A Restaurant Consultants Layman’s Guide to Operations

A Restaurant Consultants Layman’s Guide to Operations

Some practical tips on assessing your restaurant’s performance

Restaurant revenues are based on science, numbers and economic modeling. Achieving the maximum yield per square foot and perfecting labor efficiencies per minute takes time and attention as opposed to a mere visual glimpse of a restaurant.

There is a key performance indicator for every restaurant function but sometimes it can be difficult for a new operator to extract, digest and indeed navigate the data and understand the results. From years of restaurant turnarounds, we have our own list of layman’s tips from the trenches not based on science or theory but based on experience and actions. These are practical pieces of advice that we share with our clients based on our longstanding experience of the dynamics of the sector. Items we pick up by walking around venues day in day out which you can apply to your venue too.

(1)    BUSINESS MODEL

The financial statements are an instant insight into a business model but at times, they do not tell us everything we need to know. Many restaurants with cash flow issues are forced to juggle bills, delay terms and are always ‘waiting for the weekend’ to catch up and cover payroll or rent. Perhaps a lease signed five years ago was perfect at the time but with a 3% CPI increase annually, the value proposition no longer exists during these challenging times.

We use a very simple metric to determine a concept’s viability either pre-opening or during operations. Can you pay each of your critical, large expenses each month based on one weekend of sales? If you can cover rent in one weekend then you are not forced into saving for rent throughout the month or trying to build a reserve.This also means that whatever occurs during the course of the month, you can be certain your rental obligations can be met as opposed to the worry towards the end of every month. Similarly, if you can cover your net payroll in one weekend you are not floating the checks or using the week day cash flow normally reserved for operational costs. If you cannot pay either of these in a single (but different) weekend then we believe your business model is flawed and needs to be tweaked.

There are obviously variations for different models but the weekend concept is a good rule of thumb.

Restaurants generally cannot afford to pay more than 5% to 8% of gross sales in rent and still have net operating income left over to provide a return on investment in the business.

I have observed over the years, as a restaurant owner, consultant, and appraiser that full-service restaurants grossing less than $1,000,000 to $1,500,000 per year in revenue have a difficult time operating profitably after paying rent and all expenses incurred in the operation of the business. High-grossing restaurants can show a profit of 10% to 20%, after occupancy costs, because the cost of labor decreases as a percentage of sales as the existing staff becomes more productive with each incremental customer served over the break-even point. When a restaurant operates with a full staff at a high sales volume, labor becomes a fixed cost, although it is usually considered a variable cost because management can control it to some degree by scheduling dining room and kitchen staff to meet the expected demand, i.e., more employees are scheduled for a Friday and Saturday night than on a Monday night when fewer covers are expected to be served.

(2)    LABOR MODEL

We recognize that the perfect schedule is hard to anticipate however for an owner/operator who works in the restaurant, there are a few ways to measure whether your staffing rotation is reasonable. In some instances, an additional server could bring greater revenues whilst other times the restaurant could run just as well with one less employee. How do you know when this is the case without ploughing through the data?

You know you are overstaffed when you walk through your restaurant and don’t have anything to pick up, don’t notice anything that needs doing nor is there any customer or function to attend to. Whether it be seating a group of people, grabbing a spoon for a customer or picking up a napkin on the floor, if there is nothing to do, what are the staff doing? Do you need them all there at that time?

Despite toilets being one the most important reflections of your venue, if every time you walk in the restaurant you do not have a piece of paper to pick up or a sink to wipe down you are likely overstaffed, or truly do have a perfect customer! One can clean the bathrooms every fifteen minutes but they are still minutes away from being turned upside down.

You know you are understaffed when you walk through your restaurant with your head down because you are conscious that the moment you make eye contact with an employee or customer, they will need you for something. You are understaffed when you look through your restaurant and see tables constantly looking up for a waiter or drinks empty on a majority of tables. Usually I look for an indicator such as an empty soda glass because in many situations, the venue’s staff should have replaced it before it was empty.

“Restaurant food & beverage purchases plus labor expenses (wages plus employer paid taxes and benefits) should account for 62 to 68 cents of every dollar in restaurant sales. The combined total of these two cost categories, referred to as your restaurant’s “Prime Cost”, are where the battle for restaurant profitability is truly waged.”

(3)    CLEANING

You can walk through the restaurant, run your hands under the bar and use a flashlight to look behind a fridge and above a door ledge but the one indication that your staff are wiping not cleaning are dirty floor drains. It’s that simple: Clean floor drains usually mean a clean restaurant.

(4)    SERVER SALES AND EFFECTIVENESS

This is very much a laymans method and does require the availability of some data but you can pull what you need from the terminal of your POS rather than digging into the back of house spreadsheets. Print a quick PMIX or item sales report for the night to see how many entrees you sold? 100? How many appetizers, desserts and or cocktails did you sell?

Look at the ratios the information provides you with and use this easy to access information in a number of different ways. If you sold 100 entrees and only 15 desserts then you have a number of questions you need to be asking. Firstly, are your servers offering customers desserts? Secondly, are some servers upselling significantly better than others? Thirdly, if the numbers suggest that some servers are not providing value add and encouraging customers to try desserts, can they be retrained, are they merely lacking in customer facing skills which can be rectified or are they not right for their job? Also, are some desserts of significantly higher margin than others? If so, are those desserts being suggested to customers?

These sorts of statistics require limited work by management but are exceptionally telling when paid attention to. Customer facing staff need to be continuously monitored as they are critical to the success of the business. Equally, don’t forget other customer facing staff such as the host or hostess. Ask him or her twenty questions and see what answers you get. Are they confident under pressure whilst maintaining excellent customer service policies?

(5)    CUSTOMER SERVICE

Go on YELP. I understand and have been subjected to terrible Yelpers who claim our cucumber martinis are overpriced when we do not even sell them. However the fluff is normally just anger about something that probably did happen. Somewhere in the Yelp commentary are some truths – some truths that prompted a customer or two to write the review which contained some criticism. A manager’s excuses don’t change the fact that people read Yelp and make decisions based on what they read and what they hear, whether it is from friends, acquaintances or a website.

Learn from the comments you receive, where appropriate respond to them and certainly, attempt to rectify them. It is often said that it takes a lifetime to build a reputation and a moment to lose it. These are wise words so make sure people are saying good things about your venue and if they are not, assess why not. Arguably they will have good reason to have complained.

(6) PAR / YEILD INVENTORY

So many operators read about the value of restaurant inventory and how it can spot stealing, measure cost of goods and is the backbone to profit. In reality, this once a week or once a month process serves only the accountant and perhaps provides a macro glimpse of your restaurant. Par/Yield Inventory is based on an acceptable loss percentage which is far more valuable to your bottom line and much easier to implement, act on and improve.

Take your top 10 best selling individual items and track these daily against sales. If you start the day with 50 beers and end the day with 20 then you sold 30, if you sold less than 30 you have a problem – there is no acceptable reason for a missing beer. This same technique can be used for your major proteins and other items which do not require selling pieces of but rather are purchased and sold as one unit. These items would have a 0% acceptable loss because you either sold the beer or you didn’t, there is no margin of error.

It is often said that 10% of your restaurant inventory is 90% which is why these ticket items are so critical to track daily.

You can take this one step further and on a weekly basis have inventory of items that you allocate an acceptable loss to. A good example may be French Fries or Ground Burger which may have a slight variation in portion size and therefore a 10% acceptable loss on the purchased vs sold volume.

This can get even more technical as you have monthly items such as bar napkins of which you know how many cocktails you sell and you may have a running average of your purchasings per month therefore any major variation of your napkin use to liquor sales requires further analysis.

A chef steals a case of steaks on a given night and you can immediately see a problem, check your video cameras or investigate. The key to this process is providing you information that you can react to immediately. I track, judge and reward staff based on meeting or beating my acceptable loss ratios and I have my daily par/yield emailed nightly in the closing reports.

These are all quick and immediate ways to evaluate monitor and effectuate change within your restaurant without depending on data from an accountant or months worth of POS data. This is certainly not the “how to run a restaurant model” but rather a quick glimpse into items you can be looking at right now. Profit is made from customer to customer, but losses occur by the second if not monitored continuously.

Do you have a simple, easy and standard tip to run a better restaurant? Please leave a comment.

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3 Comments

  • Chef Lee
    26-Dec-10 | 7:33:pm

    Not being able to look at your customers or employees in the eye is one we all know too well!! How about when you have more people in the kitchen than the restaurant as the main dinner rush starts to finish.

  • [...] Quick Tip: In laymans economics, a restaurant should be able to cover rent in one weekend of sales. (Laymans Guide To Restaurant Operations) [...]

  • 9-Nov-11 | 2:13:pm

    Closely track your ‘Prime Number’ (labor + food + paper), it makes you or breaks you. You must control those numbers. Cut that waste, make your kitchen manager accountable for waste. Each night you have him record it, and answer to it. Your front of house manager answers to his labor number each night. And that OT number, why is it what it is? OT kills you. You can use non-OT labor to accomplish the same thing, save that .5 for something else. Manage these numbers, maintain quality, and service, and the moey will follow.