What You Need to Know About Restaurant Revenue Management

A restaurant business can be tedious to maintain and run, especially when you’re aiming to increase its revenue, and improve yields. However, since restaurant management requires expertise in a number of areas such as point of sale optimization and inventory management, some owners may easily lose focus on factors that will help their business grow.

Any restaurant owner or manager usually undergoes rigorous training to learn various aspects of keeping a restaurant up and running. One of the most crucial of which is Restaurant Revenue Management.

What is Restaurant Revenue Management?

Revenue management in restaurants involves assessing an establishment’s revenue capability and adjusting in its services in order to maximise profits. Your creativity and business sense can come in handy when trying to position identical services at different price points without compromising customer experience.

By not implementing revenue management in your restaurant, your business may fail to perform up to its full earning potential. For instance, a revenue management case study for an Italian restaurant looked at several factors such as guest arrival patterns, meal duration, and the revenue it’s making per available seat-hour, among other aspects, to improve its overall performance.

Revenue management isn’t only applied in restaurants. It can also be applied in industries with perishable inventories, fixed capacities, changing demands, and a segmentable market.

What are the Main Factors of Restaurant Revenue Management?

Revenue management has continuously been applied with great success in the airline and hotel industry but has only been recently adapted for the restaurant industry. As industry experts try to find optimum ways of applying revenue management principles in the restaurant industry, these three main factors should be considered:

Time management

Time is a key factor in implementing restaurant revenue management effectively. As restaurant managers, you should take note of the amount of time your customers spend occupying your tables. By enhancing your service capacity, you can successfully manage your customers’ meal duration. The time your customers spend lingering on your restaurant after their meal may also hurt your revenue.

Furthermore, there are various approaches to improve restaurant efficiency and customer time management. Capacity management, which involves monitoring the service processes and certain managerial factors, such as dispersing the demand during peak-hours and reducing operating hours. Improving the communication between staff is also a technique that could help manage time and improve profit margins.

Menu management

Traditionally, restaurant managers and entrepreneurs only look at food cost and food cost percentage in assessing the cost-effectivity of a menu item. For instance, a steak with a 40% food cost may be considered less profitable than a pasta dish with just a 30% food cost. However, if the steak sells for $60, it yields $30 a piece, while a pasta dish selling for $30 only has a margin of $20.  Looking at the contribution margin of each menu item, as opposed to looking at the food cost percentage, could then be better for revenue management.

Price management

Effectively setting the right price points for your customers will also help you manage your restaurant’s revenue and profits. Unlike the hotel or airline industry, where prices can be adjusted based on availability or demand, applying the same principle in restaurants can be viewed by customers as unfair. To avoid this, restaurant entrepreneurs and managers should look into other pricing techniques to improve margins.

Encouraging customers to off-set their dining time to off-peak hours for better deals and discounted pricing also helps manage demand. In fact, this is one of the most popular techniques being used today. Through dining deal platforms such as Groupon and Scoopon, customers can get the same food items during off-peak hours at a discounted rate without seeing it as unfair.

What Methods should you Implement for Proper RRM?

Increase sales

Menu engineering is a technique that could help you increase sales and manage your revenue better. In a case study published in 2016, Menu Engineering was implemented in order to increase sales. This method looks into the popularity of each food item and its contribution margin in selecting menu items, then categorizing the items into four:

  • stars (high popularity and high margin)
  • workhorses (high popularity and low margins)
  • puzzlers (low popularity and high margins)
  • dogs (low popularity and low margins)

Additionally, integrating tools that will streamline foodservice processes, such as the use of mobile service tablets, can help speed up preparation time and subsequently increase sales.

Decrease costs

The money your business spends to keep the restaurant running is directly correlated to your revenue. Hence, decreasing your costs is important to increase revenue.

Inventory tracking is a proven way to minimize your restaurant’s costs. A 2016 study was able to prove that poor inventory management can cause a significant lack of raw materials for daily operations, which could ultimately lead to increased costs or even business disruption.

By implementing proper restaurant revenue management, your restaurant business will be able to cater to customers’ needs without compromising profitability. These methods will ultimately keep your business running at its best and achieve your growth targets.