The restaurant industry can be brutal due to a combination of constant competition and tight profit margins. As such, finding new ways to stand out from the pack while boosting your bottom line becomes a never-ending quest for restaurant owners.
While there are always new tools and complex strategies you can try, you’d be surprised with how much you can help your restaurant business by following simple tips.
Last week, we sat down with local Newark, DE restaurant owner Ryan German of Caffè Gelato to discuss how he has been able to grow such a reputable eatery over the last 20 years while continuously increasing his margins and running a lean business.
The following information are the most important factors that Ryan has said to have significantly contributed to his success as a restaurateur.
Top 5 Profitability Hacks for Restaurants
From rethinking your approach to expense management, exploring new revenue stream opportunities, and partnering with a provider that can help you bring out the best out of your restaurant, these are the hacks that you need to pay attention to.
- Keep a Close Eye on Your Expenses
One sure-fire way to increase your profit margin is properly managing your expenses and finding ways to cut costs without affecting the quality of your services.
One of the best places to start is by reviewing your existing relationship with your merchant service provider. Since your choice of provider dictates your payment processing fees and rates, it has a direct impact on your money-making potential.
Look for providers that offer specialized pricing for restaurants, and make sure that their fee structure is beneficial for your business size. Some merchant service providers are a great fit for smaller businesses, while others make more sense for restaurants with higher volumes or chain locations.
It’s also crucial that you are familiar with your merchant statement, and that you understand every single fee on it. Knowing what you are paying for will help you organize your finances better and look for opportunities to cut costs. Furthermore, frequent reviews of your statement will help you ensure you are not being overcharged and can even let you identify potential fraud from customers in the form of chargebacks.
With proper knowledge and understanding of your statement, you’ll be in a better position to negotiate for lower rates with your provider.
Last but not least, you should pay attention to the third-party delivery services that you integrate and work with. Delivery platforms such as Uber Eats, GrubHub, and DoorDash use different fee structures and processing rates based on where your restaurant is listed on the app or website. Being at the top of the app’s list usually comes with higher fees, but it won’t necessarily mean increased sales volumes. On some apps, you might find that even at the bottom of the page you get the same number of orders as at the top. In some cases, your choice of app could be hurting your margins without really boosting your sales, in which case it might make more sense to switch to a different delivery partner.
- Develop Better Employee Controls
Another important aspect of restaurants that you need to keep in mind when looking to increase your profits is your employees.
Your employees are the forefront of your restaurant, and as such, they have a direct impact on your sales. It’s important to have a granular understanding of their performance, but it’s more than just productivity.
For instance, you should make sure that everybody is clocking out properly at the end of the day and implement a system that prevents one employee from clocking out from others, such as using secure location logins. This helps reduce situations where you pay an employee more than you are supposed to. Reviewing your payroll details before submitting them is another way to help catch mistakes and anomalies with your employee’s payments.
Your choice of POS system is an excellent way to help you keep track of your employees, both in terms of performance and what you are paying them. For instance, Bonsai POS offers employee time tracking with overtime alerts, letting you know exactly where each of your employees stands in terms of hours, while Clover can allow you to manage employee payroll through third-party apps on their marketplace.
You can also use tools to help you identify servers that have lower average ticket sales, or fewer sales for specific items, and find ways to help them boost their numbers. These are also the type of metrics that you can keep track of through the use of a feature-rich POS, like Bonsai.
Tracking these metrics can also help you identify servers that have exponentially higher performance, or receive significantly higher than the rest, to see if there’s an underlying situation you should be handling. While a server getting more tips isn’t a bad thing on its own, it could potentially indicate they are following practices that you are not in agreement with.
- Identify Multiple Revenue Streams
One of the best ways to boost your profits is to expand the ways you make money. You don’t necessarily need to change up your menu or create new products, as finding new ways to sell your existing product is a strong strategy on its own.
Some alternate revenue ideas you can try include:
- Offering Catering: One classic revenue stream opportunity is offering catering for events like weddings, parties, and the like. You could even create special menus for a personalized catering experience.
- Restaurant Wholesale: If your recipes are very popular in the city, consider selling them at supermarkets or grocery stores.
- Online business: If you are not offering online ordering these days, you are usually leaving money on the table.
- Ghost Kitchens: An interesting take on an online business. Ghost kitchens allow you to act as a restaurant without needing to have an actual physical location for patrons to dine in. You could have a second restaurant using your existing kitchen as a ghost kitchen.
- Opening Sister/Cafe Locations: If you’ve created a popular restaurant that is always packed, consider expanding to a new location.
- Sell subscription Boxes: Subscription boxes have gained a lot of popularity in recent years. Create personalized kits for your customers so they can recreate your recipes from the comfort of their homes.
- Create special events: You could turn your restaurant into a unique thematic experience with “cook your own meal” events or offering cooking classes.
But improving profit isn’t all about expanding your revenue streams. Sometimes it can be the opposite. You should constantly review your current sales options and channels to make sure that they are achieving your desired results. While it can take time for some revenue streams to take off and be adopted by the public, there comes a point when you know that something is not working out. If one of your ideas to grow your revenue is causing you to bleed money instead, you should consider cutting your losses, continue to do what is working, and try a new idea.
- Get Started with SMS Marketing
The dining world is turning to personalized messages as a way to reach the mobile-focused audience of today, and SMS has quickly changed from a decent marketing channel to a must-have.
According to Gartner.com, the click-through rates for SMS are staggeringly high, shifting between 45-95%. Compare those numbers to the much more conservative 6-20% CTR of emails, and the reason for the increased use of text messaging by marketers becomes obvious.
All this to say, your restaurant needs to start embracing SMS marketing right away.
Not only does SMS marketing significantly increase the reach of your marketing efforts, but it also helps create a stronger relationship with your clients, build loyalty, and even reduce no-shows for reservations.
For instance, you can run flash specials and use SMS to drive customer traffic during off-peak times. Thanks to the ability to save client profiles and new comprehensive analytic systems, you can now get detailed reports which can break down which of your customers are coming through the door the most often, and the least. This allows you to customize your outreach to re-engage patrons who haven’t come to your location in a while.
If your restaurant uses a loyalty program, you can significantly increase its effectiveness by implementing SMS marketing in the process. You can use segmented client lists and personalized messages to inform your loyal customers of new deals, menu items, or promotions that you know they’ll love. To that end, you should use a POS system that includes SMS marketing from the get-go, such as Bonsai POS and ValorPaytech. Both of these systems have customer engagement and marketing platforms that include SMS.
A system such as Bonsai POS, which uses SMS technology creatively, will allow restaurant owners to see what customers like and to manage their marketing and promotions efforts based on those preferences, and not based on pricing.
- Partner with the Right Merchant Service Provider
There’s only so much you can do in terms of increasing your profit potential with a limited tool set, which makes finding the right merchant service provider incredibly important for any restaurant.
Your choice of merchant service provider doesn’t only dictate the kind of payment processing fees you’ll see. It often extends to the type of POS and hardware you can use, which in turn affects the features you get access to and the way you provide your services.
While pricing is at the forefront of the choice equation, it’s not the only thing you should look for. You want an MSP that has great pricing on both hardware and software, but also provides top-notch support and enables your business to grow.
Finding an MSP that can suit all your needs can drastically help you save on the costs restaurants incur, like using a catering service such as ezCater. Custom online ordering or catering software can drastically help you capitalize on existing clients, keep customers over the long run and prevent them from going somewhere else.
You need to look for reasonable and straightforward pricing for hardware and software, as well as the best pricing possible for processing fees, as these will have a direct impact on your bottom line. You also need to try to identify merchant service providers who are trying to hide extra fees, additional percentage points, or other elements that could increase your processing costs. Industry margins are typically slim for restaurants, and every dollar counts.
At the end of the day, you want to work with an MSP that will help you expand as your company grows. The right MSP will not only help you save costs on additional hardware and software, but also take the stress off of your expansion process when your processing volume starts to increase.
There’s a lot that you can do to help increase your profit margin that’s not specifically tied to your services or expanding your menu. Taking a look at your current expenses and the performance of your employees can help you identify areas where you can, or need to make changes that can reduce costs or just improve your bottom line. Your choice of a merchant service provider will also have a direct impact on your profit margins, so you should take the time to explore the market before choosing your provider or review your current relationship to see if it fits your needs.
As far as expanding your business, you can cause significant growth through implementing new revenue streams. Offering catering, subscription boxes, and adopting SMS marketing strategies are just a few of the ways to do this. There is no one size fits all, and no “plug-and-play” formula. Mix and match some of the tips that Ryan shared to increase the profitability of your restaurant!