Most cafés, bars and restaurants have some kind of pricing strategy, but it’s just the first step in the field of Revenue Management. A more structured – and less gut-influenced approach can prove highly beneficial.
Revenue Management is basically about selling the right product at the right time to the right price. German-born Brita Moosmann is one of the leading experts in the field, and from her own company Yield for Profit she helps global hotel chains as well as independent restaurants to analyze their customers behavior and demand forecast in order to make a higher profit.
What’s the first step for a small café or restaurant that wishes to become better at Revenue Management?
− First you need to take a look at your point-of-sale system. Start by running the reports to see exactly what you sold at lunch or dinner. What did you sell the most? What were the top 20% items and how profitable were they? Then take a look at your competitors. Who are they and what are they offering, at what price?
And what if the competitors have lower prices?
− Remember that price is just one component. If the customers come for price only, then that’s a problem. If you have similar pricing as your competitors, take a look at the online reviews. What do their customers think? How are they different from you and what can you do to stand out?
You should know what a meal costs to serve one person, including costs for staff, rent and ingredients.
Focusing on a lower price strategy, Brita Moosmann reminds us, demands more ads or promotion, because you need to sell more items to make up for the lower margin per item.
− Rather use pricing as a tool to push a few items on your own menu which you would like to sell more of. And raise the price of the items that already sell a lot. Basically make a high-margin product more popular and earn more on the one you already are selling. That’s the beauty of menu engineering.
Do you think that strong focus on a certain food cost margin is a good way?
− No, just using one margin on the whole menu is not Revenue Management. With higher demand items, you set a higher price. If you have a low cost product, you can use a higher margin. Don’t get too hung up on the percentage, but ask yourself: how can I make one more pound for each sell? It could mean a lot in the end.
What products can generate a higher margin?
− Items where people know the cost is high, with ingredients they know are more expensive. You can charge a lot for fish, meat and nowadays also vegetable dishes, especially if it’s organic. You can also charge more for items that people don’t buy every day, like parma ham.
Do we generally include too much on the menu?
− Yes! Many restaurants have menus that demand so much prep work, and there’s waste because food has gone bad. I think they are scared that people won’t find anything − instead of defining who the customers are and what they like.
Items where people know the cost is high, with ingredients they know are more expensive. You can charge a lot for fish, meat and nowadays also vegetable dishes, especially if it’s organic.
What is the number one mistake for small business owners?
− That they don’t do Revenue Management. They establish their pricing without calculating the real cost. You should know what a meal costs to serve one person, including costs for staff, rent and ingredients. “Should we make or buy?” is a common question.