How Restaurants Can Squeeze Profits from Lower Revenues as Operating Costs Soar

By: Nick Gardner

In 2008 & 2009, Hone Co-founder Brandon Child found himself in an industry hit hard by the great recession of 2007-09. While many restaurants closed, his restaurant group decided to double down on data, reporting, and operational efficiency. 

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How Brandon Squeezed Profits from his Restaurant

They built new muscles; chefs now reviewed weekly budgets vs spending, GMs managed labor as a percentage of sales, and management pulled it all together in a data dashboard to support decision making and accountability. Hard times cause a shift in mindset from driving revenue to managing spending.

Just like that period, this pandemic has created motivation for restaurants to focus on cost controls at least as much as revenue; the ones who make it will have done this well. And that means daily monitoring of inputs and outputs: revenues are dependent on responding effectively to customer demands while keeping costs under tight control so they don’t turn into losses.

Additionally, all the usual industry challenges have been exacerbated by some unique aspects of the pandemic. It shuttered entire cities for months on end while upending production and distribution chains. With indoor dining banned, restaurants battled to survive on take-out and deliveries, despite cripplingly high fees.

Although feasible during the summer months, eating outdoors offers few attractions from October through March in a large swath of the country, with a long, cold winter looming ahead. As lockdowns lift in many cities and patrons start eating out again, labor shortages are hampering restaurant operations across the board, as staff fails to return to work, while inflation continues to rise steadily.

Seek Restuarant-specific Solutions

Restaurant managers and owners are looking for innovative ways of dealing with this crisis. Front-of-the-house options include streamlined menus and shorter opening hours; on the operating side, higher pay and better working conditions are attempting to attract servers and kitchen staff, although not always successful. 

Already operating on razor-thin margins that hover around 5% (dropping to under 2% for full-service operations) restaurants need daily vigilance in order to stay healthy. This is where Hone’s restaurant bookkeeping service and reporting platform can help save the day, by empowering you to monitor and manage costs without cutting corners.

Boost the Restaurant’s Bottom Line

There are two ways of fattening up the bottom line: pruning outlays (without compromising on quality, of course), and increasing total revenues. With lockdowns shackling possibilities for attracting more customers, turning more tables, or simply raising prices, the smart option is to focus on spending less. Here are a few hints on how to do so, without compromising quality.

At roughly 30% each, food & bev combined and then labor, absorb a whopping 60% of cash-drawer inflows, with marketing, premises, and utilities accounting for a healthy slice of what’s left. That’s why reducing costs is the first step in keeping a restaurant healthy. The kitchen is a great place to start:

  • Audit: your complete supply chain, exploring ways of maintaining quality at a lower cost. Ask suppliers for discounts, with larger (if less frequent) orders helping optimize costs. Can ingredients be substituted without affecting flavor? What about seasonal specials?
  • Monitor menus: identify which dishes are favorites and which offer the highest margins, and even eliminate items that regularly underperform. Consider adding profitable add-ons such as dessert or to-go cocktails to drive up ticket averages;
  • Portion control: starts with the prep team and ends with the bussing staff – make sure all proteins are at the correct weight/size, use the right size ladles and scoops to portion dressings and sides;
  • Waste nothing throughout the entire operation with all ingredients carefully measured. Usable vegetable and protein trim can be repurposed into flavor-enhancing components of stocks and sauces that can steer menu listings. If cleared plates consistently have more than a couple of forkfuls left, (an imperceptible 5% to 10%) making cuts to portion sizes offers significant savings over a duration of time.
  • Daily inspections and tight security protect costly inventory against spoilage and pilfering.

 Create New Revenue Streams

With traditional slack-time promos – like happy hour and early-bird specials – currently suspended by pandemic constraints, creative restaurateurs are seeking innovative ways of reaching out to their communities. Everyone loves a freebie (think wi-fi) – and with a little forethought, returning restaurant customers can feel pampered without cutting into profit margins. Here are some suggestions for filling those tables during quieter times:

  • Hosting smaller events for special-interest groups gets the word out that your restaurant’s open for business while attracting different clientele. Courses in food-related skills – wine tasting, cake decorating, flower arranging – heighten awareness and build up goodwill in the local community;
  • Partnering with other local businesses helps raise the tide for everyone battling through the pandemic, through sponsorships (think local sports teams) and community events (like family-friendly movie suppers);
  • Upselling and cross-selling is an easy way of increasing the average spend-per-head, with no need for extra staff and equipment;
  • Introducing a rewards program is a fast way of turning casual drop-ins into loyal guests – everyone loves a complimentary dessert or a free fancy drink;
  • Branded merchandise offers countless benefits: image-boosting branded items are top sellers, and also make great prizes for promos, getting your name known around town without paying for expensive advertising.
  • Catering & Meal Kits – folks are tired of eating their own food and just plain tired so offering catering and publicizing it to past customers can open up a high-margin catering revenue stream.

Already operating on razor-thin margins that hover around 5% (dropping to under 2% for full-service operations) restaurants need daily vigilance in order to stay healthy.

Invest in Restaurant Technology

One of the best ways of ensuring post-pandemic profits for a restaurant is to invest in smart new technology designed specifically for this industry. A few key pieces of technology, tied in with your bookkeeping and reporting can provide insights into every detail of its operations:

Modern POS:

  • Pick a cloud system so you always have access to reports
  • The best systems have a built-in 1st-party online ordering that integrates into your kitchen workflows, payments, and menu workflows with no extra fees!
  • A built-in gift card and loyalty programs are a must-have
  • Make sure you can integrate a staff scheduling module
  • Can it connect to Quickbooks – hint, if it doesn’t integrate with the industry standard for accounting, it’s probably not a very good system, keep looking!

AP Automation:

  • AP Automation platforms enable invoice handling and bill pay of invoices and expenses while providing price trend analysis so you can monitor prices changes daily
  • They save time and vendor-related issues by streamlining the capture and recording of line-item level invoice data
  • Once the data is captured, your price trend analysis, tied to menu costing and inventor can help the savviest operators be very reactive to supply chain changes
  • Your bookkeeper can help you configure and manage these systems so the data flows directly into your P&L so you can see the overall impact on food cost and beverage cost percentages

3rd party sales aggregators:

  • The goal is to eliminate the tablet madness by getting sales and orders to flow into your POS
  • The best in class POS systems are integrated directly with the big delivery platforms so start here
  • A sales aggregator such as Chowly or Itsacheckmate will eliminate errors (that lead to bad Yelp reviews – ouch!) and also simplify operations and accounting

Staff Scheduling & Payroll:

  • Creating, managing, and enforcing schedules is key!
  • Good Staff scheduling software such a 7Shifts or Hot Schedules enable you to set and enforce schedules so staff clock in and out when they are supposed to, saving you from unexpected excesses and overtime.
  • These platforms also enable staff to trade schedules and perform other HR functions, reducing the load on you
  • Picking a Payroll system that simplifies running payroll and connects to your POS and scheduling system, and then your accounting system ensures that you get clean data to make decisions.

Focus on Metrics That Matter 

These technology systems can seem daunting to acquire and deploy but a restaurant-focused bookkeeper can help you pick the right solutions and integrate them into your operational reports. This enables you to use hard data, to know if you are doing well, and where tighter controls would boost incomes. Although this modern management approach might seem complicated, it’s actually quite simple, thanks to cutting-edge technology.

A specialized restaurant bookkeeping service and reporting platform such as Hone knows the restaurant technology space and is equipped to turn the data soup into actionable reports. Whether you are a regional franchisee of a major chain, a fine-dining restaurant group, or a family-run eatery the core systems and processes are the same. By lifting the paperwork burden, Hone helps restaurateurs focus on their main job: keeping the overhead down and while their customers savor delicious meals. 

By: Nick Gardner

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