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The Five Profit Killers and How to Fix Them (ENCORE)
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#561 - The Five Profit Killers and How to Fix Them (ENCORE) ***** This week's episode is brought to you by: KICKFINVISIT: https://kickfin.com/demo/ This week's episode is brought to you by: AJINOMOTOVISIT: https://ajinomotofoodservice.com/ ***** The Restaurant Opening Bootcamp will save you tens of thousands of dollars in costly mistakes. Run by restaurant coach, Chris Hughes, this 12-week program will teach you everything you need to know about opening a restaurant. LEARN MORE: https://www.restaurantstrategypodcast.com/restaurant-opening-bootcamp-inqury-form ***** This is what's keeping you at single-digit profits. ***** If you want to snag a copy of Chip's book, The Restaurant Marketing Mindset... CLICK HERE: https://www.therestaurantmarketingmindset.com/ If you're ready to learn more about the P3 Mastermind... CLICK HERE: https://www.restaurantstrategypodcast.com/p3-mastermind-program If you want a free 30-day trial of our Restaurant Foundations Membership Site... CLICK HE...
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It has never been harder than it is right now to run a profitable restaurant. And it begs the question, why are so many restaurants failing? Why are so many operators struggling just to make ends meet? The answer might surprise you. It's not because people aren't eating out. It's not because there's no demand. The problem is that most restaurant owners are simply fighting the wrong battles. Today I want to talk about the five profit killers that are strangling your restaurant and more importantly, what you can actually do about them. This is a strategic conversation that will change your business. Don't go anywhere. There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking. Hey everyone, thanks for tuning in. My name is Chip Close. This is the Restaurant Strategy podcast again, two episodes every single week to help you level up and build a more profitable restaurant. You know, I write books, I give talks. I host two live events every single year. The P3 profitability summit, which you're going to hear more about in the very near future. The the upcoming one will be in October in Minneapolis. Tickets will go on sale now. It's October 18th, 19th and 20th. 20th. Consider this your save the date announcement. And I also host a leadership retreat every week. That's what we're going to talk about on this show. But the majority of the way that I work with restaurant owners is through my P3 masterminds, a group coaching program where we help dial in profits so that you are ready to grow. Majority of the members of our program are multi unit operators. 2, 3, 4, 5 locations that are looking to get to 10, 20, 50 locations. You can't grow unless profits are dialed in. That's how you get access to good cheap capital. That's how you know you've got a business that is worth growing. If you're at all interested, I want you to click the link in the show notes. It is rsprophit.com that link is in the show notes make it really easy. But RSProphit.com to learn more about the program, you grab time on the calendar. You set up a time to chat with me or someone from my team. Let's start that conversation about how we can make you more money so that you can work less and ultimately grow this business that you've built. As always, you'll find that link in the show notes. Now if you've listened to this show for any length of time. You've heard me talk about Kickfin because they've been a trusted partner of mine for years and I genuinely believe in what they do. For restaurant operators see, managing tips has always been a headache. There's never enough cash in the drawer at the end of the night. Managers are stuck making bank runs throughout the day and then doing spreadsheet math at, I don't know, one, two in the morning. Tip pooling regulations keep getting more complex. It's just not fun. And that's exactly why Kickfin exists. With Kickfin, restaurants can calculate chip pools automatically and send instant cashless tip payouts to employees existing bank accounts. And I said cashless. No cash, no predatory pay cards, no glitchy employee apps required. Your team gets their tips fast in the account they choose, right? When their shift ends, Kickfin integrates with all the major POS players. So Toast Square, Skytab, Genius Union, and many more. So you get fully automated end to end tip management. It's fast, it's accurate, and it gives you a clean digital record for accounting and compliance. Kickfin powers tip payouts for every type of concept from mom and pop shops to regional hospitality groups to national brands like Walk on Sports Bistro, Marco's Pizza and Toasted Yolk Cafe. Great hospitality starts behind the scenes when your people feel valued, when they are paid fairly and paid fast, I promise everything improves and Kickfin makes that possible. If you're ready to save hours every week, eliminate those cash runs, streamline your accounting and make tip payouts the best part of everyone's day. Visit kickfin.comdemo and yes, that link is in the show notes. Okay, so today we are talking about the five killers of your profits. Profit killer number one. We're going to start. We're going to start by talking about razor thin profit margins. You know I hate that term. Here is the cold, hard truth. Most restaurants operate with profit margins of 4, 5, 6%. Definitely in the single digits. And that means even the smallest increase in costs, even the tiniest drop in revenue can wipe out profits entirely. But here's what nobody talks about. You're not stuck with those margins. You're choosing them. Every single item on your menu tells a story about your profitability. Some items make you money, some items don't. In some items, the ones that should be your stars, I'm guessing nobody even orders. So here's the fix. Menu engineering. I didn't make this up. This has been around for, I don't know, 40 or 50 years. I don't mean tweaking your prices, like by increasing 50 cents. I mean analyzing every single dish for profitability and popularity. I mean strategically redesigning your menu to highlight the items that actually make you money. I mean eliminating the dishes that are killing your bottom line, even. Yes, even if they're your chef's favorites. Even if it's your wife's favorite. Even if you hear people rave about it, if it's not making money, there's no reason to have it. You have to be ruthless here. That chicken dish, that costs you $8.50 to make, and you're selling it for 16 bucks. If people aren't ordering, it's dead weight. Cut it. Replace it with something that people actually want and makes you money. And here's the worst part. Maybe people actually are ordering that dish. I would rather people not order that dish, because when you're running at a 55% cost, it's actually costing you money, cutting into your profits every time one of those gets sent out to the dining room. Remember, your menu is not a collection of recipes. It's not a list of all the crap you're prepared to make tonight. It should be a profit tool. It is the one thing that you give to everybody in your restaurant. It is the key. The key tool you use to drive profit. So start treating it like one, number two, the profit. Second, profit killer here are high labor costs and turnover. Staff, wages and benefits typically eat up, let's say, 25 to 30% of your revenue. But here's the kicker. The restaurant industry has turnover rates of 60 to 100% annually. And I know you feel it. Some have way higher turnover rates than that. That means you're constantly recruiting, hiring, and training new people. And that is expensive. In fact, do you know what it costs to replace just a server? Between recruiting, training, lost productivity, you're looking at somewhere between three to five thousand dollars per person. Multiply that by the number of people you turn over every year, and you'll see why your labor costs are out of control. Right. A great restaurant has labor between 25 and 30%. If you're in a state like California, Washington, Oregon, Minnesota, Michigan, that number might be 30. It definitely can't be over that end. When you are turning over staff, that's when it creeps up to 38, 42, 45. It's not sustainable. Here's the fix. Cross training and retention programs. First, cross training. Every one of your employees should be able to handle multiple roles. Your servers should be able to host or to bartend or to bar back. Your bussers should be able to run food or to step behind the bar to bar back. Your cooks should be able to prep. Your prep cooks should be able to wash dishes. When you can optimize staffing based on actual demand instead of rigid job descriptions, I promise you will cut your labor costs immediately. Second. Now the second piece to this is retention. Stop treating your employees like they're replaceable, because guess what? Replacing them is expensive. Implement recognition programs. Offer benefits. Consider profit sharing. The cost of keeping good people is always less than the cost of constantly having to replace them. I had a client reduced their turnover from 80% to less than 30% in just a single year just by focusing on this. Their labor costs dropped by 6 percentage points every single month. They that is the difference between breaking even and making real money for them. It was those six points were the difference between making 8% and 14% just in month two of working with us. The last thing I'll say about this is, remember Starbucks? Starbucks has these like, you know, 98 benefits to come work for us. And a lot of those are intangibles. A lot of those are due to partnerships with other companies, other places. So if you can get them a better gym membership, if you can get them a deal for haircuts, if you can get them whatever it is, work the relationship, relationships in your market, the other people in your shopping center, the other people in your neighborhood. And if you could do a laundry list of saying, this is what we pay. This is the health benefits and the vacation, the paid time off. And Then here are 20 other benefits you get from working here. Whether they take advantage of them or not, they will feel taken care of. They'll go, whoa, I get a lot just from working here. You'd be amazed at how far that can go. Ajinimoto is your answer to every busy dinner rush spent deep in the weeds. When hungry customers walk through your door. They expect good food, right? Good food that tastes homemade. But making every dish from scratch can cut into your profits. Certainly what we're talking about today, especially with the cost of ingredients and yes, the cost of labor. That's where Ajinimoto Foods comes in. Ajinimoto has a huge catalog of fast, easy to prep frozen Asian products that taste and look homemade. That includes classics like fried rice dumplings and onion rings and new trendy fusion plates like kimchi chicken pot stickers. See, choosing Ajinimoto is choosing over 100 years of proven expertise in the food service space. Choose to save time choose to save money in your busy kitchen without compromising on the quality your customers have come to expect. Learn more about ajinimoto@ajinimotofoodservice.com and yes, you'll find that link in the show notes now. Profit killer number three, Food cost, volatility and waste. We know ingredient prices are all over the map. Weather, supply chain disruptions, market conditions. It is chaos. And while you're dealing with unpredictable costs, you're also throwing money in the garbage through food spoilage and over preparation and portion control. Most restaurants waste 15 to 20% of their food purchases every single month. I let that sink in. 15 to 20% of the money that you spend on product gets wasted. That's roughly one out of every five dollars you spend on food goes directly into the trash. So here's the fix. Inventory management systems and flexible sourcing. You need digital inventory tracking, not a clipboard and a prayer. Real systems that help you track and forecast demand and therefore minimize waste. You need to know exactly what you're using, when you're using it, and and what's about to expire. Establish relationships with multiple suppliers. When tomato prices spike with one vendor, you need to check options. And you create daily specials that use ingredients before they go bad. That's why specials were really invented. Turn your potential waste into profitable dishes. I worked with a restaurant once that cut their food waste, just their food waste, from 18% to 8% in the first place. Four months. That was an immediate 10 point improvement in food cost percentage. It's like giving yourself a raise. That 10 point fix in in waste directly affected their food costs, which directly affected their cogs percentage which was like five points in savings. Five points straight to the bottom line. And for a restaurant that's trying to go from 10 to 15 or 15 to 20, that is real. That's thousands, sometimes tens of thousands of dollars every single month. It matters. Number four, profit killer number four fixed overhead expenses. I don't spend a lot of time talking about this. I spend most of my time talking about how to manage prime costs. So how to manage labor, how to manage cogs, and how to drive more revenue. But let's talk about those overhead expenses. Rent, utilities, insurance, equipment costs. They're the same whether you serve 50 customers or 150 customers. When business is slow, these fixed costs become anchors dragging you down. Most operators think they can't do anything about overhead. But you are wrong. Here's the fix. Negotiate flexible terms and optimize everything. Your rent doesn't have to be fixed. Renegotiate with your landlord for percentage based payments during slower months. Many landlords would rather have a percentage of sales than an empty space. Invest in energy efficient equipment. Your utility bills can drop 20% plus with the right upgrades. Consider shared kitchen spaces or ghost kitchen models for expansion. Lower overhead means higher profits. I know you guys know that. Don't just accept your overhead as unchangeable. What I like to do is I take all of my fixed expenses and I break them down and I negotiate every single quarter. Not everything every quarter, but I'll renegotiate or reassess everything over the course of the year. But I take this chunk and I review in Q1. I take this chunk of expenses and I review in Q2, take this chunk of expenses and review in Q3, 3 and so on. That is how you lower them or keep them under control as best you can. Finally then, profit killer number five, intense competition and pricing pressure. We are drowning in a sea of sameness. How many pizza places are in your town? How many taco joints? How many places serving the same sesame chicken? Same burgers, the same everything? When you're the same as everyone else, price becomes the only differentiator. And competing on price we know is a race to the bottom. It's a race to the bottom that nobody wins. Here's the fix. Differentiate through unique value propositions. Stop competing on price. Start competing on experience. Literally create something that people can't get anywhere else. Build customer loyalty actually through the experience, not necessarily through some crappy rewards program. Focus on making people feel a certain way when they come there. When you do that, they will continue to choose your restaurant. Remember what I always say. We don't sell food. We sell experiences. We sell connection. We sell celebration, enjoyment, indulgence. And when you understand that, pricing becomes secondary. Nike does not compete on price. Apple doesn't compete on price. Disney does not compete on price. They create experiences that people are willing to pay top dollar for. And I promise you can do exactly the same. Here's the bottom line. These five profit killers, right? Thin margins, high labor costs, food waste, fixed overhead, and this price competition, they are not inevitable. They are not status quo. They are choices. You can choose to engineer profitable menus. You can choose to retain good employees. You can choose to manage your INV intelligently. You can choose to negotiate better terms. And you can choose to create something unique. But you have to choose. Because if you don't, these profit killers will choose you. If you want help implementing any of these strategies, if you're ready to stop struggling and start making real money from your restaurant. Then again, let's have a conversation. It's free 30 minutes. You go to restaurantstrategypodcast.com schedule. That link is also in the show notes. Find a time that's convenient for you. Grab time. You'll chat with me or someone from my team. Mark my words, your restaurant can be profitable. And I mean really profitable. 20% plus. But only if you stop fighting the wrong battles and start fighting the right ones. Listen, guys, that's all for today. I appreciate you tuning in to the restaurant strategy podcast again. I am your host, Chip Close. I will see you next time.