Imagine you are operating a small restaurant, doughnut shop, coffee shop, or a café and you want to, or in some cases need to, increase your net profit by 50%. Many owners and operators might find this a bit of a challenge and might not have a clue as to where to even begin. But if you look at the challenge from a different perspective, a 50% increase is a truly realizable goal.
Instead of saying you want to increase your net profit by 50%, change the goal to three simple, easy-to-attain milestones: (1) increase your number of customers by 10%; (2) increase the number of repeat customers by 10%; and (3) increase your Guest Check Average by 10%. While you may find this challenging, as a savvy restaurant owner, you could probably imagine how you could do it. Similarly, you may also be able to imagine how to increase your guest check average by 10% and to get your customers to come back one extra time.
Interestingly the synergistic effect of increasing the number of customers, the guest check average, and getting each of your customers to come back just once more time could, in some circumstances, result in a huge increase in your profitability, even before making improvements to your operation’s gross profit margin by simply getting a handle on, and controlling, your expenses.
Here is a simple illustration of how this might work in a restaurant:
Let’s say you have 100 customers and each customer visits your restaurant five times and spends on average $20. That equals total sales of $10,000 (100*5*$20). The industry average for Gross Profit is about 68% which, in this example, is $6,800. Industry average Operating Expense is about 60% which leaves a Net Profit of about 8% of sales, or $800.
But if we were to increase the number of customers by just 10%, we get 110 customers. One more visit from the customer makes the number of visits six, and a 10% increase in Guest Check Average is $22. This small increase equals a total of $14,520 (110*6*$22). Using the same industry averages for Gross Profit, we get $9,874. Subtract average Operating Expense of 60% leaves a Net Profit of $1,162! That’s nearly a 50% increase, and all it takes is a simple 10% increase in customers, visits per customer, and guest check average—three things that are easily achievable with the right strategy.
We can see in this example that by setting the easily attainable goal of 10% growth in Customers, a 10% increase Guest Check Average and getting your customers to come in just one more time resulting in overall increase in net profit of the restaurant of almost 50%! Sounds a lot better than the original challenge, doesn’t it?
For more great ideas like this one, contact Andy Simmons at Synergetic Finance, our in-house restaurant consultant.