Grow your restaurant's revenue with these powerful restaurant revenue management strategies.
Maybe you're here because your restaurant isn't making enough revenue and you need a solution, other than managing the restaurant's costs, to avoid having to close your doors. Or, perhaps your restaurant's thriving, and you're searching for a few strategies to help boost sales.
Regardless of your reasons for being here, the solution to your problem remains the same: Better restaurant revenue management. Read on to learn about what exactly is restaurant revenue and revenue management and the strategies you can implement to boost sales.
First, there is one important question to answer:
What is restaurant revenue?
Restaurant revenue is, simply, the money that your restaurant generates. This can come from all of your revenue streams—dine in, online delivery orders, and any ecommerce your restaurant does. This is not to be confused with profit margins, which is revenue left over after expenses are paid.
What is Restaurant Revenue Management?
"Restaurant revenue management is defined as selling the right seat to the right customer at the right price and for the right duration."— Sheryl E. Kimes
Restaurant revenue management involves using tools-like your POS-to analyze sales data so you can accurately predict future demand. From there, you can make vital decisions about price, service capacity, table turnover, and your menu to boost revenue and profits.
Revenue management is not a new concept. It was used in the airline and hotel industry to significant effect, with some companies reporting sales increasing between 2 to 5%.
It's now becoming more common in the restaurant industry because restaurants embody many of the same business characteristics of airlines and hotels that made revenue management so successful.
These characteristics include perishable products, fluctuating demand, high fixed costs, fixed capacities, and low variable costs. There is, however, one notable difference: The service capacity isn't fixed.
What are the goals of revenue management?
The goal of restaurant revenue management is to manage certain aspects like menu pricing, seats, and more to maximize your revenue, and in turn, your profits.
Sure, you may have a certain number of seats, but service duration is variable. For example, some guests spend two hours eating while others spend three. That's in stark contrast to hotels and have fixed check-in and checkout time or even airlines where customers board and disembark at the same time.
Furthermore, space is limited, which places some constraints on service capacity, but unlike airlines or hotels, you're able to make changes to accommodate increases in demand. For example, you can adjust your table layout or give diners access to another section of your restaurant like your patio.
As a result of these differences, restaurant revenue management can be challenging. But it doesn't have to be if you implement the right strategies.
What is a reasonable average restaurant revenue?
Average restaurant revenue is a tough number to calculate, as it varies widely across the industry as is dependent on factors like:
- The size and number of seats in your restaurant
- The style of service or the concept, ie: fast casual vs. full-service.
- Your hours of operation
- The location of your restaurant
For example, a pizzeria in the midwest and one in the heart of Manhattan may serve mostly the same items, but have wildly different revenues due to overhead cost, check average, and more.
There are, however, a few stats to point to.
- For a new location, it is recommended to calculate what 75% capacity would look like at your current restaurant for the first year of business at a new location.
How to calculate revenue for your restaurant business
Calculating your restaurant's total revenue is as easy as combining all of your total sales from all of your various revenue streams. However, the raw number isn't always useful on it's own. To get more insights, you can further determine data like how much revenue you bring in per table. This can help you see where your attention may best be directed when it comes to revenue management.
How to calculate revenue per seat
One way to do this is to calculate how much each seat in your restaurant brings in. To do this, you can follow this formula:
Total Revenue ÷ Seat Hours (the number of seats in your restaurant multiplied by the number of hours you're open)
Say your restaurant brings in $10,000 in revenue on a single night. If you have 100 seats, and you're open for 4 hours, you would do the following:
$10,000 ÷ (100x4)
$10000 ÷ 400
$25 dollars per seat
From there you can determine if you need to increase the seat average, add more seats, increase prices, and more to maximize your revenue.
3 Powerful Restaurant Revenue Management Strategies
The one primary goal of revenue management is to maximize sales. But how do restaurants increase revenue?
The easiest and most common way to drive revenue is to adjust your prices and offer specific promotions and specials like happy hour.
But this is but one approach to better increasing sales. In the upcoming sections you'll learn about three others:
- Manage restaurant capacity
- Control table turnover
- Engineer your menu for sales and profits
1. Manage Restaurant Capacity
Managing your restaurant's capacity is crucial as it impacts your profits, sales, customer service, and the dining experience.
If you're over capacity, you don't have enough seating to meet the demand, which means you have to turn customers away.
Overcapacity leads to:
- Deterioration of service as staff are in over their heads
- A tense atmosphere
- Unhappy customers because employees are likely making more mistakes than usual
- Reduced revenue and profits
If you're under capacity, demand is low with lots of available seating. Being under capacity has its own set of problems.
- Fluctuating service quality from one server to the next
- Boredom among staff because they have nothing to do
- A poor atmosphere which is a turn off for many guests
- Profit erosion as there are not enough sales to cover costs
You're goal then is to achieve optimum capacity-where roughly 80% of your seats are occupied. With optimum capacity, everything is balanced. There's some open seating, but not too much, and staff have a decent amount of work to maintain the quality of service without feeling swamped. The result? You're able to maximize your revenue and profits.
But how do you properly manage capacity during high demand periods to boost sales, particularly as restaurants have limited space?
The answer: Maintain flexibility in your restaurant floor plan.
Firstly, have a mix of table types to accommodate different group sizes. Having two and four-seater tables is an excellent place to start because two and four-person groups are common. You want to avoid where couples enter your restaurant and sit at a four-seater table. Your restaurant loses two seats that some other paying customers can use.
Secondly, review your customers and analyze what size groups typically arrive at certain times of the day. Then, arrange your restaurant layout to accommodate different group sizes at different times.
Finally, use the right tools to help you confidently optimize your restaurant's floor plan. For example, TouchBistro's Table Management Software enables you to design a restaurant floor plan and change these plans in response to peak periods.
2. Manage Table Turnover
Average order value varies among customers, but you can generally expect to make more revenue if you turn over more tables. So, your goal should be to maintain a suitable table turnover.
We say suitable because your servers shouldn't rush service while compromising on the quality of customer service. Instead, servers should maintain high service quality while remaining efficient.
Maintaining quality service is especially important in fine dining establishments. Customers pay a pretty penny for quality food, which takes time to prepare and expect a highly personalized experience.
How to improve the table turnover rate
Here are several ways to boost your table turnover without compromising on service quality:
- Use music, lighting, and color strategically. For example, Milliman's study—"The Influence of Background Music on the Behavior of Restaurant Patrons," found that fast-paced music decreased meal duration. The one downside was that average spending also suffered.
- Provide subtle clues to inform guests the service is over. You don't want to rush guests. However, your servers can deliver the check promptly or even engage guests in a closing conversation. For example, a waiter can say something like "So what are your plans now that your meals finished?" This question encourages the diner to think about what they're doing next and accept that the meal is over.
- Hire skilled kitchen staff and train them. Trained kitchen staff who communicate and work well together will deliver food promptly.
- Ensure waiters are well-trained. The more efficient waiters are at their jobs, the smoother and faster the service will be. Staff need to clean tables quickly, attend to guests promptly, and maintain adequate service. They should also drop off the check before customers ask for it and work in tandem with another waiter if there's a large group to speed up service.
Recommended Reading: How to Create a Restaurant Staff Training Manual
**Pro Tip: If you're unsure whether employees need extra training, use an employee scheduling tool, like 7shifts, to track employee engagement. With 7shifts, you can:
- Track employee engagement with statistics on no shows, sick times and lates
- Get feedback on every shift from employees thanks to automated surveys
- Identify top performers and those who show the highest risk of churn
- Monitor employee engagement and how it changes over time
Strategies to cope with Campers
Regardless of what strategies you do implement to control table turnover, there will always be customers who outstay their welcome. Consider campers who use your restaurant for the free wifi. They order very little and occupy a seat that another paying patron can use.
Luckily there are strategies to manage these campers:
- Create a dedicated area for campers so that they're not sitting on large tables
- Build long, communal tables
- Provide limited wifi access or even no wifi access at all
Engineer Your Menu for More Revenue and Profits
The third and final revenue management strategy is to optimize your menu for profits. Here are five ways to do that:
- Organize Your Menu Based on Profit and Popularity
Firstly, arrange your menu items into the various categories (starters, mains, and dessert). From there, assign them to one of the following four categories—each representing different levels of popularity and profit:
- Stars: High popularity and high profitability (margins)
- Workhorses or plow-horses: High popularity and low profitability
- Puzzles: Low popularity and high profitability
- Dogs: Low popularity and profitability
You can use your POS sales data to help you classify all your dishes according to these quadrants. This classification is for your eyes only and will help you decide the fate of certain dishes, how to place items on your menu, and how to promote them.
Consider these ideas when making important decisions about what to do with the different dishes in the various categories:
- Stars: Strategically place these items on your menu to entice customers to buy them.
- Plow-horses: These dishes may not be as profitable as the Stars, but they're probably driving foot traffic to your restaurant, so keep them. But, don't be afraid to make changes to these dishes, so they become more profitable, e.g., source ingredients from different suppliers, reduce portion sizes and so on.
- Puzzles: Turn these dishes into customer favorites. A simple reduction in price or a change in flavor profile can help achieve this.
- Dogs: Unless these dishes appeal to a crucial customer segment of yours, get rid of them.
2. Add Profitable Dishes to the Golden Triangle
One of the best ways to sell more with your menu is to place profitable menu items in the Golden Triangle.
The Golden Triangle is a prime real estate area on your menu where the diner's eyes naturally gravitate toward first when reading a menu. The movement of the eye leads to the formation of what looks like a triangle.
"When we look at a menu, our eyes typically move to the middle first, before traveling to the top right corner, and then, finally, to the top left," explains restaurant consultant Aaron Allen.
3. Keep Your Menu Lean
There's plenty of research which suggests that giving customers too much choice causes overwhelm and makes it harder to choose. These same principles apply to your menu.
So, reduce the number of options per menu category (starter, main, and dessert). Experts suggest this number be seven or fewer.
4. Optimize Your Menu for Cross-Selling
Cross-selling involves encouraging diners to purchase complementary items to boost revenue. Although you should train and encourage servers to cross-sell, your menu can also be a sales tool. For example, you can pair certain wines and meals together by including a wine recommendation just below a dish description.
5. "Call-Out" Profitable Dishes
Simply placing menu items in the various categories, including the golden triangle, and optimizing it for cross-selling isn't enough. You should also encourage diners to buy profitable dishes by calling them out.
You can "call-out" these items by placing them in italics and bold font or even surrounding them by ribbons and underlying them. Just make sure you don't overdo these call-outs as it will contribute to a cluttered and confusing menu that detracts from the entire dining experience.
A Final Word on Restaurant Revenue Management In Your Restaurant
Whether you're a struggling or thriving restaurant, your goal remains the same: To maximize restaurant revenue and boost profits. Better restaurant revenue management is one solution that can help you do exactly that.
Sure, it's not without its challenges as restaurants have a relatively fixed service capacity, but that doesn't mean it's impossible. You just need to use the right strategies
- Manage restaurant capacity by adjusting your table layout and using table management software to optimize your floor plan.
- Control table turnover by ensuring both your kitchen and serving staff know how to do their job properly, and you have a strategy to deal with those annoying campers.
- Optimize your menu for increased sales by grouping complementary items, strategically placing dishes, and highlighting profitable dishes to guide diner choice.
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