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Improving your Restaurant Profit Margin via Promotion Analysis

Posted by Mirus Team on 12/4/13 9:24 AM

 

Whether you own one restaurant or 100 there's no eluding the fact that you, at some point, have run a promotion.

Chances are you're running one right now! From a consumer perspective, restaurant promotions are ubiquitous. You see them on TV, online, in your mailbox, in your inbox, on billboards ... they're e.v.e.r.y.w.h.e.r.e! The question I have for all restaurant companies is, "Are you diligently analyzing promotions on a weekly basis?" If you are, that's great! When calculating restaurant profit margin, as it relates to promotion analysis, we would argue that it takes a village to analyze. It doesn't just reside in the Marketing Department to analyze a promotion; it should also have the attention of the Finance and Operations Departments. Why? Because there are a lot of misconceptions regarding successful promotions. Marketing will get giddy when they see sales spike after a promotion has begun and think it's doing great and that success will trickle down to Operations. Once it gets to Finance, they will notice the sales increased, as well, but some Financial Analyst will look a little closer and observe that though sales have risen, the profit margin has been squeezed chiefly due to the new promotion. Then the whole company gets sad because the promotion that was increasing sales that they loved so much either can't continue anymore or needs an adjustment.

Obviously there are multiple variables that get calculated into restaurant profit margin. (We did a blog about this topic a couple weeks ago: refer to Restaurant Profit Margin | 4 Areas You Care Most About for further reading!) For this post specifically, we will discuss how diving deeper into promotion analysis can help improve your restaurant profit margin. 

Food Cost and Promo Analysis

One of the key variables in calculating restaurant profit margin is food cost. Depending on the restaurant concept and menu offerings, food cost will look different across the board, but not by much. However, it is simply an unavoidable calculation that will forever keep your margins extra slim. Operators, at a minimum, must budget at least 25% of their sales to Food Cost. There are many ways to control food cost and it should undoubtedly be a part of the mission for every operator. If an operator has the ability to simultaneously control food cost, labor and satisfy customers, consider that person for a promotion because they are making you money. Promotion analysis and food cost go hand in hand. As previously mentioned, if you're running a good promotion you can expect sales to increase. However, attention needs to be turned to food cost because if you're selling more product it also means you're buying more, too. Is the item your promoting a high food cost item? If so, expect those sales to be offset by higher cost of sales.

Methods for Improvement

If you're asking yourself, why or how is this important? I would ask you the follow up: How often do you run promotions? ... The answer will most assuredly be, practically everyday! So the importance of improving promotion analysis is paramount. That is why Promotion Analysis is paired at the top of the pyramid with food cost because they will always have a connection.

Here's how you can improve:

  • Make it a priority for each department: Operations, Finance and Marketing should have their hands in analyzing promotions. Since food cost consumes such a large percentage of cost of sales, it's important that a wide range of departments prioritize this as a continuous effort to reduce cost and increase revenue
  • Personally make it a priority: whether you're the owner, CEO, CFO, COO, CMO ... set up a weekly recurring calendar event to spend at least an hour analyzing promotion performance - you may catch something in the data that someone else missed!
  • Evaluate how you're analyzing the data: restaurant reporting and analysis is a critical element in measuring restaurant performance. Canned reports, though automated, might be beneficial to some but they do not provide the information needed to fully analyze the business. The need for a business intelligence software for restaurant companies is growing by the day and is a necessity when running in-depth promotion analysis reports

 

Summing it Up

 Most of the content above might be common knowledge throughout the restaurant industry but if nothing else, I hope it acts as a reminder to the importance of promotion analysis and how it affects restaurant profit margin. The process of analyzing business performance is a team effort and break through results can only be achieved when everyone is on-board and contributing. Restaurant business intelligence software brings teams together and allows everyone the ability to be on the same page. Click the button below to learn more about Mirus and how we help thousands of restaurants leverage their data to reduce cost, increase sales and satisfy customers!


 

Topics: Restaurant Profit

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