Episode Transcript
[00:00:00] I don't think anyone will be able to convince me that a chain restaurant is better than an independent restaurant. Because an independent has soul, it has personality, it has a point of view, perspective. It is of the time, it is of the people, and at best it is embedded in the community in a way that a chain restaurant never can be. Yet. Yet.
[00:00:20] There's one area that a chain restaurant exceeds. There's one area where the chains absolutely knock it out of the park. And there's a reason why they have hundreds or sometimes thousands of units where the struggle just to get beyond that one, two or third unit. It is about revenue management, really understanding what you need to make what you need in top line revenue in order to be a success. And the best chains out there have this dialed in, but guess what? They don't own it. They don't. They don't have a monopoly on it. We can easily do it. It's a big part of what we talk about in the program. And today it's a big part about what I'm gonna teach you. Don't go anywhere.
[00:00:56] There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
[00:01:27] Hey everyone, thanks for tuning in. My name is Chip Close. This is the Restaurant Strategy podcast. Two episodes every week that help you level up, build a more profitable and sustainable restaurant. The whole point is to help you make more and work less. I give talks. I wrote a book. I actually wrote a second book. It'll come out later this year. More on that soon. I throw live events. I also host something called the P3 mastermind. It's a group coaching program that helps independent restaurant owners increase the profitability of their restaurants. Most people come in, join the program, stay for years. All we ever ask for is a six month commitment. Six months to help you implement the most important, most meaningful systems in your restaurant. We don't come in and tell you to change everything. In fact, I'm going to assume that 98% of what you're doing is working just fine. I'm going to assume you know what you're doing, you're very good at what you're doing, but that there's one piece missing. And if I can help bring you that piece, my team can help you put the last piece to the puzzle together. I promise you, you're going to love what you do because you're going to be making money doing what you do. If you want to learn more restaurantstrategypodcast.com schedule grab some time on the calendar. You'll chat with me or someone from my team and let's see if you're a good fit. We're going to ask you some questions, we'll get to the bott, you're going to ask us some questions so you can figure out if we are the right fit. And then if it's the right fit, we'll talk about what next steps look like again. RestaurantStrategyPodcast.com schedules a 30 minute call. Absolutely no pressure. It's really just so we can ask questions to see if it makes sense for us to work together. As always, you're going to find that link in the show notes.
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[00:04:10] Okay, so we're talking about the difference between independence and chain restaurants. And I think we would all agree that at its best, an independent restaurant has perspective, has a point of view. It is an extension of the people who run, operate, own that restaurant. It is again, at best, embedded into the community, a key piece. You know, somewhere where people convene, you feed people, you give people jobs. You so many of our restaurants end up people's first jobs. Guess what? Let's see a show of hands. How many of us had their first job in restaurants? Yep, that was me. My first job was folding pizza boxes in the pizza shop down the street, independent restaurants have the opportunity to blow chains out of the restaurant. What happens, though, is that the chains have the systems dialed in, and we can go on and on and talk all about the systems. Today I want to talk just about one. It's called revenue management. Here's the deal. When I ask people say, hey, do you. Do you. Are you budgeting? They're like, hey, I budget. I said, great. What are you using? Right? What's the process by which you go and forecast business? And they go, we're not really forecasting. And that is the biggest red flag. What are you building your budgets off of? Right. A budget says, this is what I can spend. But if you have a set, if you've got a set parameters, like, I want my labor coming in at 30% of revenue, or I want my cogs coming in at 26% of revenue, then you have to understand what your revenue is going to be. The biggest thing, the biggest area that chains. Where chains blow us out of the water, where chains win. The reason that there are so many chain restaurants out there and growing is because they have revenue management dialed in. But here's the best. Here's the best part. If we can do the things that we already do so well and we can just apply this layer onto your business, I believe you become unstoppable. It's one of the big things. It's one of the key pillars of what we teach in the P3 mastermind, and I'm going to introduce it to you now. It's simply the idea of revenue management. So when you say, yep, do you build budgets? Yep. Yeah, we work with budgets. We make sure everybody is on budget. I'm naturally going to ask, well, then, what are you using to base that budget number off of? And that is your forecast. Forecast simply is you closing your eyes and looking into the future and saying, how much money do I think I'm going to make next month? So if we look to next month's. So here we go. I'm recording this in the month of February. We're starting to look into March. And we say, okay, how many.
[00:06:40] How much revenue am I going to do in March? How many covers am I going to do? Right? And close my eyes and say, okay, well, March is going to be slow in the beginning, and then it's going to pick up by the end, blah, blah, blah. You're going to come up with your numbers, right? Say, okay, I'm going to keep this really easy. Say, I think I'm going to do $100,000 in the month of March. I said, great. And we said, we want to keep our labor to 30%. So great. So we look at what are our. What's our budget then for our SAL employees? For a back of house hourly. For our front of house, hourly, then what's the payroll burden? Right? Social Security, Medicare, all of that benefits. What. What do I owe on top of what I'm already going to pay? We. I was taught to call that employer burden. It's the burden of being an employee, of being in, of having employees. Right. So what, how does that break out? The idea is, okay, if we're going to do $100,000 in revenue, we want to keep labor at 30%. That means all that stuff, salaries, hourly wages, all of that, benefits, taxes, all that has to add up to no more than 30,000 because 30% of 100,000 is 30,000. Right? Same thing with our cogs, right? So we look at our food budget, our beverage budget. That gives us a blended cogs number. Again, if we say, hey, we really want blended cogs to come in at 26% of revenue, well, then if we're going to do a hundred thousand dollars, then we have to keep our budget to 26,000. And all of that is great. And if you're using a declining budget, great for you. If you're providing some sort of oversight for your schedul and whoever's building your schedules, hooray for you. If you're running payroll reports, labor reports every single day to make sure that you're getting out ahead of overtime before it hits, then hooray for you. If you're not doing any of that. It's a lot of what we teach in the P3 mastermind, but what I really want to teach you is to go back to the revenue piece. If you say, okay, I think we're$100,000 in revenue, and that means our budgets are going to be $30,000 and $26,000 just to zero in on prime cost. Well, then naturally I'm going to ask for hitting $100,000. And this is what the big chains have dialed in. This is what I want you to understand is so important. This is what I want to talk to you about. More on that in just a second after a word from another one of our sponsors.
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[00:10:01] Okay, so now we are talking about revenue management. We're saying I'm, I believe it's the biggest difference between independent restaurants and the big chain restaurants. This is something the chains have dialed in in addition to all of the other systems they already have in place. One of the things they have dialed in is revenue management. Again, to review. If you say, yep, we do build all our budgets, I'm naturally going to ask, what number are you using to generate those budgets? Because ours is an industry of margins.
[00:10:31] Success rate is based on our ability to manage those margins. So you have to close your eyes and say, well, in the month of March, I think we're going to do $100,000 in revenue and I'd like our labor to be no higher than 30%. So that's $30,000, right? That's 30% of $100,000. And you break it out and you figure out the hourlies, the salaries, the taxes, the benefits, all of that. I'll let you figure that out. P.S. you look at your payroll receipts for the last several weeks or the past several months. That will help you arrive at that number.
[00:11:00] Same thing with cogs. Say, hey, I want a 26% blended COGS percentage. Great. So then what percentage of that is beverage? What percentage of that is food? Right? Then you give your budgets to the appropriate department, to the chef and to the beverage director. Right?
[00:11:14] But naturally the question becomes, well then if that number is based on a number, right? If those budgets are based on a forecast, in this case, in my example, $100,000, then I want to know what is your plan to hit $100,000? Because the 10 the chains are unwavering in that. If they say, well, we need to hit a hundred thousand dollars. And then our budgets are based on that, they hit $100,000, never anything less. And if you do not have a plan in place to hit that, then that's what we're going to talk about here. Right now. This is something we deal with very deliberately. In the P3 mastermind, we have an entire spreadsheet. We call it the P3 scorecard. It's an incredible tool that we give every single person in the program. So if you want to dive deeper into it, that's where we set up a call. Restaurant strategy, podcast.com schedule. But I'm going to introduce it to you here because you certainly do not need to work with me to do this. Plenty of people do this. Plenty of people teach this. If you want to build this on your own, totally fine. If you want the cheat codes, if you want to cut right to the end of the, right to the front of the line, that's what the Mastermind is all about. That's what we do so, so well. And we help you dial it in, get it integrated in just a couple of months time. But you can certainly do it on your own. This is how you have to do it. You have to sit here and say, okay, how much money am I going to do in the month of March? In this case, we already decided on $100,000. My next question naturally is great. How does going to come in the front door? Meaning what do you do on the first, what do you do on the second, the third, the fourth, the fifth, the sixth, the seventh, what do you do on lunch on the first and dinner on the second? Literally, how do you think revenue is going to come into your restaurant? And when you set a plan there, then you set targets for your team every single day. And the point of a manager is to manage the profitability of a restaurant. Yes. To make sure you're not going over budget on your ordering, on your scheduling. But guess what? It's also their responsibility to make sure we're hitting our revenue targets. Now, part of that is getting the butts in the seats, right? And that's marketing. And maybe from an operational perspective, you say, well, that's not really the GM's job. That's not really our floor manager's job. Fine.
[00:13:14] But you know, it is their job. It is their job to make sure that we are hitting a set per person average. Right? So we know every guest who comes in the front door is worth a certain amount to us. And that very much is their responsibility. Right? That is hiring People who have the capacity to do what we need them to do, that is training them to do everything, and that's coaching them, modeling the behavior, continuing to develop them to get better and better and better and giving them targets. PPA is the most important metric in our restaurants. Right? Yeah, we want to hit big numbers, but what's the small number that, when we all add up, adds up to the big number? That's ppa per person average. On average, a guest in my restaurant for lunch is worth a certain dollar amount. On average, a guest who comes into my restaurant for dinner is worth a certain amount. You have to make sure to understand that baseline, what, what it is now, and what you can do it where you need it to be. Because sometimes growing revenue, when you go from $31 ahead to $34 ahead, when you do the math, you realize that's a 10% increase, 10% increase in top line revenue. Not by getting more people in the front door, which, by the way, I think marketing is a really good idea and I think you should work really hard to get more people in the front door. But most restaurants out there don't do a very good job of maximizing the guests they already have. This is all part of revenue management.
[00:14:36] So if you're building budgets, you have to understand what that number is building built off of. Right? Hey, I want to hit a 30% labor, you know, labor percentage. Okay, so off of what number? Like 30% is just a percentage. And yes, we live and die by margins. Right. And I understand the importance of keeping tight to those margins so that we have a healthy operating profit that drops to the bottom line every single month. But you have to understand what that budget is built off of, and you have to have a plan for hitting that number. And guess what? But just like I just threw out there, you have to have a plan for not only hitting that number, but yes, growing that number. You can't just wait for marketing to come save the day. If your ppa, right, every, the, the per person average, every guest who comes in your restaurant is worth roughly $31.
[00:15:20] And you can figure out a way to get them from 31 to 34, that is a 10% increase in revenue. Million dollar restaurant is now gonna do 1.1. And when you scramble your numbers and you look at what that does to your labor, you look at what that does to your occupancy, it will make, it will make meaningful impact on the bottom line of your restaurant simply by making sure that we're squeezing as much out of Each guest that's there. Guess what?
[00:15:47] In our business, selling is a generous act. It is how we serve. Our job in the restaurant industry, certainly in operations, front of house, is to show people the very best way to experience this restaurant. The way we do that is by offering all the great stuff we have, not just assuming that people will find it on the menu, but saying, oh, you know, be really good with that. Oh, you know what? I'd love to recomm. You know what one of our fan favorites are here. You know what people seem to love? You know, it always seems to get reviewed. Well, you know what people don't know? And I can tell you this because I go out to a lot of places. I travel a lot, both for work and with my family, for pleasure, but I travel a lot, and I'm in a lot of places that I've never been to before, a lot of places I've never. That no one I know has ever been to before. And so I spend a lot of time saying, hey, what's good? Hey, what should I get? And when I get a server who comes in and says, oh, it's your first time here? Perfect. Let me tell you what you catch and not miss. When I get somebody who does that, I'm like, boom, I'm in their hands. It's the same thing with your team. So from an operational perspective, this is what the chains do really, really well. They understand how much money they need to generate in a given month. They build their budgets off that, and those are immovable. When they come up with their forecast, they then set targets every single day. What do we need to do on the 1st for lunch and the first for dinner and the second for lunch and second for dinner all the way through the month that will add up to this. In this case, the hundred thousand dollars that we need to generate. And if we say a hundred thousand dollars is fine, but, you know, great, if we did 110,000 or 115,000, then it's just going down to the PPA. On average, how many covers do you do? And that means. Right, so $100,000 divided by the number of covers you do, that gives you your ppa.
[00:17:24] And then what do you need to increase it by? Right, Each guest needs to be worth more money to me. And P.S. it's not necessarily raising prices, although that is a tool available to you. A lot of it is just increasing basket size, increasing the check, right? Getting more things on the check, selling side dishes or additional drinks or appetizers, or getting desser or after dinner, drinks or coffees or whatever it is. There's so many great ways to do it. But understanding what number you gotta hit at the end of the month, setting daily revenue targets for your restaurant, holding your managers accountable, understanding that they don't necessarily, they're not necessarily gonna get butts in the door. That's gonna be, that's gonna be marketing's job. But they, they have direct control over the amount that each guest generates in the restaurant. And guess what? They can absolutely be a key partner in retention in your restaurant so they can hand with the marketing department to get them back. It's not just emails that are going to get people back. It's shaking people's hands, giving them your card, inviting them back, booking another reservation for them. Those things are going to go a long way as well. And that's what the chains do so well. That's why they blow us out of the water. It's why there's not 20 Olive Gardens, right? That's why there's not 15 Chili's. It's why the best restaurateurs, even the independents, right, the Stephen Stars, the Boca Restaurant Group, the Danny Myers, the Michael Mina. It's why they don't have three restaurants. They all have a dozen, two dozen, three dozen restaurants. Because they figure out the formula and they understand what they need to do. One of the things that they have come to understand is this idea of revenue management.
[00:18:56] How much does each day need to generate in order to give us the forecast, the big number that we know we need to hit this month? If you have not been doing that, then this is me introducing it to you. If you need help, help doing this, then we're going to talk about the P3 mastermind, right? So this company, restaurant strategy, it's the company I founded, that's this podcast. Our signature program is a group coaching program called the P3 Mastermind, where we work with hundreds of restaurant owners from all over the world, right? We're in 45 states, eight different countries around the world, and we all gather every single week. Two calls a week, one hour marketing call, two hour operations call. And it's all about implementing these things into your business. Might sound like a lot, two meetings every single week, but I promise you, it's the three hours every week that will ultimately save you 30 hours a week. What we are doing is we are creating independent operators, right? Independent operators who will soon become independent owners. You shouldn't have to be in your operation any more than five or ten hours a week. All of that should be outsourced and delegated so you can float above the operation and really think about biggest, bigger things like business development and finance and, and, and vision and all of that. But when you're on the line, when you're greeting people at the front door, when you're running drinks, clearing tables, you can't think about those higher level, higher level things.
[00:20:15] Something this idea of revenue management. And when you get everybody rowing in the same direction, working towards the same goal, it will change your restaurant. P3 mastermind the way that you have a conversation about that. It's just a simple phone call. Restaurantstrategypodcast.com schedule. You'll end up on the phone with me or someone from my team. We'll get to ask each other a bunch of questions. There's no pressure. If it makes sense, we'll talk to you about what the next steps are and we'll get you enrolled in the program again. Restaurant strategy podcast podcast.com schedule grab some time on the calendar. That link is in the show notes. Appreciate you guys being here. Thank you very much and I will see you next time.
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