Anyone who’s worked in the service industry knows that running a restaurant isn’t easy. The fact that there’s an overwhelming number of restaurants to compete with only adds to the challenge.
As a business owner, you probably know that revenue management is one of the keys to success. But, if you have a cash flow problem, do you know how to diagnose and solve it?
Restaurant revenue management comes down to three main factors: traffic, sales and service.
If you have a revenue problem, it’s likely a failure in one of those three areas is to blame.
Let’s take a look at how each affects restaurant revenue, how to identify which area is lacking if revenue needs a boost, and how to solve revenue problems in each area.
Understanding Your Restaurant's Revenue
It’s hard to put an average on how much revenue a restaurant should bring in because so many factors affect that number. Things like number of seats, seasonality, hours of operation, what kind of restaurant it is — all of these can affect how much revenue you can expect your restaurant to bring in.
According to restaurant owners on Quora, an average full service restaurant with 50-100 seats and 20-30 people on its staff needs revenue between $1 to $3 million a year in order to survive. Anything more than that and the restaurant is likely in the green. Anything less than that, they may be struggling and in the red.
Step 1: Calculate how many guests you serve per shift.
Use your POS, sales slips or receipts to calculate how many guests you serve per shift. This will require tracking not just the number of tables, but how many guests are present at each table.
Step 2: Divide total sales by number of guests served.
For each shift, divide your total sales by how many guests you served during the shift to get your average guest check for each shift.
Step 3: Track all your data.
You can start by tracking all the above numbers, and record them all on a spreadsheet for about a week so you know if your numbers are staying consistent from day to day. Although, we recommend doing this for a longer period of time so that you’re able to get a better understanding if your numbers are consistent week-over week. After all, your Saturday guest count likely won’t be as low as Monday’s.
Step 4: Calculate average revenue for each shift.
Multiply the number of guests served by the average check per shift to get your average revenue per shift.
For example, say a restaurant finds that:
- Number of guests served: 75
- Average guest check: $15
The calculation would then look like: 75 x $15 = $1,125
Your average revenue per shift is $1,125.
Adding average revenue for each shift will give you the average revenue per day. Track that for seven days, then add it together for your average weekly revenue. Multiply that by 52 for average yearly revenue, then divide it by 12 for average monthly revenue. Using the same data from the example above, this is what these numbers will look like:
- $1,125 x two shifts = $2,250 daily revenue.
- $2,250 x 7 = $15,750 weekly revenue.
- $15,750 x 52 = $819,000 yearly revenue.
- $819,000 / 12 = $68,250 monthly revenue.
Once you’ve calculated your restaurant revenue, you’ll have a better idea of what goals you can set moving forward.
Every restaurant has different financial needs and goals, but comparing your revenue with your costs can help you determine whether you have a restaurant revenue problem. If you do, it’s time to dig a little deeper and see what’s hurting your bottom line.
3 Factors That Determine Restaurant Revenue
If you’re having restaurant revenue problems (or you just want to analyze your restaurant’s revenue and get a better handle on the business), you can break down your revenue into its 3 basic components:
1. Traffic (How many people you serve)
2. Sales (How much revenue you generate for each guest)
3. Service (How likely guests are to keep coming back)
Looking at each of these, we can dig into both the high-level items of note and some specific tactics on how to move the needle for each part and solve revenue challenges that may be occurring.
Evaluating Your Restaurant Traffic
One of the best ways you can up your restaurant revenue is by just filling more seats at your tables.
Diagnosing whether traffic is at the root of your revenue problems is simple: If you often have empty seats or entire empty tables, you should work on increasing traffic.
Let’s look at it in the context of the equation above. In the example earlier, the restaurant was serving 75 guests per shift for an average weekly revenue of $15,750. But let’s say they upped traffic enough to serve 100 guests per shift. Then, the numbers will change to:
That’s more than a 30 percent increase in weekly revenue just by getting 25 more guests into the restaurant during each shift.
Which, of course, begs the question: How do you increase your restaurant’s traffic and revenue? Let’s look at some strategies you may want to employ.
Strategies to increase your restaurant traffic
In order to generate more traffic to your restaurant, there are basically 3 strategies to pursue.
Strategy #1: Generate more new traffic
The number one thing that usually comes to mind when increasing restaurant traffic--getting new feet through the door. Most restaurants looking to grow will focus their efforts on getting their name out there and bringing in new diners.
Tactically, there are a lot of ideas you can try to increase awareness and foot traffic:
- Use social media to market or advertise your restaurant
- Offer a special promotion or discount
- Ask for diners to leave you a review
For more ideas, check out our guide on 65 tips for marketing your restaurant.
Strategy #2: Generate more return traffic
If you’re already getting a lot of first-time diners, then you may want to look at how to get more of those visitors to come back for a second (or third, or fourth) meal.
Keep in mind that studies show that repeat guests spend 67 percent more than first-time guests, so a good way to increase revenue is to ensure people are coming back to your restaurant for return visits.
So how do you get more diners back through the door? Try some of these tactics.
- Create a restaurant loyalty program
- Focus on improving customer service
- Collect diner emails and use email marketing
Remember that the guest experience plays a huge impact on whether a guest returns after their first visit!
Strategy #3: Serve more of your existing traffic
Another way to increase guests served is to turn over tables more quickly.
If you already have plenty of traffic but can’t serve as many guests as you’d like, then focus on getting more of those diners sat and served.
If your restaurant is really busy, you may need to make sure you have staff on hand to help clean and reset the tables. This will give you the chance to seat new guests more quickly, even if servers are too busy to bus and prep the table for their next party.
Evaluating Your Restaurant Sales
Restaurant sales are another factor that’s often at the heart of your revenue problems.
Take a look at the data you collected about your revenue. Is your average guest check lower than it could be? If so, increasing sales might be the best way to increase your revenue. There are a number of ways you can do this.
Strategies to increase your restaurant sales
Given that your sales play such an important role in your restaurant’s revenue and overall success, it’s worth taking some time to evaluate the ways that you may be able to improve on this front.
Strategy #1: Adjust your prices
Start by examining your menu pricing.
You may be able to increase some prices, particularly on popular dishes, to start upping your total sales. However, it’s important to ensure that with the increase in price that guests still feel they are getting their money’s worth with the meal.
Strategy #2: Incremental revenue
You can also train your staff in upselling and cross-selling techniques that are proven to help increase check sizes. This can include dialogue like:
- Can I get you started with some drinks or an appetizer? The spinach dip is a delicious choice!
- Would you like to add cheese or bacon to your burger?
- We have a special on today where you can upgrade your pint to a stein for just three dollars! Would you like to upgrade?
Strategy #3: Diversify your revenue
Last, but not least, consider increasing sales by adding new revenue streams.
These could include:
- Renting out your restaurant space for private events during non-business hours or days off, maybe even consider off-peak hours too.
- Selling merchandise at your location. Think about t-shirts, hats, beer glasses with your restaurant’s logo on them.
- Introduce a catering program to offer guests the opportunity to enjoy your food for larger events or their office.
- Buy a booth at a local fair or festival. It’s a great way to sell more food and get your name in front of new guests!
- Bring on delivery and takeout partners like Ritual, Uber Eats and Skip The Dishes.
These are just a few of the endless number of ways you can add new products or services that can help pad your restaurant’s bottom line.
Evaluating Your Restaurant Service
The third factor that’s likely affecting your restaurant revenue is the service your provide guests.
Research shows that 51 percent of guests will never again do business with a company after just one negative experience. On the other hand, seven out of 10 guests say they’ve spent more money with a company that delivers outstanding service, over one that doesn’t.
Based on the data alone, it’s clear how important it is to provide outstanding service to your guests. It’s one of the best ways for you to ensure that people keep coming through the doors.
Diagnosing whether your service woes are at the root of your revenue problems is pretty straightforward. Here are a few ways to gain a better understanding of what your guests think of your service:
- Turn to online reviews, and see if there are complaints about your service. If this is the case, try to gain a better understanding of what specifically about your service is a turn-off for guests and immediately implement solutions to improve.
- Stop by tables and ask guests about their experience. Document the qualitative feedback you receive in one place and overtime you can compare if the overall sentiment of your guests has changed for the better (or worse).
Strategies to improve your restaurant service
If it turns out that guest are turned off by the service they receive at your restaurant, maybe it’s time to make a change. Take the time to learn about what’s working for your restaurant and, just as importantly, what is not.
Depending on what you learn about your service quality, there are some steps you can take to improve the guest experience:
- Personalize the experience, utilizing a POS, loyalty program, or other method for capturing guest preferences and information
- Host a staff training or regular refresher on guest experience and service excellence
- Double-down on food quality and ensure consistency for every dish
- Develop standards to measure service speed, quality, or efficiency (e.g., time from door to drinks)
Mixing it all together!
At the end of the day, a successful restaurant is a complex recipe with a variety of ingredients.
If your business has revenue challenges or you’re looking for ways to improve your bottom-line and generate new growth, then the first place to start is by digging into these fundamental parts of your restaurant operation.
Keeping revenue at a sustainable level is necessary for success in the industry. But it’s likely you can fix any problems by focusing on traffic, sales and service.