Most people open restaurants as a passion project of sorts. They love food, and the cooking of it, and they figure, “Hey, I can probably make some money this way.” They’ll go on to ignore all the warnings about the failure rates of hospitality businesses, open up shop, and learn a valuable lesson: it’s hard to turn a profit. A restaurant is a business, after all, and it’s not like you can submit a roasted chicken along with your business school application. So why would you think your kitchen skills qualify you to run a business?
Of course, plenty of people with little to no business knowledge become successful business owners without any kind of formal training. And if you were considering taking some classes just to brush up, consider that most of what you learn is theoretical. Practical knowledge only comes with practice. Consider this excerpt from a book called The Personal MBA, by Josh Kaufman, which explains there are only four methods for increasing revenue. Reading through it, the logic and theory contained within are unassailable. In practical terms, though? Not so much.
But still, it’s a good place to start. Let’s look at Kaufman’s advice on boosting revenue, and then dial it in more specifically for restaurants.
Method #1: Increase the number of customers.
Yes. Great advice. I did the math on this, and it checks out: if you sell something for $10 to 100 people, you will make more money than if you sold it for $10 to 50. But this raises a question: how do you get more customers? That’s a little bit trickier. The simple answer is “marketing,” but even that’s an answer that yields more questions. For a restaurant operating in the 21st century, we can narrow this down for you.
- Go Mobile — Nearly half the world’s population owns a smartphone, and 100% of smartphone owners need to eat to survive. Investing in a branded mobile app is the most effective way to tap into the hearts and minds—and pockets—of existing and potential customers. While merely releasing a mobile app isn’t going to send droves of new customers your way, it is going to prevent large segments of people from ignoring you altogether. Millennials in particular simply won’t take you seriously if you haven’t got an app. Remember, they came of age in a world where the internet always existed, and information was theirs for the asking. You’ll have to meet them where they’re at, which is literally anywhere they happen to be. But meeting them anywhere is super easy when push notifications are involved. With mobile apps and push, you’ve got a direct line to customers on an individual basis, and let them know about specials, discounts, events—really anything that would tempt someone to pay you a visit.
There is one obvious hiccup here, and that’s if you had the money to spend on building out a custom app you probably don’t need to worry about expanding your revenue. For those of us on a budget, there are solutions. You can use a DIY app-building tool, where you create something off of an already-coded template. Or you can add a progressive web app (PWA) to your website. Failing any of that, at the very least you can log on to Yelp, Foursquare, Google, and others and add your business to the mix. List your business somewhere you can be found, and then add as much information to the listing as possible—including your ENTIRE menu. People are going to want all the answers before they ever set foot in your door. The more they know, the more likely they are to show up.
- Tap local food bloggers and/or social media influencers — If you’re in a big city, chances are there are at least a few dozen people blogging about the food they eat. Find the ones that people actually read and invite them for a meal, on you, in exchange for them writing about the experience. If you’ve got a profile on Facebook, Instagram, or Twitter, you can do the same for people who’ve got tons of friends and followers: free meal in exchange for a post about your restaurant. Note that this strategy does not work if your food is terrible.
Method #2: Increase the average transaction size.
Again, this is brilliant logic. If restaurants get people to spend more money, those restaurants will receive more money. You can’t argue with that. Here are a couple of options to make it happen:
- Leverage your POS in pursuit of the upsell — Nearly every order at a restaurant (or cafe, or coffee shop, or bar, or….) has a built-in upsell opportunity. The trick is getting your staff to remember to try for them. You can do this programmatically if the items in your POS are set up with an attached order flow. Before an order is submitted through the system, the POS can walk the server through all the appropriate questions that need to asked. Someone orders a burger, and the software will prompt the server for customisations, modifiers, and variants. There’s a practical advantage here, in that the order will go always go through just as the customer wants—your staff will never forget to ask the customer how she wants that burger cooked. But it can also work its way through modifiers that increase the cost of the meal: Do you want to add bacon for only $2 more? Would you like to add our featured draft beer for only $5? Do you want to increase to our sharing size of french fries?
- Take orders online and through mobile — We’ve said it before and we’ll say it again: online ordering results in a higher than average check size. We aren’t the only ones saying that, either. It could be that ordering through a website or mobile app provides a clearer order flow to the customer (just as it does for the servers in my example above). Maybe customers didn’t know they could add bacon to their burgers until they saw it on the screen. The increase in average check size could also just be a function of human psychology. When no one’s looking, we are for sure going to add that chocolate lava cake to our order of three large pepperoni pizzas. Whatever the reason, ordering with technology more than covers the expense of implementing it. So you should do that, like, soon.
Method #3: Increase the frequency of transactions per customer.
This one was a little tougher to crack when I first read it, since time is a manmade construct and “frequency” is a rather subjective term. But if we put real numbers to a hypothetical situation, we’ll once again see that the logic is airtight. More visits by customers mean they are spending their money with you more often. Ergo, they are spending more money, period. That also means they are loyal customers and should be rewarded for that loyalty.
- Implement a loyalty rewards program — There’s the old idea that 80% of your business comes from 20% of your customers. While those numbers are weirdly round and specific and have never been proven, it is true that the bulk of your business comes from a smaller subsection of your most loyal customers. So, while you’re going ahead to build out that mobile strategy to entice new customers, deploy a mobile loyalty app for the people who’ve already been there. Apps work better than punch cards or magstriped rewards cards, largely because your customers phones are always in their possession—while the old school loyalty cards are sitting at home on a dresser under a pile of loose change.
Adding a loyalty program in the form of an app also allows you to surprise your customers with bonus rewards. You can use push notifications to let them know they’ve got an extra discount coming. Or to send a points balance when they’re really close to being able to redeem them. Some mobile loyalty apps can be integrated with social media, making it so that your loyalists get rewarded for bringing in newbies through posts and referrals. You’re literally killing two figurative birds with an even more figurative stone.Metaphorical bird murder aside, the important lesson here is that the only time you should raise prices is when you’ve got slim-to-no margin on products. As a way to simply make extra money, it’s just not a very good idea. You run the risk of alienating your more price-sensitive customers, and you make it more restrictive for others to repeat their business. Try something off this list instead, all points aimed to grow your business, not your bank account. The extra revenue is just a happy side effect.