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bjbj Hello, it s Ken Burgin here from Profitable Hospitality looking at a 5-step process to
improve the profit of your caf or restaurant or bar. So, we ll go through the 5 steps first.
I ll explain each one and then we ll look at before and after situation. Of course,
this could work for an existing business where you want to improve the profits. The example
we ve got here is a business making no profit which is often a situation where you take
over business that s been sold. Obviously, that s why they sold it because there was
no money there but if you go to profitable business, these 5 steps could also be looked
at as ways to improve your bottom line. So, step number 1 is looking at the size of your
customer base. How many people actually know about you, know that you even exist? And number
of customers here, in this case 400 people per week, is a function of the size of your
customer base and the number 2 step which is the conversion rates. So, 10,000 people
know that you exist. 4% of those people, in this case 400, actually moved to come and
visit you because of what they know about your quality or convenience so, that gives
us at 400 customers. The number of customers is something that s easy to find out because
we just count them but those 2 other factors, number 1 and 2 are more difficult but be assured
that the number of customers is a function of number 1 multiplied by number 2. If we
increase either one of those, it s going to increase the number of our customers. Step
number 3 is another loyalty factor just like number 2 is a loyalty factor. It is how many
times per week and per month the people come and visit you. To make calculations simple,
I ll put here once a week which is 4 times a month. So, you could say that gives us 400
total visits. When we multiply that by average sales value per person of $10, we get $4000
per week of sales. Then, when we take off our fifth factor which is the variable cost
percentage, that s the cost of food and beverage, wages, utilities, repairs, cleaning, lots
of other large and small items and you can see, we take that off. And then, we take off
the fixed costs: rent, insurance, interests the costs that don t go up and down each week
and you could say we get a big fat zero down the bottom. So, we ve looked at the situation
where we re making our money. Let s have a look at which of these 5 steps we can change
to increase our bottom line and which ones are going to be more influential. Now, ______________
often means that when we want to increase our bottom line, we go straight to costs and
look at reducing those. So, what if we just went straight to the variable costs here and
cut the purchases, cut some of the labor costs, tightened up on spending? What if we brought
that down to say 72%, we can say straight away that there s an increase in profit but
going from 0 to 480 per month is really not making a huge difference. s leave that alone
and we ll come back to it but let s look at increasing some of these other factors, numbers
1 to 4. So, an aggressive promotion and marketing campaign is going to make an impact on the
size of your customer base. The number of people who actually know about you and it
won t be too hard to get that up to 12,000 from 10,000. Obviously, we use advertising,
leafleting, active social media campaigns, lots of ways and more people more aware of
you. Number 2 point which is the 4% conversion rate, that s a loyalty factor that takes a
little bit longer to improve so we won t touch that one at the minute. We ll also leave number
3 factor alone at the minute because that s another loyalty factor. How often the people
visit? Once they know that you re worth visiting, increasing the number of times they visit
each month is definitely worthwhile but, the quickest way to increase your sales is to
go to the average value sales per head. 2 ways you can improve that; one will be putting
some prices up. ve never seen a menu that I couldn t find somewhere that I could put
a few prices up but the most powerful way is to actually increase the number of items
that people buy. So, upselling, add-ons selling, even something as simple as clearing a coffee
cup and asking people if they d like another coffee. What if we could get people to spend
10.50$ instead of 10$, we can say we are starting to make impact straight away. So, when we
work on these factors 1 to 4, increasing sales, we re actually making a much bigger impact
down the bottom than just the first step which we took initially which was just to cut our
costs. But let s go ahead and introduce some efficiency with variable costs cup purchase
costs, cut into the roster and 2 of the costs where we can. Let s bring that down to 72%
and that s starting to make an impact as well. So, all those things are accumulating. Now,
let s look at the 2 loyalty factors, number 2 and number 3. At 4% conversion rate here
is basically saying of the 12,000 people who know we exist, 4% or 1 person in 25 actually
thinks it s worth visiting. What if we could increase that to 5%? That s 1 person in 20.
Now, that is going to take a little bit of work. Obviously, we re increasing the quality
of service, the atmosphere, the quality of food and beverage we serve but let s go and
put that 5% figure instead of focusing and you can see what a big impact that is making
down the bottom. And let s go further and say, because we re working so *** loyalty
and bringing people back more often instead of visiting us 4 times a month which we got
now, we re actually going to get people to visit 5 times a month. Now remember, this
is an average across all our customers. Some people will be visiting almost once a day.
Other people maybe once every couple of weeks. But, if we could bring that every jump to
5 times a month, well now we re really starting to make a big impact on this bottom line.
s go a little bit further and bring out variable cost down another percentage point and that
s making a difference as well. So, you can see all 4 factors are effective, effect is
number 1 affecting number4 and number 5. I have ones that you can work on immediately.
Factors numbers 2 and 3, the loyalty factors, take a little bit longer but work on all of
them and that makes a big difference. People sometimes say which ones should we work on
first. Well, you need to work on all of them. You don t learn to swim by just practicing
with one arm at a time. Everything gets worked on but some are going to have a quicker pay
back than others. Anyway, you can download this spreadsheet to use with your own examples.
It s in the download center at ProfitableHospitality.com. I m Ken Burgin and we ll see you on the next
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