You invested a lot of heart and work into your restaurant, but your returns are not meeting your expectations, and your numbers have been negative since the first month. So, what are you going to do? Are you going to give up or keep going? We have some perspectives to help you make your decision. For any restaurant owner who has experienced this type of situation, please read on.
For any of you restaurant owners who suffer unexpectedly poor or even negative returns during the first month after opening your restaurant, before you worry, we’d like to let you know that you’ll know what to do and how to do it if you’ve got set objectives in mind.
In restaurants or any other type of business, one important thing entrepreneurs need to know is the break-even point. Once an entrepreneur knows the break-even point, the entrepreneur will have monthly sales targets, which will lead to work plans for generating sales. And the entrepreneur will know the sales situation during different periods each month and what needs to be done to meet set plans.
But there is a problem. Most SME restaurant entrepreneurs don’t know their own break-even points. So, if an entrepreneur is wondering about what to do with his or her restaurant business, we’d like the entrepreneur to answer these two questions first:
- Do you know how much you have to sell to not suffer a loss and to turn a profit?
Monthly sales targets, or projected sales are derived from break-even points. Therefore, what restaurateurs need to know first is their break-even point.
– Break-Even Point Formula–
Fixed cost / (1-variable cost %)
A fixed cost is stable cost. It does not fluctuate with sales and will still be incurred equally, regardless of how much you sell, or even if you can’t sell. Fixed costs consist of labor expenses (f/t), rent (for fixed rate cases), depreciation and others.
Variable costs % are expenses that vary depending on sales and consist of labor (p/t), ingredient, water, electricity, gas and other expenses.
Example of How to Calculate the Break-Even Point for a Coffee Shop
|Fixed Costs||Variable Costs %|
|Rent: 20,000 baht/month|
Labor: 32,000 baht/month
Equipment Rental and Others: 6,700 baht/month
|Average Beverage Cost: 31%|
Other Average Expenses: 10%
|Total Fixed Costs: 58,700 baht||Total Variable Costs: 41%|
Formula: Fixed cost / (1-variable cost)
Break-even point = 58,700 / 1-0.41)
= 58,700 / 0.59 = 99,491.53 baht / month
(Round remainders up to 100,000 baht)
This means that this shop has to generate 100,000 baht/month in order to break-even.
The break-even point means the point at which you do not suffer a loss in sales and you do not have to dig into your pockets. However, this still doesn’t mean profit! Basically, it means that income = expenses.
Once you know the monthly sales target, it will help you reach the break-even point, and you can make plans to meet your targets. You can plan how much you should make at the beginning, middle and end of the month in addition to what you need to do to make than happen such as which menu items you should cheer for their sales and how table service employees should cheer them. For example, because water is not very profitable, you can cheer for the sale of herbal beverages or beverages you created yourself. If by the middle of the month, your sales are still significantly below the target, you can decide whether or not you want to come up with some promotions. You have to find ways to increase the average value per head such as by pushing for more snack menu items or desserts and so on.
The break-even point leads to targets and work plans.
2. What did you do or not do over the past month to generate sales?
In what marketing practices have you engaged over the past month? Did you engage in offline and online marketing? For offline marketing, is your sign in front of the restaurant clear and conspicuous? Does it allow people to know what you’re selling and what items stand out? Did you make sure that happened? For the key destinations within a 5-kilometer radius of your restaurant, did you do anything to inform visitors that your restaurant is open? In provincial areas, vehicles, employees and sales girls are still influential marketing practices.
For online marketing, is your restaurant visible through every important channel such as websites, Facebook fan page, LINE, OA, IG and Google My Business? Have you created interesting content for your target customers? Have you begun using food delivery app services? Have you had people review your restaurant?
When many of you fail to generate expected sales, you begin to worry and feel discouraged. Then you might forget to review whether you have fully engaged in marketing activities yet. What you must not forget while marketing, however, is that your restaurant’s management system and service quality also have to be prepared. Don’t go all out in marketing just for customers to receive terrible services; doing so will only produce negative consequences.
In conclusion, if your restaurant has been opened for just one month, or even three months, and your sales are so negative that you feel discouraged, go back and review how comprehensive your activities have been. It is normal for restaurant businesses to fail to meet expectations in the beginning, because customers will might not know about you or not have things that attract them to try the restaurant out. So, entrepreneurs have to prepare circulating capital in reserve for operating business for at least three to six months, which is when the business first starts out and when you are trying to get people to know about your restaurant. If your location isn’t bad and you have a clear target group of customers, then give the business a little time and review the two questions above in detail and figure out which areas you might have overlooked.