Controlling the Big Three
A characteristic of the best owners and operators of food and beverage establishments is their careful, often obsessive, attention to every operational circumstance. They live by the clichés that the devil is in the details and that pennies make dollars. But in some cases, this kind of extreme attention to detail can be as much hindrance as help. Managers can become so focused on the daily minutiae of operations that they neglect big, important factors that can have a more significant impact on the bottom line.
More than 80% of your expenses are spent in three areas.
Question: Do they deserve as much scrutiny as plate presentations and correct cocktail garnishes? Answer: They deserve more!
Cost of goods sold; payroll; and overhead, including the cost of real estate and services, are the three expenses that account for so much of your total costs. Because of their magnitude, paying close attention to each and making even incremental improvements will have a significant impact on your bottom line. So pay close attention to them…and consider the following when you do.
There is a huge difference between what I mean by controlling and cutting. Controlling connotes a thoughtful and sensible approach to any changes you make. The operational impact of changes are carefully considered and deemed to have little or no impact on the quality of the goods and services you provide. Cutting is a different matter altogether. In these cases, financial considerations trump operational needs. The cuts generally come as the result of diminishing sales. Cutting expenses for this reason, especially food cost, beverage cost and payroll, often results in associated quality reductions in the goods and services offered. This just slows down the inevitable decline into insolvency.
This is not to say that cutting expenses is never a good thing. It is when an expense is carefully examined and found to be way out of line. This can happen after long period of inertia on your part or when taking over an existing operation that is suffering as the result of a previous manager’s lack of action. Bloated expenses should be cut to pieces.
Controlling Cost of Goods Sold
Considering the point above, any changes made to have a positive impact on cost of goods sold should be undertaken as the result of auditing a number of factors and result in the same or improved product offerings.
1. Review Portions – If your pour size is 1.5 ounces, over pouring by just a quarter of an ounce will result in an increase in your spirits cost of goods sold of 33%. Your customers expect a well-made, fairly-priced drink (quality and value). You should expect your bar staff to make that drink to your specifications.
2. Review Pricing – Make sure that the prices you are charging provide value for the customer and result in an appropriate profit for you.
3. Conduct Make/Buy Analysis – For some items, purchasing pre-made alternatives may be financially preferable to having staff prepare them in-house. For instance, there may be a local bakery that will make sandwich rolls for you to your specifications. Compare the cost to purchase to the cost to make, being sure to include the cost of labor associated with making. Making at the bar is almost always preferable because of the low hourly wages paid to tipped employees.
4. Bid Everything -- I am a strong believer in building and maintaining strong relationships with vendors. I liked using “my guys” to purchase from whenever possible. Past experience tells me that these strong relationships can often result in prices creeping up over time. Real competitive pricing most often happens where there is tough competition for a customer. Bid sheets will keep your favorite salesman honest.
5. Prepare the Right Amount in Advance – Kitchen and bar staff will often over prep for a shift because it’s in their best interest. Whatever doesn’t get sold they eat and drink or toss. That’s not in your best interest. Make sure what is being prepped is based on at least a best guess business for the day.
You can’t keep good staff if everyone gets ten covers a night. Bartenders in the weeds don’t provide the kind of service you expect. Both circumstances are bad. Staffing at appropriate levels is difficult but a critical component for success.
1. Forecast –Use all of the information at your disposal to determine appropriate staffing levels including reservations, booked business, seasonal fluctuations, nightly fluctuations, etc., and then expect to be wrong. But you will have given yourself a fighting chance.
2. Watch Out for Hourly Managers – Hourly managers will put themselves on the schedule a lot. Make sure they understand what you expect and that they are meeting this expectation.
3. Watch Out for Salaried Managers – Salaried managers will put themselves on the schedule a little and have others covering hours when they should be there. Pay attention for god’s sake.
4. Watch Out for Under-staffing in front and Over-Staffing in Back – Managers in charge of schedules should be working for you and not for their employees. Front of House Managers complicit with their staff will habitually understaff to decrease the number of bartenders and servers splitting the night’s tip. THIS IS BAD! Kitchen Managers complicit with their staff will habitually overstaff to increase total hours worked by cooks. THIS IS BAD!
5. Pay Attention – Respect everyone and trust no one. That’s your job.
Controlling the Cost of Real Estate and Overhead
Controlling these costs is a different proposition the two above because these are fixed costs while cost of good s and payroll are variable costs. Rent and insurance are due every month regardless of who comes in. The best way to reduce them as a percentage of revenue is to increase the revenue side of the equation…that is, to maximize the revenue being generated while those expenses are being paid.
1. Offer food – Done right, food sales should result in a profit. Customers stay longer and spend more on beverage when food is offered.
2. Do Functions – There’s plenty of profit to be made in the function business. Extra square footage can inexpensively be turned into function space. Existing space can be utilized for this alternative purpose.
3. Expand Your Hours of Operation – Making even a dollar of profit by opening for additional time is beneficial. It keeps your staff busy and making money and may build recognition and loyalty among a new group of customers.