[00:00:00] Speaker A: So we all know the failure rates in this industry, but failure really has to do with someone coming to market and not really understanding their market or not understanding the industry in some way. They didn't successfully fill the gap that existed or find a need in the marketplace. And that happens to businesses in all different industries, not just restaurants. What bothers me more than the failure rate is the number of restaurants that struggle. Meaning good restaurants, great restaurants that put out a great product and really know how to take care of their people.
They do a lot of revenue, which means a lot of people are coming and coming back. And the restaurants there that don't know how to make money. That's what we're going to talk about in today's episode. I want to talk to you about how to actually make money. If that sounds like you. You got a good restaurant, good food, good service, a lot of people love you. You've been around for a while, but you struggle to make the kind of money that you deserve. And what we're talking about is that consistent, predictable 20% profit. Then that's what this episode is.
Make sure not to go anywhere.
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 never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
Hey everyone, thanks for tuning in.
[00:01:36] Speaker B: My name is Chip Close and this is Restaurant Strategy Podcast, dedicated to helping you build a more profitable and sustainable business. Each week I leverage my 25 years in the industry to help you build that more sustainable and profitable business. I give talks all over the country. I wrote a book. It's called the Restaurant Marketing Mindset. I put out content here on the podcast twice every single week. I have a YouTube channel. You'll find me on Instagram, on Facebook, on TikTok. Uh, you also know that I run a coaching program. It's called the P3 mastermind. It's a group coaching program where I help restaurant owners and operators increase the profitability of their restaurants. I don't want to bore you with any of that. I have one request of you today. If you get any sort of value from this show, please take two minutes, leave us a five star rating and review on Apple podcasts. Easiest way to do that is go find Apple Podcasts. Leave us that review. Literally just let people know what you get out of the show, why you keep tuning in, and why you think they should tune in. That more than anything else would help us grow this Show Show Now Torque understands that expectations for food service sustainability and guest experience are higher than they've ever been. That's why Torque provides products and services that help restaurants actually meet those demands. With more than 50 years of global food service expertise, Torque can help you keep up with hygiene standards and food safety guidelines in every area of your business. Foh boh restrooms and drive thru. From Express Nap, the world's favorite napkin dispenser, to multipurpose cleaning towels that clean smarter and high capacity restroom dispensers that reduce runouts, Torq offers better hygiene for better guest and staff experiences. You can check them out and get more
[email protected] restaurant please use that link torqueusa.com restaurant to learn about all of the products they have. As always, that link is going to be in the Show Notes Thousands of restaurants across the country use Kickfin to send instant cashless tip payouts directly to their employees bank accounts the second their shift ends. It's a really simple solution to what's become a really big problem. Because let's face it, paying out cash tips to your workers day after day, shift after shift.
[00:03:48] Speaker A: It's kind of a nightmare.
[00:03:49] Speaker B: Tedious tip distribution takes your managers away from work that actually matters. It's sometimes hard to track payments, which leads to accounting and compliance headaches.
Plus, cash tip outs create the perfect opportunity for theft. And there's never been there's never enough cash on hand to pay out those tips. So what? What happens? Your managers are constantly having to make bank runs. Bottom line, there's never been a secure, efficient way to tip out. Until now. Meet Kickfin Kickfin is an easy to use software that sends real time cashless tip payouts straight to your employees bank accounts. 247365 tipping out with Kickfin gives managers and operators hours back in their day. It makes reporting a breeze and protects your business from mistakes and theft. And guess what? Employees love it. So it becomes a really powerful recruiting tool. Best of all, restaurants can have Kickfin up and running overnight. Employees can enroll in seconds. No hardware, no contracts and no setup fees. Get in touch today for a personalized demo and see how restaurants and bars across the country are tipping out with Kickfin. Visit kickfin.comdemo and yes, that link is in the show Notes now.
[00:04:59] Speaker A: Today we're talking about profitability and how to reverse engineer profit so you can so you can make your take home pay your distributions automatic. Before we get to that, one other message. Simply because I've been asked a lot over the last like six months about non traditional funding opportunities. And so I went, I did a bunch of research, I've got a bunch of members in my mastermind who used Honeycomb Credit. I went, I had really great conversations with them, I vetted them and in fact, we've got a many, many more of my members, more clients who are actually using them. They're having a great experience. If you've never heard of it. Honeycomb Credit is a crowdfunding platform. So like Kickstarter accept you're not looking for donations, you're looking for investments, Right? So there are investors who just invest in different projects on that website and you're gonna leverage your community to raise more capital. Now this is perfect if you are looking to redo your patio or looking to build out another room, a speakeasy, a downstairs bar, something like that. If you are looking to grow not, not just for debt servicing or debt consolidation, but if you are looking to grow in some way and you don't see how that's possible, a platform like Honeycomb Credit can be incredibly powerful because you get to reach out to your community and say, hey, our restaurant is looking and we want to grow with you. Rather than us taking out money from a bank and paying back, you know, paying a bank back, we want to pay you bank. This is not for everyone, but I found it's a really, really good option if you don't want to bring on more investors. You don't want to take out another bank loan or another SBA loan. This is another option out there. Honeycomb Credit. I've shared a special link in, in the show notes.
If you just by mentioning that you heard this offer through this podcast, you get some sort of special deal.
Talk to them when you get on the phone again. Honeycomb Credit's a non traditional funding source, very reliable.
If you haven't looked into them yet, please look into them. The link is in the show notes.
Okay, so now we're talking about how we reverse engineer profit. I want to back up and say profit is the only thing that matters in your business. I say that a lot. It literally is it. I'm the guy who says revenue does not cure all sins. The path to profit is not just by pounding the register. Now, I like revenue just like everybody else. I understand the importance of growing top line. But you cannot, you cannot grow top line without first getting your expenses in place. Meaning you need to understand how to manage cost of goods sold. And you have to manage labor. You have to understand how to do that those are the guardrails you put in your business. Because that's where all our, that's, that's where all the bleeding really comes from, in my experience is prime cost. Right? Cog plus labor equals something called prime cost. You've never heard that before. I'm glad to be able to introduce you to that. If you know that, of course you do, because it's something we talk about all the time. The three moving targets in our business are also our three controllables. Revenue, cogs, and labor. And so you need a strategy and you need a system for managing revenue, for managing cogs and managing.
Now here's the really important thing. When we talk about reverse engineering, you need to think really deeply. And if there's any moment in this podcast where I'm gonna get a little woo woo, here it is.
Your business exists to support your life.
Nobody opened a restaurant so that they can have a worse job than the one they left.
Everybody wanted a better life for themselves. They wanted to be able to do food that mattered, to serve communities in the way that they wanted to.
Everybody goes into business to have things be better than they were before. Nobody goes from a 40 hour a week job to have an 80 hour a week job. Right. Even if you are totally satisfied and, and, and, and it feeds your soul, your ability to serve your food to people. I get that. But still, it has to be better than the thing you left. The way you get it better is by stopping and going, what do I need from this business? Here's the woo woo part.
Whatever you want in life, you have to be willing to say it out loud. You've got to write it down. You have to know what that number is. Hey, I want to make X number of dollars a year. I want to take X number of days off per week or per year. I want to be able to provide legacy for my family. I want to create a business that will grow and be around so I can pass off to my kids or that I can eventually sell to my employees or whatever that is.
If any of those things are important, you have to write them down. If there are other things that are important that I haven't mentioned, undoubtedly there are. You just have to be willing to identify them, to acknowledge them.
You can't, you can't run a profitable business by just saying, okay, let me just try and sell as much as possible and I'll, I'll do my best to limit expenses.
That's the rat race that's being on that hamster wheel. When you Step back. It's funny because I was on the phone with a prospective member. So I field calls every single day with people who want to learn more about the P3 mastermind. And there are plenty of people who are perfect for the program. And I let them know, yes, I understand what you're going through. We solve this problem.
But I'd say 40% of the calls, 30, 40% of the calls, they're either not ready, they're not right, they have a problem that I could never solve from a thousand miles away or 3,000 miles away. I talked to one such woman just the other day, and she had a restaurant, and she was going through all the problems they had. And I was looking at their online presence, their website, I was looking at their menu. I was getting a better sense of the business.
And she was in so far over her head. And as it turns out, she wasn't a restaurant person, and she didn't have restaurant people around her. She didn't have an operator that she could trust. But really, the sticking point was when she told me. So I asked, okay, how much revenue are you doing? And of that, how much of that are you dropping to the bottom line? Meaning how much of that is profit? Okay, none. They're operating a loss every single month. They've done that for 10 straight months. Okay, that's problematic.
And one of the things I always ask is I want to understand their cogs percentages, their labor percentage, and I also want to understand their rent percentage. What's their occupancy cost?
What percentage of their budget goes to occupancy?
In this particular instance, 28% of their revenue is going to rent, meaning they just signed a bad lease. I don't know. And so she bought this business, and basically they were doing $120,000 in revenue. And I said, really? You got to be doing something like 350,000 plus in revenue. So tell me, when you bought this business from the previous owner, when you looked over their books, were they ever doing 300, 350, $400,000 in revenue? And she said, no, the most they were really doing is $200,000.
I said, well, then I don't understand how they made money. And I think they probably didn't.
And that's a problem. She says, oh, I know our rent was expensive.
Not that expensive. It was over three times what she should be paying. So on that space of the kind of revenue they were generating, it shouldn't have been 30k. It should have been something like 8 or 9k. That was a more appropriate number for the kind of revenue that they were generating.
So they signed a bad lease. And I told her, I said, you need to either renegotiate this lease. And I gave her a whole laundry list of things that she needed to do in order to be able to work with us. Because the things that I was going to show her to do weren't going to matter. Because even if we could manage prime cost, even if we could get those things in line and talk about revenue growth, I wasn't convinced that we were going to be able to 2 to 2 and a half, 3x their revenue. I wasn't convinced. I think that's hard for just about any restaurant to do. To go from $120,000 to $350,000 a month in revenue is that. That's a totally different thing. I don't know that there's that many people in the market who want the product that they have, Especially for a restaurant that's been around for decades. So that was problematic.
When you look at your business, obviously you have to make sure you signed a good lease. Obviously you have to make sure that there are enough people in your market to drive revenue, that there are enough people who want what you have. If you've been around a few years and you've survived and you're keeping the lights on, I'd say the answer to that question is yes. What you need to figure out now is what you need from this business. And then you reverse engineer your business to provide you with that. So the number of people I talk to and I say, hey, as I'm looking over your P and L, it's just labor. Labor is out of whack. It's at 39% and I need it at 30%. And so they say, but I can never get my weekly payroll that low. I just can't execute this restaurant. I say, great, so then let's talk about pivoting or evolving this restaurant into the restaurant that you need it to be to make money.
Otherwise you can make this business your life, but it's never going to be a business. It's just going to be a non profit, which means it's going to be self sustaining. That whatever you make goes back into it to keep it alive. That's what happens. You make revenue. The revenue goes to pay out your bloated payroll. But if you, the owner, ever want to make money from this and support yourself and provide legacy for next generations or whatever, then we need to rejigger something.
You have to Reverse engineer the business to provide you with what you need.
Now, the biggest problem that I often come up with when I talk to people who have never thought like this is that they don't know what they want. They don't know what they need because they've been on the hamster wheel for so long. When I say, what do you want? Like, if. If I say I can get you to 20% profit, which is what we do with our members. If members come into my program and do what I show them to do, we will get them to 20% profit.
So when that happens, what do we do with all that money? Because they're used to running their business without making anything from this business.
So for a lot of people, it's, well, man, if I could make that kind of money, then I'd want to open 2, 3, 4, 5 locations. Because then if I could duplicate that and make that kind of money across five locations, that would be some serious money. Great. That's not what everyone says. That's what some people say, and that's totally fair. So then expansion, right? So then reinvesting those profits into our business so we can open a second location, third location, fourth, fifth location, and instead of making $20,000 a month with one location across five, we're taking home $100,000 a month, man.
That's a business. I totally understand that. A business that nets seven figures.
Absolutely. That's the kind of thing that we want. Now, that's not for everybody.
Maybe somebody says, no, I'm really, you know, if we could just get this profitable for a couple years, make it look really good on paper, I just want to sell, or I want to then be able to franchise. Totally fine. But profit is the thing that gets you there. Or maybe you just want to step away, because there's a lot of people I work with that have been running ragged for many, many years, for decades, and they just want the opportunity to step back, to maybe show up to their restaurant, just have dinner, show up to their restaurant, just walk around the dining room shaking hands rather than being trapped back on the line. And that's fine, too.
Being an absentee owner isn't a bad thing. Your restaurant doesn't need you at the front door, doesn't need you on the line in order to be successful, we build systems so that your team can execute in your absence.
That's the definition of a really great restaurant. A restaurant that can still be great without the leader at the helm. You, of course, are putting everybody into place and making sure that they do what you need them to do, but I don't need you there 60, 70, 80 hours a week.
To ensure a great restaurant, you can build systems that will make sure this restaurant is consistently great every single night. Here's the thing though, in order to reverse engineer it, we have to understand what we're reverse engineering to.
So if you say, well, man, this restaurant is going to. And I talk to plenty of people, when they finally see the light, they say, well, this restaurant can be my, can be my retirement. Because if I can really get. So hey, I've got about a million dollar restaurant. Let's give or take about $100,000 a month in revenue. If you could get me to $20,000 to 20%, which would be $20,000, man, I'd be willing to reinvest as much as half that. You know, really great management team, right? A manager or two managers to run that restaurant. And then I could live off the remaining profit, which is that $10,000 a month. I don't know. For a lot of people in a lot of different corners of this country, that's a really healthy living. If you can, you know, take home $10,000 a month out of your business, that ends up being a really a tough, attractive proposition for a lot of people. And for a handful of people that I work with, that is their retirement. They say, man, okay, I got a million dollar restaurant that generates about $20,000 a month in profit. That's my distribution. But I reinvest half of that, or I reinvest 7 or 8,000 of that into a really great manager who I trust will do all the things I need them to do. And then I don't have to be here 60 hours a week. I can check in, you know, for five or ten hours a week. I'm happy to do that. You in my retirement. And then I live off of the distributions that I'm able to take from this business. Yes, that's absolutely right. And whether you live in the same town, whether you move to some beach, whether you live abroad, it doesn't matter. You go where you want to go, but you've got a steady stream of money. It's why I say I want to get you to the point where you'd never dream of selling the business, right? It's that conversation of do we sell the golden eggs or do you sell the goose that lays the golden eggs? The question is, why would we ever sell the goose that lays the golden eggs? Because every single month we're going to get a golden Egg. So the goose is the restaurant. Right. The restaurant produces the golden eggs every single month. Well, once I got the goose, I want to hold on to that goose because every single month that goose is going to supply me with my livelihood.
What you have to do before you put any sort of system or plan into place is you have to decide what, what it is you want. Even if it seems pie in the sky, you have to sit down, you have to. In order to manifest it, you've got to put it out into the universe. And I'm a really big fan of writing it down, writing it down and pinning it to the wall. I've got a cork board right across from me here in my office, and I track all of my podcast episodes. I track the different things that I'm trying to accomplish on a monthly basis. And I have my annual goals, and then I have my big goals, my, my lifetime goals, my decades at a time goals. You got to figure out what you want then, only then can we figure out what you need to do to get what you want.
That's the program I run, is to help you get what it is you want.
But it doesn't do us any good if you don't know what it is you want. Because what we're going to do is we're going to reverse engineer, but we have to understand what we're reverse engineering toward. So if you have not done that deep work, that's what this episode is all about. I want you to figure out what, what would you like your life look like a year from now, two years from now? Because guess what, you can put a lot of stuff into practice. People come into my program and they make a six month commitment. So we can do this in six months. So I'd say a year from now, what do you want your life to look like? Right.
Then we can talk about what we need to do to get you there.
I'm happy to have that conversation with you. The best way to do that is to go to restaurantstrategypodcast.com schedule, grab some time on the schedule, or have a conversation. There's absolutely no pressure to join the program, but you'll get to learn more about the program. But you can't come to that conversation until you're armed with what's on the other side of profit. Once I help you implement the systems to get consistent, predictable 20% profits every month, what is it for? What do you want to accomplish? What are you going to do with that money? And to be honest, I don't care if you ever tell me or anybody else. But you have to know for yourself. And I'll know. When I ask you, have you thought about what we're working towards? I'll hear it in your voice. I'll know if the answer is yes. You'll say, yeah, absolutely. I'm really, I'm laser focused on that and sometimes people just can't help but tell me. They can't wait to tell me. That's great. I'll listen. That's the best part about being a coach. I am there for what you need and not anymore.
In order to get where you want to go, you have to figure out where you're going. If you haven't thought about that, there's no reason to buy a ticket if you don't know where you're buying ticket toward. That's what I wanted to talk about today, guys. I really appreciate all of you guys making me part of your week. One final reminder, if you've read my book, the Restaurant Marketing Mindset, and if you've gotten any sort of value from the contents of that book, please go to Amazon, leave me a five star rating and review. Just let other people know what you've got out of the book. I'm going to put that link in the show notes. Thank you very much and I will see you next time.
Sam, it.
