Maintaining a healthy bottom line in your restaurant is integral to your survival and success. Maintaining a balanced budget requires constant monitoring and review. Below are five ways to help protect and improve your bottom line.
1. Effective recipe costing
Two key priorities in maintaining your restaurant’s bottom line are recipe costing and menu pricing. You can have the best customer service, the best atmosphere and the tastiest food, but if you are not earning proper margins on that fantastic menu, your restaurant will not survive. Make sure you break down your cost per plate and price menu items accordingly in order to protect your bottom line.
My work has allowed me to speak with many restaurant operators over the years. Many of them tell me the same story: They cost out their menu and are confident of the margins, but a year later the price margins have changed and they are losing money due to rising ingredient costs.
When looking at current menu costs, they find out the signature dish they thought was being sold with a food cost percentage of 32 percent was actually being sold at more than 40 percent. Realizing these numbers and reacting to them by adjusting pricing, sourcing less expensive suppliers or adjusting portioning is an important step in preserving your bottom line.
2. Over-portioning menu items
Over-portioning can contribute to significant potential revenue loss in your restaurant. Whether in the kitchen or in the bar area, over-portioning adds up over time and can contribute to a significant loss in potential revenue. Minimizing over-portioning, theft and waste will help maintain and increase profitability.
Over-portioning can also be a problem when it comes to consistency of product. When a customer visits your restaurant regularly and gets a large portion one day and a normal portion the next, they will undoubtedly be disappointed, and you could lose the customer permanently.
3. Inventory management and wasted ingredients
As food and liquor costs continue to rise, ensuring an accurate and efficient inventory management system is key to maintaining a healthy bottom line. Ineffective inventory management can lead to wasted ingredients or running out of essentials, both of which threaten profitability.
If you are carrying too much inventory for the sales you are generating, you have money on your shelf that is doing nothing for you. It is extremely important that you order quality products, rotate those products and carry the proper amount of stock. Implementing an effective inventory management system that ensures accuracy and consistency will help preserve your profits as food and liquor costs continue to rise.
4. Outdated operating systems
Operating outdated systems can drastically reduce efficiency, which can have significant effects on your bottom line. Implementing a modern operating system helps maximize efficiency and accuracy with digital inventory tracking and ordering, taking customer orders, accepting online orders, managing reservations and more. Streamlining business operations and minimizing the occurrence of wasted resources will contribute to a healthy bottom line.
5. Increasing costs
Food and liquor costs are increasing due to rising transportation and labor costs in the supply chain. This directly impacts the bottom line and forces menu price hikes to compensate for the increases.
Resist the temptation to increase menu prices as a knee-jerk reaction. Customers will notice prices creeping up; this could sour your relationship and lower your sales. A better approach is to monitor food and labor increases and perhaps make quarterly price adjustments. Introducing new menu items that have a lower food cost to offset your rising costs, or introducing small price increases on a few key items are two strategies that are much more effective than menu-wide increases all at once. Something as simple as implementing a 25-cent increase on three of the most popular items can increase your bottom line significantly.
Jeff Hands is a restaurateur and president of TracRite Software. He has been helping restaurant and hospitality owners increase profitability for over 20 years. TracRite Software develops Optimum Control, a leading inventory management software for the hospitality industry, with applications for restaurants, bars, hotels, resorts, and more worldwide.