The Restaurant Formula for Success

It is well known that only 20% of restaurants succeed in America today. when looking at the failed restaurants, 60% will fail within the first year and the rest will fail within the first 5 years. The reasons for these failures are many and varied, but the aspects we SHOULD be looking at is the 20% that succeed and survive. As we look at these success stories, there's a few things that become very clear, very quickly. Chief among them, they have struck a balance between the very clear numbers game that is the business, and the human factor that brings business through the door on a recurring basis. But even deeper than that, there is a very clear formula of three critical aspects: Exceptional Service, Great food and Actively Engaged Managment.  

In terms of the first aspect, numbers versus people, this would seem fairly straight forward to understand. However, it seems as though failed restaurants focus on one or the other, resulting in failure of the whole. What this tends to look like is management is either constantly looking at sales and labor, tracking incoming invoices, watching the variable costs like a hawk, factoring their fixed expenses and constantly pushing for more sales and faster service. Simultaneously, they are forgetting to touch tables, talk to guests, take care of issues personally and maintain service standards in the front and the back of the house. Or, transversely, they are actively engaging with their guests, making those interpersonal connections, taking the time to keep standards high at the correct level and standard, while allowing their expenses and labor to tick higher and higher till they are out of control and surpassing sales.  

So, how do we balance both? The fast answer, break it up. Why is one person executing on both jobs to begin with? Thats not to say there isn't one person overseeing or  supervising, but realistically, why are we putting that much on one individual? Often times, there isn't a second person to help share the burden, as many of us have felt since the pandemic. After the mass exodus of talent, the experience and help just isn't present in the market like it used to be. So how do we spread this burden out? We need to plan our time accordingly and when we are in one mode, we make it so that we are not interrupted by another.  

When we are on the floor, we are on the floor. Our focus is on the operation and execution of the business and not on anything else. This requires that we utilize our off floor time and pre-open hours to the maximum effective effort possible. Orders are placed early. Prep is done ASAP, and when possible, by hourly employees, not us. Invoices are collected and entered and corrected for credit either well before or just after we need to be present. The guiding principle to keep in mind should be: Service is Sacred and must be treated as such. When you are on the floor or on the line, your mind needs to be on the floor or on the line. Nowhere else. You owe that to your staff and your guests, being fully focused and present in those moments.  

Similarly, we need to treat or administrative and off service time with the same amount of respect. When we are focused in on payroll, pay adjustments, placing orders and putting orders way and reorganizing our coolers, we have to be in that zone with the same ferocity and intensity that we do while in service. Eventually, you will have a routine that you will know better than you know your romantic partner. Furthermore, if you stick to it with more religious fervor than you do your own spiritual faith, your staff also realize that in those moments, they should not be interrupting you unless it is of the utmost importance!  

In either case, on the floor, off the floor, in service or out, routine is the key to success! Doing the same thing, the same way every time! Are there going to be deviations? Of course, but the critical aspect is that if you are adjusting something, it is out of a clear and explainable reason as to why. Not because of some spur of the moment whim to just try it differently. If it works, don't fucking break it!  

So, what are the numbers we should be looking at, exactly? As stated previously, the restaurant business is a numbers game first and foremost and when we look at the numbers, we can get extremely lax or extremely detailed. In my opinion, I feel as though more detail is always better, assuming we don't break the cardinal sin of forgetting that we are here to provide experience. The moment that numerical details outweigh the desire to provide phenomenal service, you have already lost.  

Regardless, the first literal formula you need to know here is: sales-expenses=profits. The goal is for that number to be 1) a positive number and 2) as high as possible. The difficult part is when that number is negative and you have to try and figure out what aspects are bleeding money to the Aether in that scenario, we have to get detailed.  

First, we need to break out the business to its base aspects in terms of costing. Those are: Food, Liquor, Beer, Wine, Payroll, Taxes, Repair and Maintenace, POS fees, Sundries, Permits and Licensing, Rent, Utilities and Insurance. Now, there can be way more than this and you can even more detailed. For example, in food, you can break it down by poultry, dairy, beef, produce, bread and so on. You can do the same for all of your categories, but the main starting point is here.  

Once we have an idea for the costs we are paying out, we now need to look at these costs in relation to our actual sales as a percentage. First were going to break the overall costing into two separate categories, Fixed expenses and Prime Cost. Fixed expenses is fairly self explanatory, its the base cost we can expect and that never changes. For example, your salaried managers wages, your monthly rent, your annual license renewal fee. The things never fluctuate or change. Prime cost on the other hand is the exact opposite. It is the aggregate of every variable expense within your four walls. By its very nature, this value is going to fluctuate month to month, however, the overall percentage in relation to sales, we want to keep fairly consistent.  

It should be self evident that we want to keep all of our costs as low as reasonably possible, but here is where we start to set genuine, hard key metrics for success. Your Prime cost should NEVER exceed more than 60% of gross sales and, if we are being honest, your overall target should be 55%. Let me preface this, keeping a 55% prime cost is significantly harder than it sounds! This takes dedication, understanding of your business and constant vigilance. However, it is achievable if you drive for it.  

So, in real time, what does this look like on the active real world stage? Simple math here tells us that if we have $300,000 in sales in a month, that monthly prime cost should come at a value of no more than $165,000. that leaves us with $135,000 to cover our fixed expenses for the month.  

From here, we can get significantly more granular with food cost and such (Food should be no more than 30%, 28% is great target if not lower. Liquor, Beer and Wine should be close in at about 21%, if not lower), but the idea and concepts here are all directly translatable to your restaurant. You have to know what you’re bringing in and you have to know how much you’re spending and where you are spending it and most importantly, why you are spending what you are. If your food cost is consistently at a 29% and the next month it skyrockets to 33%, what happened? Was there an occurrence where a significant amount of food was thrown out? Was there a series of invoices missed that carried over from a previous month? Or worse, is there cases of food being loaded into an employees car after hours? If there is an invoice you don't recognize for product you remember, why are we paying this? Get detailed, get picky, get granular where you can.  

The above is just the tip of the iceberg and you can see how deep this particular iceberg can go and why many businesses lose sight of the operational focus by getting pulled into the financial mire that is awaiting us all. However, if we execute appropriately in the service and production side, many of these issues will inherently go away of their own accord. How is that possible, you ask? Easy, as we execute on great food, exceptional service and actively engaged management, sales will naturally follow. If sales are not coming through the door, we have to look to the non-financial aspects of the business I had a manager, long ago tell me that if sales are not coming, all that we can do is reduce cost match the drop in business. at the time, I took this as law and adjusted accordingly.  

Please DO NOT make the same mistake I did! Yes, to a degree, we need to reduce labor and the amount product we bring through the door. But, as we discussed above, if  we focus on the percentages, in relation to sales, this is a death sentence. Let me show you. What 60% of $0? What is 28% of $0? How can you get product for $0? How do you pay your salaried managers and hourly staff for $0? Eventually, looking at and attempting to reduce cost to $0 means one thing, you have closed your doors and the restaurant, and the dream you had, is now dead. the solution you ask?  

Sales.  

How do we get sales?  

Exceptional Service, Great food and Actively Engaged Managment. 

Thats it. Thats the formula. It all comes down to these aspects and basics being executed perfectly day after day, every single time. We can talk about marketing and advertising and making it more enticing to come through the door, but the truth of the matter is, if you are missing even just one of these core principles you aren't going to succeed. I remember one gentleman telling me how all of his problems were going to be solved with just more sales. Thats all he needed, was more money through the door. So, he paid a small fortune to have photographers, videographers and digital marketing experts create the perfect campaign for him. And, to their credit, it got people in the door! So much so that his kitchen was overwhelmed, his waitstaff wasn't prepared to handle the volume and the management on hand didn't know what they were supposed to be doing or how to do it. For 3 months he ran this campaign, pulling people in just to disappoint them and put a bad taste in their mouth (pun totally intended). He put forward what he thought was an investment and it only turned out to be his overall demise.  

But, imagine if they had the basics down to a perfected science. If the staff knew what they were expected to do in that moment and actually were able to get it done? Now, imagine its yours. Imagine that you were able to get that level of success and make your guests that happy every single time they came through the door.  

So lets go do it.