How to increase your restaurant profits (Part 1)

Restaurant Profits

Life is very tough now if you run your own restaurant. In the UK, all restaurants have been forced to close their doors, although you can still offer a takeaway service if you want to. Cashflow is tight. There is no indication whether government support will extend beyond the end of April 2021, when the furlough scheme is currently due to end. Thinking about how to increase your restaurant profits might be the last thing on your mind.

However, life will begin to return to some sort of normality. Restaurants, pubs and cafes will be able to welcome customers back in. We can’t say when this will be. But – now is the best time to start thinking about how you might do things a little differently when you are back open.

In this first part of a series, we will look at the basics of increasing your restaurant profits, and then examine a variety of ways that you can achieve this.

But….you are Accountants, not chefs!

We may be able to put a Sunday Roast on the table, or rustle up a spag bol, but yes – we aren’t working in a kitchen for 10 or 12 hours a day. As your accountant are not here to advise you on which vegetable dishes to pair with a filet of salmon. That remains your job.

We feel your pain

At One Accounting, our team work with a lot of owner managed restaurants, cafes and pubs. It’s tough. We understand the pressure on profit margins when you are able to open again. Indeed, we know you are passionate about food, drink, and delivering a memorable experience. You may have thought about throwing in the towel several times over the last year. We know that if you set yourself up with Xero and Receipt Bank (and a great accountancy team) , then a lot of the day to day admin and book-keeping hassle can be taken away.

Like us, you’ll know that plans take time to implement. However, if you stick to a few basic principles then you can increase your restaurant profits once you are back open. And over time, you will spend less hours running your business.

Two Basic Principles of Increasing Your Restaurant Profits

There are two different ways to increase your restaurant profit.

  1. Increase your sales revenue
  2. Reduce your costs

Sounds simple, eh? In fact, you can apply this to any business in the world.

As accountants we love a good spreadsheet, and a formula. Add a bit of je ne sais quoi, and we can soon lift those numbers off the page and open up your mind to how simple it can be to increase your profits.

The Compound Effect on your profits

Firstly, let us look at a tried and tested formula to increase your sales.

  • Increase the number of customers
  • Increase the average spend per customer
  • And then increase the number of times a year that your customer dines at your restaurant

The reason this formula works like magic is through the effect of compounding. Let’s assume you look back over the last year, and establish the benchmark for all three of those metrics.

A : No of customers per year5,000
B : Average spend per customer£25.00
C: Average no of times they dine in your restaurant per year2
Revenue (A * B * C)£250,000

Secondly, let us look at the impact on sales if you are able to increase each measure by just one percent.

NowAdd 1%
A : No of customers per year5,0005,050
B : Average spend per customer£25.00£25.25
C: Average no of times they dine in your restaurant per year22.02
Revenue (A * B * C)£250,000£257,575
Sales increase3%

OK, a 3% increase is not very exciting, is it? You probably think that you have just added together the 3 * one percent increases.

Let’s spice things up and target a three percent increase.

NowAdd 3%
A : No of customers per year5,0005,150
B : Average spend per customer£25.00£25.75
C: Average no of times they dine in your restaurant per year22.06
Revenue (A * B * C)£250,000£273,182
Sales increase9%

That is a bit more exciting. A nine percent increase in sales, or an extra £23k of revenue.

Shall we go further?

Let’s empty the store cupboard and thrown in some chilli and cayenne pepper and see what happens if we target a fifteen percent increase in all three metrics.

NowAdd 15%
A : No of customers per year5,0005,750
B : Average spend per customer£25.00£28.75
C: Average no of times they dine in your restaurant per year22.30
Revenue (A * B * C)£250,000£380,219
Sales increase52%

What just happened? Surely that is a misprint?!

No. Through the impact of compounding, a modest 15% increase in each metric will increase your sales by fifty two percent. Incredible!

What next?

In part 2 of this series, we’ll look at what you need to do to double your sales using the compounding principle. We’ll also take a deep dive into some strategies you can employ to :

  • Increase the number of customers
  • Increase the average spend per customer
  • Lastly, increase the number of times a year that your customer dines at your restaurant

In the meantime, if you’d like to have a conversation about increasing your restaurant profits, and make life simpler at the same time, then head over to our contact page. You can arrange a call with one of our Directors, and we can chat through where you’re at. After that, we can discuss how we might work with you to make a difference to your top and bottom line.

Photo by Michael Browning on Unsplash

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