Restaurant Revenue Management 1:
Establishing a Baseline & Understanding Demand
Restaurant revenue management can be defined as selling the right seat to the right customer at the right price and for the right duration. The determination of "right" entails achieving both the most revenue possible for the restaurant and also delivering the greatest value or utility to the customer.
Establishing a Baseline
There's no point in making changes if we don't know what we are changing and why! Establishing a baseline is a critical step - it gives you and understanding of where you are now, and something to compare your future performance against. The change to your baseline is how you will measure the success of your strategy and regularly monitoring your baseline calls your energy and attention to where it will be most effective.
Let's get started!
For the purposes of Restaurant Revenue Management, our baseline will focus on a few specific metrics:
- Average Check - The average spend of any one guest (or cover) in your restaurant. This is also referred to as PPA (Per-Person-Average), Check Average, or other similar terms. Think of this as the value of each guest coming through your door.
- Avero does this for you! See our guide: Basics: Average Check
- Occupancy - How many of your available seats are filled, this gauges the volume of your business compared to its potential. RRM is about optimizing revenue, meaning potential revenue is always part of the equation.
- If you know your hours of operation and the total number of seats in your restaurant, this is quickly calculated from any Avero report. See our guide: Basics: Table and Seat Occupancy %
- RevPASH - Revenue per Available Seat-Hour - it sounds complicated, so let's break it down.
- Seats = how many seats in your restaurant or how many guests you can seat.
- Hours = how many hours a day you're open or a measure of time you can seat guests.
- A Seat-Hour is a combination of the two, used to determine all possible guest service for a day of business, so your seat-hours are all of your seats multiplied by the number of hours you're open. This figure is the total potential for guest service, so by measuring your revenue compared to your seat-hours, you'll see how efficient your restaurant is at generating revenue. More efficiency and demand will drive this number up, closer to the total potential revenue.
- Once you've got the above metrics, multiply them against each other for RevPASH, or divide your total revenue by your seats*hours. See our guide: Metric: RevPASH
Your Turn! (Example)
Let's determine your baseline for each of these metrics using Avero. This will be your starting point.
Want us to walk you through it?
If you're currently logged into Avero, click to launch our pop-up guide to see how: RRM 1: Establish a Baseline
You want good data and to minimize outliers, so run a report for the last 3 months in Avero.
For our baseline at Blue Cafe, we are running an Item Sales Report for 3 months, we want a baseline for just our Dinner meal period, so our input looks like this:
Determine your baseline metrics:
What is demand?
Demand is simply how many guests want to patron your venue - this can be reservations, walk-ins, in-house hotel patrons, members, etc. You can analyze the demand you've served in the past by looking at the number of guests and tables you served. You may have additional demand that you aren't able to serve - do you often run a waitlist, turn guests away from making reservations or seating because you are full, or see a line for service forming? These are examples of unserved demand.
When establishing your baseline metrics, if you see Seat or Table Occupancy at 100%, this is an example of when you might have unserved demand.
How can I see my historical demand?
Run any sales report in Avero - the covers and checks listed (in the Context section or included as a metric) show your demand.
- Cover Count = guests served; this is a guest count of demand.
- Check Count = tables served; this is a party/table count of demand
Popular Avero reports for viewing demand
Try these popular reports for demand drivers and insights:
- Group Sales Overview Report or Group Sales Summary (High Level)
- Sales by Meal Period (analyze meal periods)
- Hourly Sales Report (view demand throughout the day - find the peaks and valleys)
- Service Summary / Service Category (view variation by staff member)
- Table Performance Report (highly specific by individual restaurant table)
Insights from your Demand
Demand can be affected by your actions. To optimize revenue, you want to drive demand to times or areas of low demand and add efficiency to times or areas of high demand to ensure you capture all available demand.
- View demand by Meal Period or Hour to determine your high-demand and low-demand times
- View demand by area of your restaurant or by outlet for larger properties to see where you have unserved demand and where you have room to capture more demand
- Go beyond total - look at the specifics of your demand, such as:
- Party sizes - optimize your table mix according to the party sizes you see most
- Menu Mix - look at the low-demand and high-demand areas of your menu
- Promotions - look at the popularity of various promotions and discounts to determine which resonate with your patrons to inform your strategic action plan
- Tables - are people willing to wait for premium tables, but other tables sit empty much of the night?
If you notice times or areas of low demand, consider a strategic initiative to drive demand to this area:
- Promotional or marketing activity can increase awareness and entice customers
- Pricing strategies can increase interest - popular versions of this include discounts or specials for lunch business or limiting menus to certain areas like a bar or lounge to drive restaurant demand to a lower-demand area.
- Ambiance and Service - guest experience can have a large impact on future demand. Are there improvements to improve guest satisfaction or desire?
High demand is a great problem to have! You already have guests waiting to spend at your venue; identify where you can increase efficiency to serve more of the available demand.
- Compare Table and Seat Occupancy - If Table Occ is very high, but Seat Occ is much lower, adjust your table mix to match the party sizes of your demand.
- Can you add capacity to accommodate more demand?
- The restaurant may feel busy because everyone is running around and has lots to do - but if you aren't efficient you may be leaving demand unserved. Are server sections too large for them to quickly serve all of their guests? Are you running out of items, seats, or tables, causing demand to be turned away? Check staffing and turn times for more information.
- Find opportunities for efficiency - support staffing, POS handhelds for tableside order inputting, delivery and to-go orders for added revenue without added physical space.
- Do your operating hours match the natural peaks and valleys of your demand? Opening earlier or staying open longer if demand persists can add revenue, whereas opening later or closing earlier if demand drops off can save costs while preserving existing revenue.