The success of your restaurant relies on several elements and careful planning. However, perhaps one of the less widely acknowledged elements of a successful business is restaurant revenue management.
Creating a strong restaurant revenue management strategy can help you increase sales and decrease any unnecessary costs. It can also help you maintain both food and service quality. Even as you alter the methods you take to increase your restaurant's performance.
We have provided insights into what restaurant revenue management is and the best methods to create a strategy of your own. This way you can grow your restaurant's success and make a mark on the restaurant industry.
What is Restaurant Revenue Management?
Revenue management is a series of strategies implemented by various business models in order to optimise both spending and income.
It is particularly vital to utilise revenue management strategies in the restaurant industry. This is because its' highly competitive and changing nature makes it a challenge to ensure profitability. This is due to the high overheads that come with a perishable inventory and the seasonal nature of many goods.
A successful management strategy should always consider potential revenue when making changes to an establishment. However, it should also consider how to reduce costs in order to increase restaurant profits.
How Do Restaurants Typically Manage Their Revenue?
All restaurant managers prefer their own means of revenue management, whether they work in a small business, across multiple venues, or within the hotel industry. Therefore, there is no set way that restaurants will manage their revenue.
However, the rise of technology has led most restaurant managers and business owners to utilise software management tools. These tools are typically integrated into your Point of Sale (POS) in order to analyse sales data and predict future demand.
With this information, you can make well-informed decisions about a range of restaurant features to boost profits.
ResDiary offers SwiftPOS integration to bridge the gap between your diary and your EPOS software. This allows you to gather more information when it comes to customer management and sales. This POS is specifically made for a range of hospitality venues, including your restaurant.
Why is Restaurant Revenue Management Integral for Success?
There are many benefits to creating and implementing your own restaurant revenue management plan. These range from increasing sales to reducing food waste, including:
- Maintaining an agile pricing model allows you to adjust prices of menu items based on seasonality, times of the day, or even special events. This will both increase revenue and ensure that there are no wasted goods due to a lack of customer engagement.
- Making informed decisions about what kind of pricing strategies, promotions, or menu design will increase revenue.
- Analysing sales data will allow you to gain a deeper insight into customer preferences, which can determine the direction of your services and menu. Customer satisfaction is more easily achievable with this insight.
- Long-term success becomes more likely when you can balance your restaurant's revenue and expenses.
It is also important to remember that the restaurant industry is a dynamic one, and that your business must also follow these changes in order to remain relevant to customers. Appealing to your customer base is one of the most crucial aspects of a successful business, even when creating your own restaurant revenue management strategies.
5 Steps to Developing a Restaurant Revenue Management Strategy
Before determining which revenue management strategy you will use for your restaurant, you need to collect the necessary data your strategy will rely on. By collecting this data, it becomes easier to predict how products and services will perform in the future, and make adjustments where necessary to maximise revenue.
You can summarise the process of collecting the necessary data to develop a restaurant revenue management strategy in five steps:
1. Data Collection
Your chosen revenue management strategies should base their foundations on the data gathered about key areas of a restaurant:
- Customers and their engagement levels
- Purchasing habits
- Prices of goods
- Seasonality of foods
- Current restaurant and food trends
This data collection will guide not just decision-making in the future, but also structure distribution and pricing strategies.
2. Historical Data Analysis
Going over previous data within your restaurant's history can help you plan predictions on sales, pricing, and distribution. By identifying existing patterns in your business, you can capitalise on successful indicators to increase your revenue
Analyse common patterns such as:
- Highs and lows of products
- When quiet hours/days/seasons are
- When peak hours/days/seasons are
- What are common waste items
- Times where there has not been enough/too many staff in-store
You can also avoid or correct low data points to prevent rising costs or loss of profits.
3. Analysis of Seasonal Trends
No matter the industry, there are always trends to analyse and utilise for your own success. The restaurant industry is not any different, with trends often coming seasonally.
These trends are characterised by peaks and troughs of activity. By knowing the high or low-demand periods of menu items, you can appropriately prepare for these seasons. This can be through taking the item off the menu when it goes through a low-demand period or reducing your orders of that item.
4. Market Trends Analysis
This step focuses on analysing existing and past trends in market behaviour. It looks closely at the dominant patterns of both restaurant consumers and the market as a whole. This data helps you create a strategy to capitalise on said trends.
You can stay up to date on market trends by:
- Reading recent restaurant research
- Following influencers in the industry
- Subscribing to industry publications
- Looking into digital tools and analytics
5. Competitor Research
One of the easiest ways of determining a successful revenue management strategy is by looking at what your successful competitors are doing. This step will focus on researching and analysing your competitors':
- Market share
- Marketing strategy
- Customer reviews
Take the time to dine with your competitors to get personal insight into their business model and how they may be strategising to manage their revenue. Keeping an eye out for food quality, customer data, and whether they are responding to fluctuating demand are a few simple ways to conduct research.
The Best Strategies for Restaurant Revenue Management
Whether you are choosing to increase your sales or decrease your overhead costs, there are a range of restaurant revenue management strategies to consider for profit.
While increased sales may seem like the answer to managing your revenue, this strategy comes with concerns for labour and operational costs. Thus, you need to balance boosting revenue with increasing labour and food costs for maximum profit.
Base your chosen revenue management strategy on accurate data and what works best for your business. Learn more about what strategies are available and how they can help your restaurant below:
1. Set Goals
By knowing your restaurant's business objectives, you can create a strategy that directly speaks to what your restaurant needs for success. Setting goals can also be a great motivator to work hard and strive for success,
In terms of increasing revenue, having data on your restaurant and the industry will allow you to set accurate goals that will improve sales. Taking the time to also set goals of reducing excessive costs will balance out the necessary funds allocated to your restaurant's profitability.
You can try following the procedure of SMART goals in order to start defining parameters and make things attainable:
- Specific: What you need to accomplish and what steps need to be taken to achieve it.
- Measurable: Track your progress and take measures of every aspect of your strategy to ensure you have benchmarks to hit.
- Achievable: Ensure your goals are realistic and something you can accomplish. Shift your goals as necessary to fit into the realm of achievability.
- Relevant: Ask why you are setting your goal and how it is relevant to your restaurant.
- Time-bound: Set time-related parameters to keep on track and finish on time.
2. Dynamic Pricing
It is not uncommon for many restaurants to use this specific strategy unconsciously through promotional efforts.
Many restaurant's guest experience hinges on offering deals and discounts on certain items or times of the day. For example, a happy hour or senior discount are common means of using dynamic pricing, even if most business owners do not realise this.
Dynamic pricing becomes more complex when utilising real-time price updates. This is where specific items have discounts or lower prices during periods of low demand. This allows restaurants the chance to use up their perishable inventory and avoid waste. It can also encourage customisation by customers, with those receiving a discount often buying additional items or drinks.
Alternatively, revenue is maximised during peak sales periods by increasing prices on those items. Having knowledge about items' seasonality and market trends can help you determine when to implement dynamic pricing strategies.
3. Demand Forecasting
This strategy relies heavily on consolidating data from various sources and analysing it to predict demand. Revenue management becomes simpler once you have an indication of how certain dishes or products will perform at any given time.
With demand forecasting, you can develop more detailed plans on how your restaurant and its menu will be run. Namely by having oversight of future demand and potential profit trends through predictions based on collected data.
The data collection of this strategy can also help daily operations. By referring to the demand for specific meals and products, you can order more accurate inventory. Additionally, having knowledge of your restaurant's operating history can also aid in staffing decisions like who to hire and how many on-call members are needed per shift.
You are more likely to determine profitable menu items and your restaurant's capacity management with the aid of demand forecasting.
4. Menu Rotation and Engineering
Typically, restaurants base menu prices on current market rates, the cost of their ingredients, and sales data. However, you can take this strategy a step further with menu engineering, which includes clearly distinguishing the costs and profits of each menu item. The clarity of these amounts can help you better determine what should remain on your menu and what should be cut for better revenue.
Before deciding whether or not to keep an item, or change its preparation to save costs, you should consider:
- The costs associated with the ingredients
- Costs per serving for ingredient preparation
- Its profitability
- Its popularity
In contrast, high-performing items in sales and profit margins should be highlighted on your menu. Prioritise a space on the menu and in restaurant advertising that will best display this particular item. You can also adjust pricing as needed to turn a profit.
It may also be beneficial to regularly update some lower-performing menu items to create a sense of scarcity. Rotating your menu will allow you to capitalise on seasonal trends, while also generating customer interest in key items coming back. Hence, increasing sales and revenue.
5. Table Turnover Optimisation
Table turnover rate is the focus of this strategy. Specifically, the optimisation of how many guests can be seated during any period within operation hours. This strategy requires careful precision as you must balance encouraging turnover while ensuring customers do not feel rushed to leave.
You can start implementing this strategy by determining the average turnaround time and attempting to maintain it. Calculate the average turnover time in any given period by dividing the number of dining parties by the number of free tables.
Aid in the progression of a quick turnover rate by making sure guests and seated and served immediately upon arrival, Even if you require additional staffing during these busy periods, you can offset the labour costs by having more patrons.
6. Integrate a CRM System
Incorporating a Customer Management System (CRM) into your restaurant's POS will allow you to keep track of customer interactions; both current and future. By collecting valuable customer data on ordering preferences and the number of sales, you can determine the peaks and troughs of menu item performances. It can also be used to improve upselling, loyalty programs, and overall customer satisfaction.
ResDiary supports a range of technology integrations to improve the data collection and analysis of any restaurant. Delve into the crucial customer segment of your business' data or establish baseline performance levels with our technological support.
Guest satisfaction is sure to thrive with the aid of ResDiary.
How to Measure Your Restaurant’s Success with ResDiary
There is no specific key performance indicator that your restaurant is experiencing success within the industry. Rather, you should analyse every outcome of your new revenue management strategies to determine the profitability of your restaurant business.
Gain keen insight into your business' data with the fully integrated services of ResDiary. Coming up with your own restaurant revenue management strategy has never been easier as we do all the data collection for you.
Get started with planning the best method for your restaurant's revenue management by booking a free demo with ResDiary today. Your restaurant's success is just a plan away!