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5 most common ways restaurants lose profits

Posted by Buzztime on Nov 7, 2018 9:03:20 AM

In Bar Management, Kitchen Management, Restaurant Operations

5 Hidden Losses and How to Tackle Them

Is your bar or restaurant losing profits? Feel like dollars are going down the drain but you can’t pinpoint the leak? You’re not alone. That’s why Buzztime teamed up with Sculpture Hospitality for a webinar to reveal 5 hidden sources of lost restaurant and bar profits. Watch the webinar here.

From over-pouring to underselling, this webinar recap helps you identify profit-busting red flags. Then, you’ll score strategies for fixing the leaks – and regaining restaurant and bar profits.

1) High Labor Costs

The Red Flag: Labor Costs Are Over 30%

Most experts on restaurant and bar profits recommend that labor costs make up 20-30% of your gross sales. If you crunch the numbers and see you’re over 30%, that’s a serious red flag.

Why it Exists: The Big 3 “Overs” – Turnover, Overstaffing, Lack of Oversight

If labor costs are eating into your restaurant or bar profits, chances are it’s due to one of these “big 3” problem areas.

How to Fix It: 3 Tactics to “Overhaul” Your Staffing Issues

Tactic A) Reduce Turnover to Increase Restaurant and Bar Profits

The average restaurant loses $146,600 annually to staff turnover. It doesn’t matter if the employee left, or you let them go. Retraining and rehiring are costly undertakings. You want to avoid staff “churn” using these tactics:

  • Keep Good Employees Happy! It sounds simple, but don’t wing it. Use these 13 creative ideas for rewarding staff including 9 tips for team building activities. Motivated employees won’t just stick around longer, they’ll help boost restaurant and bar profits.
  • Hire Smarter: When it comes to managers – who are instrumental in building restaurant and bar profits – take a cue from Mark Zuckerberg of Facebook who said “I’ll only hire someone to work directly for me, if I would work for that person.”
  • Gut Check: Your gut instinct isn’t always right. Even if you have a good feeling about a candidate, check at least 3 references and prepare interview questions in advance.

Tactic B) Staff Based on Sales

Many managers overstaff the bar, fearing a customer will have to wait more than a few minutes for a drink. Even having one extra bartender each night can cut into bar profits.

So how can you keep customers satisfied and maintain those bar profits? Turn to your POS. Use it to track sales trends based on day, day-part, and time of year. Then, schedule staff based on those trends. If things get busy, you can keep a list of employees who don’t mind being “on call.”

Another smart strategy for staffing based on sales is to use an online reservation platform like www.OpenTable.com. In a glance, you can see which tables are booked – and plan staff accordingly.

Tactic C) Go Beyond the “Clock In”

You might think you’re protecting restaurant and bar profits by requiring staff to clock in on the POS. Just be sure staff isn’t cheating the system! The manager should make her presence known by walking around during each shift change. If employees are dragging the clock by socializing or checking their phone, the manager should give them a warning. Do you really want to pay employees when they’re wasting time (and your restaurant and bar profits)?

2) Success on Social Media?

The Red Flag: Lots of Facebook “Likes,” No Love for Bar Profits

You may be winning the social media game with lots of “likes.” But if your bottom line isn’t feeling the love? That’s a red flag.

Why it Exists: No Social Strategy

It’s easy to get caught up in the quest for social media success: How many people liked my Instagram post? How many followers do I have? However, these are meaningless numbers unless you have a strategy in place that aligns with your business goals.

How to Fix It: Use the Social Media Rule of Thirds

Social Media Rule of Thirds

We’ve all been told to keep things “non-salesy” on social media. But at least a third of your activities should be focused on directly promoting your business – and driving your restaurant and bar profits. Here’s how the “rule of thirds” works:

  • 1/3 Engage: Respond to Facebook/Instagram comments on your page and join in conversations on other pages (as your business, not you personally).
  • 1/3 Share: Strategically share content from other social users, and links to articles that relate to your business.
  • 1/3 Promote: This is where restaurant and bar profits come in… Post content that markets an event, offer, or other transactional purpose.

Promote with Purpose to Drive Restaurant and Bar Profits: Focus on Conversions

The 1/3 of your social media posts focused promotions should be trackable – with a direct conversion. Not just a like. Not just a “share.” Here are examples of how to turn your social media activity into restaurant and bar profits:

  • Email list sign-ups: Join our email list, get a free appetizer upon sign up!
  • Digital coupon: 9 in 10 people have used an online restaurant coupon in the last 3 months.
  • Use Facebook events: drive traffic in the door and track RSVPs
  • Make a reservation: Also set up Facebook “chat” to include a link to your online reservation page if you have one.

3) SOS! High Print Costs

The Red Flag: High Printing Costs, Low ROI

Printing your menu gets expensive…fast. Made a typo? Reprint. No longer serving an item? Reprint. Posters and table tents also take a chunk out of your restaurant and bar profits.

Why it Exists: You Haven’t Explored Digital Options!

How to Fix It: Try Digital Signage and Tablet Menus  

Bring More to the Table with Tablet Menus

It’s not just about boosting restaurant and bar profits. Today’s guests are hungry for a digitally enhanced dining experience: over 73% believe that technology – like tablet menus – improves their visit.

With tablet menus, guests browse a digital menu then send their orders straight to the kitchen. Here are just some of the benefits to your patrons… and to your restaurant and bar profits:

  • Upsell on autopilot: Tablets can suggest menu items to guests automatically. For example, a guest orders a salad. The tablet can ask: “Want to add chicken for $5?”
  • Paint the Picture: Photos may look cheap on printed menus, but are enticing on tablet menus with a brilliant backlit display.
  • Streamline Operations: Tablet menus aren’t meant to replace waitstaff. Instead, they allow them to cover more tables… giving you more opportunity to increase restaurant and bar profits.

Catch Their Eye with Digital Signage

Skip printing posters and table tents in favor of customizable digital signage. Companies like Buzztime provide software that turns your existing TVs and screens into brilliant ads. You can promote menu items, events, specials… anything you want. As opposed to printed signs, digital signage can increase “point of sale” purchases by 33%.

4) Employee Theft and Over-pouring (Silent Threats to Restaurant and Bar Profits)

The Red Flags: There May Not Be Any!

Unless you match up inventory depletion to sales, you won’t be able to spot signs of employee food/drink/cash theft. Most operators are not running this critical report. In addition, if employees are stealing customer credit card information, there is virtually no way to know.

Why it Exists: No Checks and Balances

It’s a sobering fact…75% of employees steal from workplace at least once. Without proper controls in place, you’re putting your restaurant and bar profits at risk.

Employees know that most operators don’t have those controls. So, they fall into bad habits…especially bartenders. They make over-pouring a routine, hook up their friends with free drinks, and may even pocket the proceeds of some drinks instead of ringing them up. You pay the price with thousands of dollars in lost bar profits.

How to Fix It: Improve Inventory Tracking, Protect Your Customers, and Preserve Your Restaurant and Bar Profits!

Tackle Your Tracking Methods for Inventory

  • Always take a physical inventory at least 1x/week – don’t rely only on POS inventory (known as perpetual inventory)
  • Don’t rely on pour cost to alert you to problems
  • Compare usage to sales for each brand by taking a weighed inventory once a week
  • Set a policy for giving comps and “on the house” food and drinks to customers
  • Always check deliveries: compare the invoice or manifest against the physical goods
  • Bonus your managers on the right metric (hint: not pour cost)
  • Install cameras in your storage areas
  • Institute a zero-tolerance policy for theft

Keep Your Customers – and Your Restaurant and Bar Profits – Safe with the Latest Dining Tech

Unsavory employees take down credit card numbers, how can you protect your restaurant and bar profits…and your customers?

Use customer-facing dining technology. Some of the same menu tablets mentioned above also come equipped with EMV (“chip”) credit card readers. Guests can securely pay on the device – and their credit card stays with them at all times. The best dining tablets even accept NFC/mobile payments like Apple Pay and Samsung Pay. As an added bonus, if you take steps to safeguard customer financial security? 85% of guests will be more loyal to you.

5) Low Check Averages

The Red Flag: A Packed House, Low Check Averages

If you’re at capacity every night but your restaurant or bar profits aren’t hitting the mark, focus on boosting check averages.

Why it Exists: Customers are “Getting Away” with Ordering Less

Large checks don’t just happen. Without training, most servers and bartenders don’t possess the skills to upsell.

How to Fix It: Upsell for Max Restaurant and Bar Profits

This isn’t about turning your team into sleazy car salesmen. Instead, effective upselling puts the customer’s needs first. For example, when a customer says “I’m too full for dessert,” servers can suggest a sweet treat…to go. The guest leaves with dessert, you get the extra restaurant or bar profits. Here are more examples of upselling done right:

  • Hide a Command in a Question: I can add fries for $5?
  • Because: I can add fries BECAUSE they’re house cut and delicious? Harvard research found that 93-94% will say yes when the word “because” is added, while only 60% say yes without the magic word.
  • Go Into Detail: Train servers and bartenders to vividly describe food and drinks as Cornell University research suggests a 27% increase in sales.
  • FOMO (Fear of Missing Out): “We’re almost out of the steak dinner…”

To really see a lift in restaurant or bar profits, run competitions for your team. An easy one is menu item bingo. Print a sheet with your highest margin menu items on a bingo board and hang it in the back of the house. The first server to fill in a row of items on the board – by selling them to customers – gets a prize.

In your quest to boost restaurant or bar profits, first see if you can uncover these 5 hidden losses in your business. Now that you know where to look, you’re one step closer to running a successful, profitable operation.

Learn how to find hidden money in your bar