Restaurants, bars, and cafes must run tight ships if they are to be profitable in the food and beverage industry. Finding ways to cut costs while increasing revenue is essential for these businesses and cannot be overstated.
Restaurants, cafes, and bars run on slim margins spending, on average, 85% to 95% of all revenue on operating the business and paying employees. That leaves only 5% to 15% net profit for the business. If we imagine an average sized restaurant is bringing in $2 million per year gross, that’s $100,000 to $300,000 in profit per year and every percent of reduced costs adds another $20,000 in profit.
We’ve compiled a list of ways in which a restaurant or bar can cut costs. This is by no means a comprehensive list but it’s a wonderful starting point.
The Pareto Principle
First on the list is less a specific action but more of an overall strategy. Put simply, the Pareto Principle (or 80/20 rule) states that 80% of consequences come from 20% of the causes. To put it another way, 80% of your profit comes from 20% of your effort while the remaining 20% of your profit comes from 80% of your effort.
This can be applied in countless ways. For example, if you look at your menu you’ll probably find that 20% of your meals accounts to 80% of what you sell. Those meals you shouldn’t touch but the remaining 80% of meals should be looked at with a critical eye. Which meals in the remaining 80% cost more to produce or have thinner profit margins? By eliminating those meals you can run a more efficient kitchen as well as reduce food costs.
Reduce Energy Costs
You can save quite a bit by reducing your electricity bill. For example, check the temperature of your refrigerators against the recommended set point to see if you’re running them colder than necessary. Quite a few food and beverage run their refrigerators at a colder temperature than necessary which eats into profits. While you’re at it, modern thermostats allow you to set timers to schedule air conditioning and heating for your restaurant. You can set them to turn off outside of business hours and on when you’re open.
Track Your Marketing
A good rule of thumb is the old adage “what gets tracked gets managed.” For every dollar spent on marketing, you should be able to calculate a return on investment (ROI). If you have no way to measure your ROI then you don’t know whether it is making you a return. Fortunately, there are ways of tracking marketing efforts such as adding a unique coupon code for an ad in a local newsletter. By comparing how many customers used that coupon against what was spent on the ad, you have a rough way to learn whether the campaign worked. The Aislelabs platform has a suite of advanced tools that allow you to understand your marketing spend vs. ROI to optimize digital campaigns.
In part two we’ll touch on a few more tips on how to optimize your restaurant or cafe and help maximize profit.