The real secret sauce for better profit

Spoiler: the secret to better profit is not better turnover.

Yes, boosting revenue/ turnover is one answer. No, it's not the only answer.

And more importantly, it doesn't always work.

If you think that to make better profit in your business you always need to increase turnover, think again.

The truth? Looking at your business as a whole can help you find profit in places you didn't know it was hiding. Increasing turnover is not the one-stop-shop for more cash in your pocket ... in fact, boosting revenue doesn't necessarily even increase profit. Understanding and controlling costs as a percent of revenue is the first step to a healthy business.

We know it’s not polite to talk about, but no matter how passionate you are, the bottom line is the bottom line. You go into business to make a living, even if you also love what you do. Yes we learnt that the hard way. No, we haven't lost the passion.

You can be passionate about running an incredible food business and you can also make money doing it.

The trick? Zoom out — look at things with a wider lense.

When you hear “holistic” what do you think of? A hemp-clad hippie sitting cross-legged under a tree, just seconds from enlightenment? Your kooky uncle trying to prescribe yoga nidra as a cure for gallstones?

We’re going to be presumptuous and assume the first thing you associate with holism isn’t business. But, hi there, we’re here to tell you maybe it should be.

You see, it’s all about the big picture. The sum total. There aren’t many businesses that will live a long and prosperous life without at least a decent slice of cake to chew on at the end of the week.

How to successfully apply holistic thinking in business

We’re not hippies, naturopaths or your kooky uncle. We’re serious about business. But we live by this approach, and it works. We’ve worked damn hard to make money. We’re familiar with the struggle and the spreadsheets.

And frankly a lot of our current success and happiness and financial freedom comes down to the holistic approach.

We think of it like this: when you’ve got a stomach ulcer, your doctor shouldn’t just treat that symptom. Doc looks at your whole lifestyle, checking every aspect of your health and wellbeing, from diet to family history, mental health and hormones, making sure every element is in balance.

That means a good doc won't just treat your symptoms and let you keep rotting yourself from the inside with other things that just keep your body under stress.

Rather, good ol' doc fixes you up properly by understanding your life as a whole. Your good doc says, “Friend, you gotta take a long holiday, take these prescription meds, spend more time with your friends and stop eating whole lemons for breakfast. Soon enough you’ll be right as rain.”

In a lot of ways, the "more turnover=more profit" thinking is the stomach ulcer. So many people think boosting revenue is the only way to make better profit. But that's a band aid solution … and half the time it doesn’t even work. It might make things seem better for a while. But if you've got a 50% labour spend, eventually you're in trouble no matter how many covers come through your door.

To make good profit, we’ve gotta look at the whole show. It’s not just about turnover sometimes finding extra profit within the business model you already have is more effective, easier and cheaper than finding more revenue.

To get everything in balance, work at benchmarking effectively according to every scrap of info you’ve got. That essentially means looking at every cost, every day and forming a picture of how those costs interact in your business:

  • Revenue (knowing it, and using it as the only logical starting point for all the other stuff.)

  • Forecasting (Even more important than knowing revenue for today is forecasting revenue for tomorrow)

  • Overheads (Actually keeping track of them, and using them to inform your daily decisions instead of forgetting they exist and getting a fright when the bill comes)

  • GST (another one that we like to conveniently forget until it falls on our heads)

  • Suppliers & supply chain (accountability for everyone who has a hand in your supply chain using cost checking and order verification processes)

  • Gross Profit/GP (understanding your GP on different items... and how to change it)

  • Ordering budgets (making them directly proportional to revenue and recalculating whenever that revenue changes)

  • Labour budgets (same story regarding shifting revenue, plus using real costs instead of straight up hourly award, plus accounting for paid holiday and sick where applicable.)

  • Rostering (making sure you have the right people when/where you need them according to true data).

  • Net Profit/EBITDA (Finally, we get to the end point: your family, your home mortgage/rent and your end of the week knock-off bev. Having a life outside work and having the cash you need to enjoy it.)

Good business is all of these things interacting. What gets spit out at the end of the successful interaction is better profit.

But it’s all the single elements as a whole that need to balance and harmonise to create a profitable environment and gives you peace of mind.

Benchmarking for better profit in hospitality

Holistic, real time benchmarking.

With benchmarking in real time, you aim to know what percentage of your incoming revenue is being used in each cost in your business, with as much precision as possible. The steps look like this:

1. Understand your revenue. Whether this is through years of industry experience, a good instinct or smart forecasting algorithms, the closer you can get to actually understanding your forecast revenue, the more effective your benchmarking will be.

2. Know your true overheads. Same story for fixed costs when it comes to accuracy the more precisely you understand what it costs you to open your doors each week, the better. Everything from POS fees to electricity bills, music licensing and accountant fees. Don't leave it up to your accountant to know what your business really costs you.

3. Set your benchmarks. Whether you use an industry standard or have your own goals to aim for, your labour and purchasing budgets should be set as a percentage of revenue. Not a dollar cost. In a week you turn over $20,000 you'll need more staff and food than a week you turn over $15,000. (Shifting breakeven point is another kettle of fish you'll want to look at.) But no matter the revenue, with proper benchmarking you'll see the PERCENT of revenue you spend on people or produce should remain more or less the same.

4. Understand that profit = the bit left behind. This one is a slippery sucker, but 100% is all you've ever got, whether your 100% is 10K revenue a week or 100K. And your team and products will cost you a portion of that, then overheads/fixed costs take some too. What's left is profit.

5. Aim for small improvements. You definitely don't want to shave 5% off your roster overnight. Your team will probably mutiny. Look for small changes you can make here and there to reduce the percentage of total revenue you're spending on different areas week-by-week and watch your profit grow.

Knowledge is power

Unless we know everything, we’re not in control of our end point. We need to see the reality and truth in our business to know what's coming back to us in profit. We need to approach business with understanding.

Actually, now we think about it, that is kind of like reaching enlightenment …

So we need to get some benchmarking going, but the challenge is to do all that in an industry that changes every second, has pretty volatile revenue, and a needs-based casual workforce. Service environments move so fast, to look at more than today sometimes feels near impossible.

Plus the time it takes to do the math. On a day to day basis we can’t sit down and constantly reimagine the numbers. Anyone who’s spent a day as a hospo owner knows there are a thousand things pulling you away from the numbers. Real, urgent things that can't be ignored.

To look at a business like this with spreadsheets alone is a full time job. Even with software solutions in place for rosters and an analytic POS, it's hard to see how everything interacts.

But the fact is, most standard Business Intelligence, workforce management or 'POS insights' software can’t actually offer the value we need in this fast-paced industry unless it accounts for everything.

And of course, we need it to know everything without any actual data entry.

Which is hard, obviously. But with a lot of experience and some advanced analytics, Viability has become the holistic management tool our founder was looking for 30 years ago.

Reporting from every side of your business allows you to see any problems as a whole — both in real time and into the future — so you can address and avoid issues across every corner of business, and keep your whole operation in great health.

To get holistic insight in a way that the hospo industry can actually use, we need a nifty, easy to digest option we can have a glance at on the fly.

Information that includes all the relevant data (so we don’t get stomach ulcers trying to chew through all the numbers).

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