Oakland, CA, USA

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3 Strategies to Improve Your Profit Margin in a Restaurant Business

June 13, 2017

Key Takeaways:

  • Improve customer loyalty to survive downturns

  • Increase profit margin per customer with upsells

  • Host special events to increase sales on slow days

 

Improve your Customer Loyalty

 

 

The minimum wage is increasing, and profit is decreasing for many restaurant owners – especially in the high priced metro areas. 

 

A Harvard Business School study found that a $1 increase in the minimum wage led to 14% higher probability of closure in restaurants with 3.5 average stars on Yelp – but the same $1 wage increase had no effect on the closure of businesses with 5 Star Yelp Reviews.

 

Improving your customer loyalty – and by extension your Yelp reviews – will help you weather the storm.  When you are a 5 Star restaurant, your customers won’t let you close!

 

Of course, you don’t need a full 5 stars – a nearly impossible feat – what you really need is loyal customers.

 

Cassava SF has an average of 4 Stars on 617 reviews.

 

They run a local business, and owner Yuka Ioroi is the lead waitress every dinner service (her husband is the chef).  She becomes acquainted, and even close, with their regular customers.

 

Their customers are so loyal, that when their business was threatened with closure due to an unexpected slow season – she was able to turn to the platform GoFundMe and raise over $50,000 selling discounted gift certificates to her customers.

 

Think about how amazing that is for a moment.  Can you imagine having a loyal enough customer base, that would buy even $500 worth of gift certificates from you?  Let alone $5,000 … but to get over $50,000!

 

Read more about this amazing story in our blog post here.

Or listen to our podcast with her story here.

 

Loyal customers will also continue to patronize your business through inevitable price increases – and will continue to dine with you even after that trendy new place opens up across the street.

 

 

Increase Profit Margin & Sales per Customer

 

People come to Kingston 11 in Oakland, CA for the delicious oxtail, curried goat or jerk chicken.  But those items are expensive for the restaurant to make.

 

“To increase our sales, it’s simple,” owner Adrian Henderson explains, “we just need to make sure, with every customer we are asking – how was your drink – and would you like another?”

 

By focusing on a high profit item like cocktails – and never letting a customer’s glass sit empty – Adrian is able to bump up sales and profits at the same time.  Having great customer service like this, of course, also increases their customer satisfaction and loyalty.

 

Same thing in your restaurant – unless you are in the coffee business, your most popular item will generally be an item with a high associated food cost.  Like your crab, your shrimp, or even your homemade veggie burgers.

 

Making sure to upsell the french fries at a good margin is critical to staying in business.

 

Sergio Giusti, of Firenze by Night Ristorante in San Francisco, ensures that they are balancing the expensive items on their menu with low cost items such as homemade gnocchi.

 

“'We balance the menu with low cost and high cost dishes – otherwise we don't stay in business.  We design the menu with 2-3 bases – and with those we make 45 dishes.  We reuse the ingredients'

 

Their gnocchi, made in-house from potatoes and flour with the addition of a house sauce, has been one of their most popular dishes for the 30 years they have been in business.

 

 

Pumping Up Sales on Slow Days

 

Now, how can you pump up your sales on those days that are always slow?  Like Tuesdays, for example.

 

At Kingston 11, Adrian knows they will have the extra table space, so they worked out a deal with a local dominoes social club to host an event on the first Tuesday of every month.  The members come and hang out for hours while playing dominoes – while, of course, ordering drinks and appetizers, and maybe even dinner at the same time.

 

Aside from these type of special events, they have a weekly format:

 

  • Tuesdays & Wednesdays – cut back on staff to save labor cost

  • Thursdays – live music (who bring a crowd)

  • Fridays – DJ

  • Saturdays – busiest day, so no need for extra programming

  • Sundays – brunch (with specials for holidays, such as Mother’s Day)

  • Mondays – closed

 

We sincerely hope these strategies will help your business survive the increasing labor costs.

 

For more about the controlling costs such as rent, read our article:

The 3 Day Rule – How Much Rent Should You Pay For Your Restaurant Business

 

 

Please don’t hesitate to post questions or comments below.  

The survival of small business is critical for our economy.  We’re all in it together!

 

 

 

 

 

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