Why More Guests Doesn't Equal More Profits!

About the difference between a linear KPI and what I call a multiplicative KPI. Okay. And let's take. We're going to take a sample restaurant, and we're going to. We're going to just use this as an example. So the baseline numbers for this. This restaurant, they do 100 guests a day. They are. They're open five days a week. They have a $35 guest check average. Right. So this is just your typical restaurant in the United states. They're doing 30 $500 a day in sales. They're doing $70,000 a month or $840,000 a year. Okay. Their food costs are right at 30%, $252,000. Their labor costs are right at 30%. So they're doing a good job, or they think they're doing a good job with this. Right. So they're keeping everything at 30% or less, like their accountant told them to do. And their fixed expenses, they did a great job at fixed expenses. They're only 36%. Right. So this restaurant is your typical restaurant in the United states making a 4% profit. And they are showing $33,600 a year in profit. Right. And this is typical. Just Google it. This is your average restaurant in the United States. Well, this owner decided that he wanted to do better than that. So he decided he was going to call consultant. Right? He said, I'm going to hire, like, a consultant or a coach, and I got to look around out there and see who's good and see what I can do to get this better. So consultant A, he calls, and consultant A has a good idea. He suggests that we should create an advertising campaign. And what we'll do is we'll increase the effectiveness of our image. We'll change our image, we'll increase our image, we'll advertise. And our goal for this campaign is we're going to increase our guest count by 20%. And if he did this, he claims the following results. So his plan says we're going to increase by 20%. So we're going to go from 100 guests per day to 120 guests per day. We're still going to be open five days a week. We're still going to have a $35 GCA. So our guest check average hasn't changed at all. All we're doing is bringing in more people through this advertising campaign. But now that's going to take our sales to $4,200 a day because of the extra people. So now we're at $84,000 a month or $1,008,000 per year. Well, we're going to keep our food costs at 30% because we're good at controlling food costs. So now they jump up a little bit to 300,000. But that's okay. We're making more money. We're still 30%. Our labor costs. We're not going to overwork our staff with the extra people coming in. We're going to put on the staff where we need to, but we're going to stay at 30% like we're supposed to. So we have 302,000 allocated to that. But where we make our money is our fixed expenses didn't change. Okay? So our fixed expenses now only take up 30% of the big revenue pool. So we're going to make extra profit now. Now to do this advertising campaign, we're going to put a billboard on the highway. It's going to be $500 a month. We have to sign a one year contract. So we have to allocate $6,000 to the billboard. And we're going to do some advertising. We're going to advertise on Instagram and on Facebook and we'll put some ads in the local papers. So we're going to spend another 500 on advertising. But in the end, you are now going to make $88,800 profit, which is 8.8%. So do it. Do you think Consultant A did a good job? What do you think?

You forgot his fee?

Yes, correct. His fee. Well, his fee is not in there, so we'll put that in with the advertising. But you're absolutely correct. Right? So maybe you make $88,000. Maybe. Maybe. Consultant A only has an $800 fee. Okay? So one thing I want you to know is increasing guests per day is what we call a linear KPI. Okay? Every guest means more money. So more guests, more money. And I don't know if you can't see my hands, but this grows in a steady, straight line on a chart. Now, let's look at Consultant B. Right, so this is consultant Burns. There's Donald Burns plan. Right. Consultant B. So Consultant B had a different idea. Even though Consultant A worked, I mean, we made more money, we made more profits. So he did do a good job. But Consultant B instead suggests that we should do some internal training with the staff. Let's get them better educated on the menu and let's teach them how to upsell sides better. Let's teach them how to upsell desserts better. Let's Educate them on wine pairing and maybe get our wine sales up. And what our goal will be here is to increase our guest check average by 20%. Okay. And I could tell you, if you want to learn, like, menu research and upselling. Consultant B for Burns. Donald Burns is the master at this. Okay, so let's see how his plan does. Right. So Consultant B, we're still going to have a hundred guests a day because his plan was never to bring in more traffic. His plan was keep the guests per day the same and increase the effectiveness of the guests we're already working with. We're still going to be open five days a week, but now our GCA is going to jump to $42 instead of $35, because now we're upselling sides better. We're better with the menu. We don't just recommend penne a lavaca. We add meatballs to that or something like that. And now we sell a bottle of wine instead of just a glass of wine. We're also going to go now because of this increase of $4,200 a day in sales. But we did it by increasing the GCA, we're still going to do 84,000amonth, and we are at the same annual figure of $1,008,000 per year. We just had a different way of getting there. Our food cost going to remain at 30%. We haven't touched food costs, but our labor cost, we didn't have to add any labor because we didn't bring any more guests in. We just better educated our current labor staff on how to do things better and more efficiently. So our labor cost now stays at 252,000 and becomes only 25%. And we also didn't change our fixed expenses, which now are at 30%. Now, in consultant B, I did put one day of training, so we had to bring in Donald Burns for a day. So I put a $2,000 trainer fee in there for him to come in and work with the staff, teach him how to use the menu. As far as getting better educated in wine pairing, your wine suppliers will do that for free for you. Just call them. They'll come over and do that. Right. So. So there's no cost for that. And Donald's plan ended up increasing profits to 14.8% or to $149,000. Okay, so which plan would you like to go with? Would you like to go with Consultant A or Consultant B?

I'll take consultant B for 1,409.

Absolutely. Now, now this is reality. Okay? This is taking a normal restaurant in the United States, who's making the restaurant owner is making $33,000 a year in profit. And all we're doing is giving them a little education on one KPI gca. That's it. That's all we did. Right. And by doing that, we took his profits from 33,000 to nearly $150,000. We're talking close to 5x on profitability.

So I'm gonna do a little bit of, and I don't mean to do any kind of marketing bashing, but there's a lot of marketing companies out there that will advertise the A plan to you. We will drive 100 more guests to your place. We'll drive a lot more people in your door, but we're also going to do it through discounts and coupons. And it's a vanity metrics.

That's exactly right. If you go on Instagram, you'll see these guys all day long. We'll bring more guests into your restaurant. Do you really want more guests into your restaurant? Start with that question. Remember, questions are the answer. Okay, so no, GCA is a multiplicative KPI. Okay? Because gca, if we put a two dollar on a gca, it multiplies by every single customer that comes in. Okay? So that's the difference between linear versus multiplicative KPIs.

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