Restaurant revenue management


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Restaurant revenue management

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Restaurant revenue management

  1. 1. Restaurant revenue managementEvery restaurateur understands the importance of keeping food costs in line. Food andlabor are the controllable costs compared to rent, utilities, insurance and the otherexpenses associated with operating a restaurant. The reason it is critical to control foodcosts is because, when combined with payroll, these expenses account for 60 to 70percent or more of total revenue.Contribution MarginsFood cost percentage remains the most commonly used metric for assessing effective costcontrols (and bonuses!), but its actually contribution margin which should serve as thedriver for creating and designing a menu—contribution margin equals the dollars you putin the bank.A simple question should make the distinction clear: Should a restaurant sell steak for$45 that costs you $18, or an entree salad for $12 that costs you $2. While the food costpercentage of the salad is 17% compared to 40% for the steak, the steak will contribute$27 to gross revenue as opposed to $10 for the pasta. Contribution margin then is basedon the dollars you take to the bank.Designing a MenuThere is much more to creating a menu than most people realize. One of the greatest toolsthat is typically overlooked might mean the difference between a profitable restaurant anda liquidation sale. This tool, along with techniques for utilizing it, is known as menuengineering. Quite simply, it is the process of selecting, costing, pricing and evaluatingevery item on the menu.Make no mistake, menu engineering is never a substitute for accurate purchasing,inventory management, vendor relations, standardized recipes or any of the other basickitchen controls that can negatively impact your costs. It does, however, provide two keybits of information regarding a menu item: its profitability and its popularity.Menu engineering is as simple as taking a proactive planning approach in recipe design,allowing for more accurate pricing decisions to be made. It is a method of evaluatingevery item on your menu relative to its present contribution to the bottom line and notnecessarily food cost percentage.Tracking the Popularity of Menu ItemsWhile a menu items contribution margin tells us how many dollars each individual salecontributes to the cash register, you need to know how popular each item is to determine
  2. 2. the total dollars it contributes to the restaurants revenue. For example, a popular itemwith a high contribution margin is a "star" while an unpopular item with a lowcontribution margin is a "dog." Menu engineering, therefore, takes each menu itemscontribution margin and its popularity into account to determine into which of fourcategories it falls: star, workhorse, cash cow or dog.Take Action Based on the ResultsKeep the stars and dump the dogs. Thats Restaurant Management 101.Ingenuity is now required to deal effectively with cash cows and workhorses. Start withthe cash cows. These items are higher in profitability but lower in popularity. The trick isto make them more popular. There are many ways to accomplish this including changingthe preparation (e.g., beef tenderloin with blue cheese may be more popular than beeftenderloin with mushroom sauce, but still just as profitable), updating the menu name ordescription, or revamping the plate presentation to make the dish look and sound moreappealing to the customer.Workhorses are a menus popular items that have less-than-ideal profit margins. The bestopportunities to increase menu profitability are found with these. The key withworkhorses is to re-engineer the menu item to reduce its cost while at the same time notreducing its popularity. The simplest solution is to increase the price of the dish, but thisis not always practical and may negatively impact its popularity.An alternative might involve substituting a single, relatively expensive ingredient for aone that is less costly, such as using bacon instead of prosciutto. Or it might involvesubstituting one cut of meat for a less expensive one, knowing that the preparation iswhat makes the dish popular. It could be as simple as using a less expensive garnish, ornone at all.Controlling Costs is KeyNow its easy to see how this information allows for the proactive management of amenu. From collaborations with the kitchen to making small changes with prices, menuengineering can be utilitized to effectively manage a key aspect of your food costs andput money in the bank! – You can download free ebooks about: restaurantmanagement forms, restaurant business plan, restaurant marketing plan sample,restaurant startup guide…