Are you running a tight ship.
As a cafe owner, you are likely aware that running a café requires a significant amount of effort, and may not always yield high profits in comparison to the time and energy invested. It does take a lot of hard work and determination to even look like you are making any reasonable profit.
Outsiders look at your business and assume they know the cost of a piece of toast, and the cost of operating their coffee machine – “It just cost me a bag of beans”. Naturally some people think you are on a winner owning a café and that profits are through the roof.
What is your gross profit margin, 58-70%. What is your net profit (10%). These are the bench mark figures in relation to “Coffee Shops” compiled from the Australian Taxation Office. Reference link ATO Small Business Benchmarks.
So, if your turnover is $500,000.00 each year, you are likely to be left with $50,000.00 as an income (10% profit). So how can you beat the averages and increase your profit margin (profit margin = money retained after all business expenses are deducted).
Finances
This is perhaps the first and most important place to start and review on a constant basis. Regularly check your profit and loss statement and if possible weekly, looking for areas to improve.
Analyze and understand what your business has performed previously, and calculate out your key percentages. Now track these key metrics against what you are currently achieving.
Some of the key percentages you need to monitor are your cost of goods, wages, and fixed costs (rent).
You can compare these with your past performances and against industry benchmarks. A good source is the ATO, as mentioned above, or your previous Business Activity Statement (BAS) is also a good snapshot.
Forecasting your revenue for the week will provide you an aiming point -this is your starting point. Realistically predict your daily revenue for the week. Factor in the weather, events, calendar events, catering work etc. to help with any variables.
With your percentages calculate out your anticipated expenses. Now you have a weekly forecast. You can now monitor your progress with the aim here to track daily and weekly.
Try to build revenue rather than cutting costs. You can do all this by yourself and you don’t need an accountant or bookkeeper to monitor this for you.
Raise your prices
If you have data on the volume of sales in relation to the products and menu items you have available, then this can help drive revenue but with caution.
This is where recipe costings come into play, and another area we can uncover a bit more in depth, which is “Menu Engineering”. This area requires a few articles in itself and we will cover this another time.
Basically, items that are popular and have high profit margins, you promote or package, as this is where your profit is derived.
On the opposite end, items with a high cost and fewer sales and they have a low profit margin, you should drop these and find a replacement with something more profitable.
Specials
Specials are a great way to introduce new menu items and to test your customers for feedback on these dishes, for presentation, and pricing.
It’s important to note that implementing specials can effectively introduce some much-needed variance for your regulars. By offering an additional option, you can keep your customers engaged and satisfied, whilst researching for new menu options. So, I highly recommend considering this approach to diversify your offerings and keep your regulars coming back for more.
We found that some of our specials appeared regularly as specials as they were not totally suited for the menu, and some were in demand and kept customers popping back to see if it was available again the following day.
A lot of fun with this both for your business development and customer curiosity.
Wages
With your wage costs do not panic and commence cutting your staffing levels or hours. This may fix some of your forecast percentages, but it can work against you as well.
It’s crucial to understand that any roster cuts will inevitably result in a decline in service standards, which, in turn, will lead to significant increases in wait times. As a customer, this will undoubtedly be noticeable and may impact their overall experience. When satisfaction is compromised, it may ultimately lead to even less sales, so now you are progressing backwards.
Rather than cut wages, keep them to a level of service that is acceptable, and try to keep your staff motivated and productive.
You can achieve this by delegating additional duties when quiet, or cross training, which works well for both parties – a win-win situation. Also remind your staff on the importance of consistency in all aspects of their job role.
Package and bundle
Often referred to as upselling. Again, this can be linked to understanding “Menu Engineering” a bit more.
Basically, package up two or three items together to ultimately increase your customers average spend.
Keep in mind that Cafes typically have a lower average spend because their menu offerings and atmosphere are more casual and less formal than restaurants. Additionally, cafes tend to offer lighter and less expensive options such as coffee and pastries, whereas restaurants usually have more substantial and higher-priced menu items.
People also generally go to a café to meet someone else for a chat or a catch up, whereas at restaurants people book in groups for parties and celebrations. Hence the difference in average spends.
High coffee sales will generally see a café with a lower average spend, in comparison to a café well known for its food and or views.
Average spend is the total revenue for the day divided by the number of customers served for the same period. ie: $1,500.00 (revenue) ÷ 100 (customers) = $15.00 average spend
Yes you can also have a breakfast period and a lunch period average spend, if you wanted to split the two as an individual meal period breakdown.
Breakfast Revenue $300 ÷ 30 customers = $10 average spend
Lunch Revenue $1200 ÷ 70 customers = $17.14 average spend
Total Revenue $1500 ÷ 100 customers = $15 average spend
Looking at the above example, let us say you want to achieve an extra $1.00 from every customer. That is an $11 average for Breakfast, and a $18.14 average for lunch. A 10% increase for breakfast, and a 5.8% increase for lunch.
So, consider offering a larger drink size for coffees, and or juices, smoothies etc. Also think of takeaway food items promoted to include a takeaway drink.
We sold salads for lunch in various sizes, and gave customers the idea to purchase an additional salad to take home for dinner that night. The net result was an enjoyable dinner where they just had to cook their favorite protein to go with it. A simple easy dinner option for busy people.
Check your sales records for items purchased together by customers. You may notice that most people ordering a coffee often bought a muffin. So, set a special price for that to help encourage further sales.
A toasted breakfast wrap with a juice or coffee, package it up. A good trick here is to find a popular package bundle, then promote that on a quiet day and let your regulars know that.
Is your package day for regular salad and small juice. Not only does this also help your slow days, but it also helps with your planning and prep.
Loyalty Programs
I am sure you will agree with me that it is more cost effective to keep a loyal customer than to acquire a new one.
Cafes often have a loyalty card, where you by say 5 coffees and your sixth is free, or buy 9 coffees and your tenth is free.
These programs need to be enticing yet convenient. Many of our customers either forgot or requested to leave their loyalty card at the Cafe, which can cause delays in service, simply because they find it inconvenient to carry it around with them. This can result in slower service and longer wait times for other customers.
With covid restrictions being in place for more than the past 12 months, a contactless loyalty card program would be desirable and well accepted by your customers.
Conclusion
There you go, just a few brief ideas that can assist you in building that revenue in a variety of ways. These concepts should work for many Cafes, however just work on one at a time. You do not want too many spinning plates at once otherwise you will lose your focus and nothing will end up working for you.
Pick a category or area from above, where you have knowledge and understanding. Evaluate and monitor the current situation then set out to improve on that. No big changes, just a little one percent change is sufficient every day. Do not underestimate the importance of seeking small, daily improvement as it compounds.
That I guess is the main takeaway here, and you will also here me say the same thing in any future posts, and that is to concentrate on one thing at a time, get it worked out and operating efficiently, then delegate the task.
Trust, you found some value in the above post. I will dig deeper into these areas a little later, however if you have any queries shoot me a note, or if you have had any success in any thing listed above share it with me and I will pass it on.