Decoding Restaurant Accounting: For better cost control- Part 2 of 4
How many times have you checked your P&L to see “How were sales last month? last quarter? last year?” Most analysts take the monthly, quarterly, or annual sales figures and compare them with budgets or previous period, to identify the relative level of performance. But is this analysis of much significance? New studies suggest- may be not. An alternative method involves calculation of sales performance based on various ratios.
I will first discuss the concept of “sales efficiency”, which is much more than measuring absolute or relative change in sales over a period. For example, the assessment of how much revenue a table from the restaurant/cafe generates at different time intervals of the day or week can be quite useful. It will provide valuable insights to the restaurateur in running strategic sales programs to increase the sales during lean hours, thereby increasing the overall efficiency of the restaurant. Efficiently managed restaurants put an additional effort to optimize seating arrangement and train staff to be more hospitable and up-sell to their clients. We have analyzed the impact of seating arrangement & efficiency in table management on revenue, by taking real life data of a restaurant’s 2nd Quarter data of 2018.
For the purpose of understanding the numbers – the three locations are having areas of 2965, 4635 and 3368 Sq. ft respectively and a seating capacity of 74,107 and 86 respectively and are a franchisee of a National Burger Serving QSR in the US.
SALES PER SEAT AND REVENUE PER PERSON
Sales per seat is the total monthly sales divided by the total no of available seats in the restaurant. The sales per seat in 2nd quarter of 2018 is highest in Location 1 ($5943.93), followed by Location 3 ($5754.23) and Location 2 ($4840.14). Now what is important is to correlate these figures with the total guest count. Low revenue per seat with low guest count indicates that the restaurant is not being able to attract adequate number of customers. Low revenue per seat combined with high guest count indicates that average ticket sales is sub-optimal. Therefore, the restaurateur should investigate ways in which he can make the purchasing of additional items, services or goods more enticing for his Customer base, through marketing campaigns, better menu design or development, or other similar strategies. More in-depth analysis of the hourly sales data can help to focus strategies like happy hours to increase the average sales per hour.
SQUARE FEET PER SEAT:
The square feet per seat measure efficiency of space management of a restaurant. This number is high for Location 2 branch (43.01 per sq. feet) than Location 1 (39.67) and Location 3 (39.06). Location 2 is losing out an approx. 10% of generatable revenue because of inefficient seating arrangement. The restaurateur may think that he will be able to fit 100 people, however that may be against their local fire code. It is also important to note that it might be a conscious attempt of the restaurant to have a high Square feet per seat ratio to project a certain image. For example, many fine dining restaurants have spaced out seating arrangements to avoid giving the diners an overcrowded messy feel. In such restaurants, generally the high revenue per seat compensates for the high Square feet per seat.
SALES PER SQUARE FEET:
Sales per square feet is the most reliable indicator of a restaurant’s potential for profit. The area of the restaurant is the total interior square footage including kitchen, dining, storage, rest rooms, etc. This is usually equal to the net rentable square feet in a leased space. In this case, only location 2 is having its value below the industry average because of its high square feet per seat value.
In the next installment of this 4-part restaurant accounting and analytics series we will take up another innovative parameter, revenue per seat hour. Restaurants are characterized by predictable seasonal factors and unpredictable individual customer demand, which make it difficult for restaurateurs to attain efficiency. Numerous studies have been undertaken and it has been concluded that one of the major factors affecting the success of the restaurant is Revenue per Available seat.
Instead of simply running the restaurant, it is time to run it smart, for which good analytics and a customer focused approach is a must. The rate at which this space is growing, it will be difficult for laggards to survive. Fruxient Analytics provides the a reliable, accurate and cost-effective accounting and analytics solution to ensure scalability, efficiency, keys to customer satisfaction and above all, increased revenues.
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