Decoding Restaurant Accounting: For better cost control-Part 3/4

In the last 2 blogs on Restaurant Analytics, we had covered some indicators for performance measurement in terms of costs and sales. In this part to our series, we will be talking about RevPASH.

What is more important – Increasing the revenue or Increasing profitability? A wise management would choose PROFITABILITY over just mindless growth. But how does one precisely determine the changes required to be made, without having a “correct” indicator that can accurately measure current performance?

Those who understand the restaurant’s cash generation mechanics are at a significant advantage over those who only monitor basic performance & statistics. Therefore, it has become imperative that the industry now computes and assesses the impact of RevPASH – Revenue per available seat hour and takes remedial actions to improve it.

In the past, many restaurateurs either defined high table occupancy rates or high average check values as their core business goals to achieve. However renowned restaurant revenue management scholar Sheryl E Kimes in her paper “Implementing Restaurant Revenue Management” (1999) proposed using a different measure known as Revenue per Available Seat Hour or RevPASH. This indicator is calculated using revenue accrued in a given time interval divided by the number of seat hours available during that time, in a restaurant setting. The basic purpose is to measure the rate at which capacity utilization generates revenue. It increases when the table turnover during a given time interval is high. RevPASH offers insight into how many customers arrived and how quickly they are served and helps evaluate the efficiency and effectiveness of service.

For Example, A 100-seater restaurant operating for 10 hours a day having 60 minutes of per person mealtime can accommodate a maximum of 1000 guests. Let us suppose the average ticket size is $15 then the maximum possible revenue for the restaurant is $15000 and the RevPASH will be $15. Now if the restaurant is more efficiently managed and can able reduce the per person meal time to 59 minutes then the maximum no of guests it can accommodate increases to 1016.9 and with average ticket size remaining the same $15 the revenue can be increased to $15254 & the RevPASH will also increase to $15.25. Thus, it gives a good understanding of efficiency at a single glance.

According to Kimes, companies implementing revenue management reported increase in revenues by 2 to 5 percent. Traditional ways of measuring a restaurant’s performance is undoubtedly valuable but they do not explicitly assess the restaurant’s operational efficiency. RevPASH, on the other hand, combines information from the revenue and seat occupancy to provide a measure of how effectively a restaurant is using its productive capacity.

In our study we analyzed the RevPASH of a QSR franchisee of a national level chain for 2nd Quarter of 2018.

It is observed that RevPASH is highest on Fridays, Saturdays, and Sundays, but quite low on Mondays and Tuesdays. This is because people who ate out on weekends won’t want to eat out again on Mondays & Tuesdays. Therefore, the restaurant has enough capacity which is unutilized. To draw more people on Mondays & Tuesdays, various promotional offers may be given to attract more footfall.

Prix fixe (or fixed price) menu is a popular method to help increase efficiency for the kitchen staff while enticing more patrons to try out the restaurant.  During leaner periods, adding a weekly special to a menu, offering happy hours or creating special offers for senior citizens or children have been found to be effective.

Another way of looking at RevPash is to compare it with average ticket size.

Ideally higher average RevPash accompanied by lower average ticket size indicates that the restaurant is serving average priced food items but utilizing the floor space very judiciously so that the resulting volume of sales is much higher. This is the case for Location 3 where the REVPASH is highest even though the average ticket size is not too high.

To summarize, restaurant efficiency Management is a very complex process, but by taking a scientific approach, one can achieve significantly better results. In the last part of this 4 part series ,we will be taking up labor costs as a function of restaurant economics. So stay tuned.