The 5 Real Reasons Your Restaurant is Losing Money

By: Sarah Knapp

7 Minute Read

Dec 05, 2017

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restaurant losing money

The restaurant industry has always been unpredictable.

As an owner or manager, you’re used to dealing with volatile sales because of factors outside of your control.

In 2016, restaurant visits decreased for the first time in five years thanks to falling grocery prices and an uncertain economy. Due to the sudden decline, many restaurant owners are thinking about new ways to increase profitability and cut back on losses.

For many restaurants, it’s easy to start spending money on restaurant promotions with the hope of increasing new business. While these marketing initiatives can be effective, it’s important to evaluate your current strategy and identify opportunities that may be costing you money.

Restaurant profit and loss statements will show you your ordinary expenses, but if you rely only on these, you may be missing out on common factors that take away from your profit growth. Luckily, these hidden problems can be easily solved once you’ve identified them within your company.

Here are some ways your restaurant might be losing money and what you can do to fix it.

1. You Have High Employee Turnover

The restaurant industry is notorious for its high turnover rate. From 2010 to 2015, employee turnover grew by 15.7% and many management teams struggled to retain new hires.

While losing staff is not a new problem, the rising cost of employee turnover is directly affecting your bottom line. In fact, the price of employee turnover could be costing you as much as $5,864 per employee. With a 66.7% turnover rate in 2016, failing to retain employees could be costing you up to $146,600 per year.

Luckily, there are simple steps you can take to increase employee retention. While fair pay is a good start, many employees are not focused solely on monetary benefits. As millennials become a bigger part of the workforce, there is a greater focus on advancement opportunities and personal growth.

Related Post - The Millennial Restaurant Manager: 5 Secrets You Should Know

Although providing advancement opportunities for all your employees may be difficult, investing in leadership training for your management team is a good place to start. After all, quality managers retain quality employees, which results in higher retention overall.

2. Your Wait Times Are Too Long

While long wait times are usually a sign of a successful shift, it is easy for bottlenecks and slow service to create a profit cap during peak hours. As carry out and delivery orders become increasingly popular, your staff is no longer focused solely on in-house customers. That off-premise order requires more multitasking among your staff if you want to maintain a high level of customer service.

Maximizing your profit on busy nights requires a combination of successful scheduling and strong communication. Scheduling too many or too few staff members can lead to slower table service and frustrated customers. The right balance of staff will keep employees busy while still providing customers with excellent care.

Related Post - 3 Reasons Your Restaurant Employee Schedule is Costing You Money

New technology and self-service opportunities can help automate customer service during busy times. Solutions such as Nowait allows customers to join your waitlist remotely while Waitlist Me’s technology keeps diners updated on wait time via text message. These simple integrations put your diners back in control and free up your staff to focus on other things.

Online ordering can help reduce long wait time for off-premise orders. Customers can get smarter wait estimates and skip long pickup lines when ordering digitally. These solutions help your staff process more orders in a shorter amount of time and can often increase a customer's order size. On average, Taco Bell customers who order online spend 30% more than traditional in-store orders. This self-service solution not only decreases wait time but can increase your overall sale.

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3. You Have No Online Presence

With the help of technology, consumers have more access to dining options than ever before. Food bloggers are introducing diners to new restaurants and social media marketing is on the rise.

According to the National Restaurant Association, 88% of adults check menus and reviews online before visiting a new restaurant. Without an online presence, you’re likely to be losing customers to competitors who have a positive online brand. Consumers want to read reviews and get a preview of what your restaurant offers before making the commitment to dine.

Related Post - 50 Examples of the Best Restaurant Websites

Many restaurant owners are turning to website building sites like WordPress and Squarespace to create websites without hiring expensive developers. These website templates make it easy for customers to find you, research your menu, and even see pictures online. Tech-savvy restaurants are even allowing customers to order online, which simplifies carry out and delivery services.

4. Your Kitchen Practices Poor Inventory Management

As a restaurant owner, you understand the importance of keeping your prime costs under control. Inventory is one of the most expensive factors in running a hospitality business. Even the most efficient restaurants spend between 25 – 35% of their operational expenses on inventory each year.

While high inventory costs are common, setting up an effective inventory tracking system can help save you a lot of money. Daily inventory checks before or after operating hours can help prevent waste and theft. By tracking your inventory more frequently, you will be able to identify the small factors that lead to big losses.

Unfortunately, poor inventory management is usually due to poor kitchen management. It’s up to your chef to take control of the kitchen, monitor portion control and reduce the cost of waste. Most of your kitchen staff aren’t thinking about high food cost and therefore, aren’t worried about making costly mistakes on the job.

Managing your inventory online can save you money by reducing staff hours spent updating a manual database. All-in-one POS solutions can be an easy way to monitor inventory and will help you eliminate unnecessary extra expenses.

5. You're Only Focused on New Customers

One of the most common mistakes made in restaurants is focusing too heavily on new customers and taking returning customers for granted. If your customers don’t feel valued, they aren’t likely to return. While the balance between new and regular customers is key, loyalty programs can stop you from losing money and give your customers more incentive to return.

Loyal customers have been found to:

  • Buy 90% more often.
  • Spend 60% more per transaction.
  • Be 5x more likely to return to your business.

While loyalty programs may have been around for years, advances in technology make it easy for restaurant owners to customize programs around your business.

Related Post - 5 Ways to Breed Customer Loyalty With Restaurant Loyalty Programs

Points systems, tiered programs, and gamification incentives are becoming increasingly popular at restaurants. While many POS systems can set up loyalty programs within your current operation, companies like punchh provide technology integrations that you can set up separately or with your modern POS.

While bringing in new customers will also be important to growing your business, focusing on increasing your customer retention by just 2% cause have the same effect on profits as cutting costs by 10%. By taking an automated approach to loyalty, you can decrease the number of loyal customers you lose while increasing your profit overall.

Stop Losing Money at Your Restaurant

Which of these is the biggest challenge at your restaurant? Losing too many customers or staff members? Struggling with inventory and wait times? No online presence? Whatever the problem is, keep it mind a solution is out there that can plug the drain to your restaurant's bottom line and boost your business' efficiency.

What's Your Top Tip For Saving Money in Your Restaurant? Let Us Know in the Comments Below!

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