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Thursday, January 29, 2009

Mid-Week Gross Margin

Classic cost accounting techniques help operators to decide whether to close or stay open depending on expected sales volume. Generally, it is beneficial to remain open if your sales covers all variable costs and contributes to your fixed costs. If you can't even cover your variable costs, you would find more profits by closing your doors.

It may be impossible to change your hours for just one night. It is quite common to find different hours of operation for Monday to Thursday, Friday/Saturday, and Sunday. Many restaurants close one day a week. Most of these locations close on a Sunday or Monday. A few pick Tuesday to close.

Competitor analysis is very helpful. If everyone in your zone closed earlier, there could be a competitive opportunity in staying open longer. You may find you are not contributing to fixed costs the first week or two. Over time, you will catch the late night crowd. There are restaurants in Manhattan with two personalities. During the traditional dinner hours, they offer a quieter atmosphere and a more sophisticated menu. After 9 PM, they turn up the music volume and switch to a simple bar menu.

If you want to evaluate your current hours of operation, you need to find the sales by hour report on your POS system. Ignore the obvious peak periods and focus on the the off-peak. You may see some clear trends. Perhaps Monday through Wednesday sales after 9 PM are very low. Sunday evening could be either up or down depending on your menu and location. Take a look at different formats for the slower periods.

You may have a better chance with booking parties in specific time slots.

I have seen an Irish pub switch from dinner Saturday evening to music and dancing after 9 PM and go until 4 AM. They then tear down the room and go with Sunday brunch from 9 AM until 2 PM. Then they close for the rest of the day.

You need to know your fixed and variable costs. Armed with this information and your hourly sales data, you can harvest more profit from your restaurant.

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