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Friday, October 24, 2008

Squeezing The Lemon

Operators are working the monthly income statements searching for ways to generate more profit. Many operations are running just above or just below the break even point. Profit improvement efforts produce a huge impact at the break even point. A 1% drop in costs may be the difference between profit and loss.

Sales are tougher to come by this year. If you find you continue to break even once sales volume improves, its time to implement an aggressive cost cutting campaign. You can't afford to miss these opportunities to put money in the bank. A 1% rise in sales won't equal the profit produced by a 1% drop in costs. Every dollar of sales requires food and beverage to be served to guests. This cost of sales reduces the income produced by the gain in sales volume.

With guest counts down and average checks off, there may be a huge temptation to fill seats through huge discounts. This strategy risks losing profitable seats on a busy night. Discount lovers take seats which could have produced superior profits. Rather than offering discounts at every meal, you could offer busy night patrons a discount for a slow early week meal period.

Cost cutting efforts produce profits faster than incremental sales improvements at the break even point. Many managers have already cut their cost of sales to the bone just to stay afloat. If you have squeezed all the juice from the lemon, try some new ideas. I'd start with direct operating expenses. Check on linen usage, sewage bills, utilities, garbage pickup, paper and disposable usage, and other costs which do not help produce additional sales.

You may be able to reduce your costs by closing earlier on many slower nights. Late night hours on slow nights are very unprofitable. Late night sales potential may not justify the labor costs. Compare your final hour's sales less the cost of goods sold to the labor costs for the same hour. If you can't cover labor, you'll save by closing earlier.

By finding cost savings and improving the quality of sales volume, operators can gain an edge over the competition.

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