The Mathematics of Doubling Restaurant Profitability

Consider this: you are operating a small restaurant (café or coffee shop) and you need to double your restaurant's profitability.  Many people may find this a bit daunting. However if your task was only to increase your number of customers by 10%, while you may find this challenging, you could probably imagine how you could do it.  Similarly you may also be able to imagine how to increase your average sales size by 10% and to get your customers to come back 10% more often.  If you need some clues on how to achieve such an increase visit how to make money in a restaurant obtain the Restaurant Checklist.

 

Interestingly the synergistic effect of increasing you number of customers, your average sales size and your visits per customer by 10% each could in some circumstances result in a doubling of your profitability, even before you made improvements to your restaurants gross profit margin or expense control.

 

Below is an example of how this works in practice.  If you are only interested in the mathematics of increasing your own profitability you should go straight to the Profitability Increase Calculator and enter your own figures!

 

 

 

Profit and Loss Statement Before

 

Number of Customers

500

A

Visits per Customer

20

B

Sales per Visit

20

C

Total Sales

$200,000

D=A*B*C

Gross Profit %

60%

E

Gross Profit

$120,000

F=D*E

Operating Costs

$80,000

G

Net Profit

$40,000

H=F-G

 

 

 

Changes

 

 

Impact of a 10% improvement in Number of Customers, Visits per Customer and Sales per Visit

Customers

 

 

Number of Customers

500

 

10% Increase

50

 

New Customer level

550

 

 

 

 

Visits per Customer

20

 

10% Increase

2

 

New Visits per Customer

22

 

 

 

 

 

 

 

Current Sales per Visit

$20

 

10% Increase

$2

 

New Sales per Customer

$22

 

 

 

 

 

 

 

Profit and Loss Statement After

 

 

Number of Customers

550

 

Visits per Customer

22

 

Sales per Visit

$22

 

Total Sales

$266,200

 

Gross Profit %

60%

 

Gross Profit

$159,720

 

Operating Costs

$80,000

 

Net Profit

$79,720

 

Old Net Profit

$40,000

 

Increase

$39,720

 

% Increase

99.3%

 

PIPI

1.99

 

  

We can see in this example that a achieving 10% growth in Customers, Average Sales Size and visits per customer resulting in overall net profit of the restaurant almost doubling.  Now this is just one example for display purposes and it is based on a number of assumptions, but what is the Profitability Increase Potential Index (PIPI) of your restaurant. Go to the PIP Calculator to see how this principal applies to your unique restaurant.  Your PIPI is the number of times your profit will increase as you achieve the targets you set for the key attention areas.  In the above example a PIPI  of 1.993 means that profit will almost double.  A PIP score of 1.5 means you will increase your net profit by 50%.

 

You will find that the PIPI Calculator not only provides you with an idea of profitability increase potential of your restaurant it is also a magic tool to help you set your goals because it provides you with a potential profitability goal and a broad framework of how to achieve this goal.