5 Steps to Effective Restaurant Revenue Management

NB: This is an article written By : The InTouch Team

The Restaurant Revenue Management journey may seem like a daunting task. But with a structured approach, you can set each of your teams up for success.

Embarking on the Restaurant Revenue Management (RRM) journey may seem like an overwhelming task at first glance. But let’s take a step back and look at the core purpose of RRM and the stakeholder’s responsibilities in the RRM process, to break it down into bite-sized pieces for easier digestion.

The main objectives of RRM are to increase restaurants’ traffic, sales, profit, and guest satisfaction & restaurant reputation. RRM engages different departments and breaks down traditional silos to achieve these objectives. With a structured approach and a well-guided process, each department will have different responsibilities.

1. Establish Baseline Performance

As a first step, look at your restaurant’s performance through specific key performance indicator (KPI) measurements that you’ve deemed most relevant. Many of these KPIs may be difficult to calculate on your own, but intuitive dashboards and reports that can be generated through and based on your POS data, make the process painless and simple.

If you’re building a strategy to maximise your hotel restaurant’s profitability, you need to understand the performance of your restaurant as it stands. To gain a clear picture of your baseline performance, there are three key performance indicators (KPIs) you should pay attention to:

• Revenue Per Available Seat Hour (RevPASH) = Total Revenue / Seat hours
  • (Seat hours = Total Number of Seats x Hours Open)
• Seat Occupancy = Total Number of Seats / Number of Seats Filled
• Average Check = Total Revenue / Number of Covers in the Restaurant

RevPASH calculations let you decide when to upsell and when not to, and if your marketing and promotional efforts are effective. Seat Occupancy analysis tells you when you need to attract more customers, or when your demand is outstripping your supply of seats. And, finally, comparing table mix with your party sizes helps you make sure you have the right combination of table sizes so that you aren’t losing possible revenue.

2. Understand Demand Drivers

This next step is following a best-practice revenue management demand analysis. Once actionable steps that could improve performance are identified, be it traffic (covers), sales (average check), or service (consistency in service, reputation, and guest satisfaction), each of your departments will have better insight into what responsibilities they have in optimising their operations and boosting revenue.

Understanding what attracts people to your restaurant (and keeps them coming back) is essential in boosting F&B profitability. You should break down your demand analysis into three core categories:

Traffic

First, you need to understand the traffic coming to your restaurant. What are your peak arrival times and meal periods? What are the average and median party sizes that your restaurant attracts? What guest segments spend the most money at your restaurant?

Comparing metrics like table mix with your party sizes helps you make sure you have the right combination of table sizes so that you aren’t losing possible revenue.

Sales

Second, your sales will give you insight into how much revenue your restaurant receives from each guest. Use the Average Check per Cover (APC) to calculate how much each guest is spending when they visit your restaurant.

• Average Check per Cover (APC) = Total Number of Sales / Total Number of Customers

Guest Experience

Finally, analysing your restaurant’s guest experience allows you to determine the quality of service your restaurant is providing. Two indicators you can use to measure guest experience are meal duration and guest tribe.

Measuring dining duration helps you keep tabs on your service quality, while spending-per-hour calculations can help you fine-tune how your servers optimise their sales.

Tribes are created to visualise your guests’ purchase behaviour on a high level. Are your guests buying the set menu you have created, or most often a main course +1 (starter or dessert)? How does this impact revenue and profit performance? What tribes contribute to the highest average check and ultimately the profit and revenue performance of your restaurant? This is all validating your strategies or pinpointing where you need to focus to achieve the results you anticipate.

To gain a full picture of your traffic, sales, and guest experience, measure your demand generation per hour, per day of the week, and per month. This will allow you to identify patterns and trends in your restaurant’s demand and help inform your profit strategy and targets.

3. Develop Strategies & Set Targets

There’s no “right” strategy for growing your restaurant’s profitability, rather the best plan will focus on increasing demand drivers (traffic, sales, and guest experience) and reflect your business objectives. At this stage, you need to determine what your goals are, how you’ll achieve them, and when you want to achieve them.

Try setting SMART goals to make your objectives as clear to your team as possible. SMART goals should be Specific, Measurable, Achievable, Relevant, and Time-bound.

For example, our goal is to increase the Average Check Per Cover by 15% by the end of this quarter. We will accomplish this goal by training servers to recommend an ideal wine pairing with each guest’s dinner. Accomplishing this goal will result in higher wine sales.

By using the SMART goal structure, you can take the guesswork out of implementation and set clear timelines for success.

4. Implementation

Implementing your F&B profitability plan is all about developing activities that help you achieve your targets. These activities can be broken down into two categories:

‘Hot & Cold’ Activities

‘Hot & Cold’ Activities are activities that alternate between requiring a great amount of time and resources and requiring less of your focus. Here is a list of activities that fall into this category.

• Table Mix Optimisation
• Customer Segmentation
• Reservation Management
• Pricing & Promotion
• Marketing

‘Always On’ Activities

‘Always On’ Activities are more hands-on initiatives that you should continually work on throughout the implementation process. These activities can be broken down further into two main segments:

Front of House activities are focused on improving guests’ experience by investing in the skills of your servers. In an easy-to-understand report basket, all aspects of servers’ performance can be examined and analysed; empowering your restaurant managers and team leaders to guide and train the staff and make data-driven decisions. Some examples of Server Coaching activities are:

• Server Coaching
• Upselling
• Sales and Product Training

Back of House activities work to ensure that the items on your menu are optimised for profitability. Ready-to-use reports using POS data, such as menu matrix, top, and bottom selling dishes in terms of quantity and profitability versus item pricing, are provided in easy-to-read formats, saving your BOH team hours of data crunching. These include:

• Product Mix
• Menu Engineering
• Menu Pricing
• Menu Design

Measure Success

Measuring the success of your plan can be tricky. It’s important to capture accurate data so you can confidently analyse performance trends, KPI, and demand forecasting data.

Keep an eye on performance trends so you can track performance over time and ensure your KPIs are moving in the right direction. Tracking KPIs, like RevPash, Seat Occupancy, and Average Check throughout the implementation process will allow you to monitor your progress in real-time.

Final Thoughts

Leverage technology and data to ensure you have accurate information and can make smarter decisions. Tools like hotel Business Intelligence software (BI) provide insights into restaurant customers’ purchasing behaviour and enable you to predict their reaction to future revenue initiatives on a single platform.

Access to structured data and intuitive visualisation will excel your team’s performance, your restaurant profits, and reputation – the main drivers of a win-win strategic process for any restaurant.

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