Sales are important, but profits are better. It seems like a simple statement, but you’d be amazed how often we get lost in the almighty sales figures and not the profit margins we’re bringing in. To succeed in any service industry, you need to think counter-intuitively. What good is a 20% increase in sales, if profits are down 2%? It’s great to bring in more customers, but are you servicing them properly?
In the above statement about sales versus profits, I’m not talking about the margin of profit, but the total dollar amount. There’s a lot of truth in the statement, “You have to spend money to make money.” It’s truer yet when you’re in a service-based industry like a restaurant. Reinvesting in your operations is critical to ensure you’re achieving the highest return. Let’s start with some common pitfalls that can hurt your restaurant profits, and how to fix them.
Mistake #1: Cutting Labor Too Soon and Too Quick
Cutting labor without weighing the consequences is one of the biggest mistakes that restaurants make. If you cut labor, you’ll save money during the slow times, but every time you get busy and you’re not staffed for that rush, you lose sales. If customers have to suffer through slow service due to under-staffing, you might lose them for good. At the very least, you haven’t properly captured those customers and given them the service and product to maximize return.
Of course, all restaurants have budgets they have to work within, and over-staffing to the detriment of a company isn’t the answer. But strategically maximizing labor on your higher sales days will grow your sales, and using fewer staff during your slowest shifts will allow you to better control your costs long-term.
When deciding whether or not to cut labor, it has to be done from a financial standpoint, and not an emotional one. Work with the staff you have and understand the roles they play and the R.O.I. each brings to your restaurant. Breaking down how much each role costs and how they impact sales and costs allows you to staff properly and efficiently while growing sales.
Mistake #2: Not Separating Training Labor From Operational Labor
This is a huge problem that affects the profitability, operations, and quality of a restaurant. One way to make sure you always have a well-trained staff is to give all new employees one pay period off the books (against the store’s labor goal) to ensure they are properly set up to succeed. There are many reasons why proper training is important, most notably for basic operations and customer service. Employees can’t give your customers the experience they deserve if they’re not properly trained. It can be very easy to cut back on training when sales are down, but that will only lead to lower sales.
One of the top reasons for employee turnover and decreased customer retention is improper training of staff. Taking the time to set your staff up to succeed and support your business is paramount. Find room in the budget to get this done, because the cost on the back end from poorly trained employees is too costly. A poorly trained staff leads to poor customer experience, increased waste, and poor company culture. All of that costs the business money.
Mistake #3: Not Auditing Order Costs, Waste or Usage
Have you ever noticed when you buy a new pack of pens, they almost all disappear within a few days, but the final two last for weeks? If you have excess inventory, it’s more likely to be wasted. It’s the old adage: If you can measure it, you can control it. Inventory control is about the complete understanding of what you are selling and preparing, and the waste involved in between. Comparing what you’re selling to what your inventory shows you are consuming is a simple and effective way to control costs. These metrics can be measured in many of today’s POS (point of sale) systems, and can still be audited by hand if necessary.
If you’re a franchise, auditing the inventory you’re purchasing versus what you’re using allows you to control waste and maximize your restaurant profits. If you’re a small brand or solo operation learning how to audit your inventory, your sales and product usage is huge in deciding how to move product, control costs, and grow margins.
What Does This Mean For You and Your Profits?
At the end of the day, a successful business requires hard work, knowledge, and the ability to get others to buy into what you’re trying to accomplish. It takes the proper HR structures, systems to support your goals, and the capital to reach your customers and grow your brand. Whether you’re a franchisee of a known brand, or an individual business owner with their own dream, your goals and expectations should be the same
If you can grow your margins properly, you will have the ability to staff, market, and grow your brand for sales you never dreamed of. Getting lost in merely the sales data and not what your PnL is showing you can hurt you down the road. Though it takes extra work, that’s what’s needed to ensure that your dream of succeeding in the restaurant business is reached.