have it.

Now, let’s get to work and start keeping track of the important things in your business.

The list of indicators above is very short. However, if you implement just half of these indicators in your restaurant business and consistently track them, you will be in the top 5% of the most successful restaurants.

170 Disgruntled Customers

Disgruntled CustomersWe’ve all had one of these …

Last year Irina and I were on a business trip to Salt Lake City. We had some time to explore the area and found ourselves in a small town halfway between the city and Antelope Island. It was dinner time and a small constellation of restaurants just off the freeway looked very inviting.

A Vietnamese place seemed like a good idea. We got in and placed an order. Fifteen minutes later, out came our appetizers — “fresh” rolls. The very first bite revealed a stink coming from what looked like a strip of pork gone bad inside the roll. Cancel the order we did, and out the door we went, still starving and ready to settle for anything that would be borderline edible.

Where am I going with this?

There are a lot of moving parts in your business. Many things may go wrong. You don’t have to try to kill someone to spoil their experience. It could simply be slow service or the way your staff treated the customers.

Granted, it’s hard to deliver great food and outstanding service with machine-like consistency, especially with the minimum-wage workforce in your employ. But the price of not doing that could be too high.

How high, you may ask?

Let’s put some numbers on it. The best related stats I know of come from a customer research company called TARP, based Arlington, Virginia. Here’s what TARP research has to say that is important to this discussion:

  • On average, one disgruntled customer will share their experience with 12 other people;
  • Each of those 12 people will in turn mention it to 6 others
  • And if you add the original customer who actually had the bad experience, we are talking about (1 person you pissed off) + (12 people that person has talked to) + (12 groups * 6 people they contacted) = 85 people will no longer think very highly of your restaurant just because of a little mess-up!

And we’re not done yet.

If you think that most dining parties are made of two people, you have to multiply that 85 by 2, giving us a total of 170 people you have no hope of EVER doing business with!

We should also think about ChowHound and gazillions of similar sites where people discuss their restaurant experiences. There could be half a dozen sites covering your restaurant and you may not even know it! Your mess-up may end up being inspected by thousands of people trying to decide where they’re going to eat tonight.

Going back to my story, we didn’t know anyone locally to share our experience with so it’s hard to calculate the real damage there. But we are definitely not going back there this August when we visit Salt Lake City again. And hey, I’m writing about that incident here in this blog, right?

Now let’s try to put a price tag on this.

There are 2 ways to do that.

One is to use the Average Lifetime Profit Value. Say, your guests come — on average — 4 times a year for 5 years. That’s 20 checks. And let’s say they typically spend $24. So a guest is worth to you $480 in potential revenue or $160 in gross profits (at a very hypothetical 1/3 food cost, 1/3 labor, and 1/3 gross). Multiply that by 170 (the number of customers that one bad dining experience could cost your restaurant) and that’s $27,200.00 in lost profits!

The second way to see this is to look at your marketing cost. How much would you have to spend on marketing to get 170 people in? If you don’t know that number, you should. I betcha your Yellow Pages ad doesn’t pull in that many peopl,e and it costs you many thousands of dollars.

Now, given these numbers, how many “little mess-ups” can you afford before it’s all over?