Why You Should Grow Restaurant Revenue Before Cutting Costs
By David Scott Peters
Imagine a small family-owned restaurant in the heart of a bustling city. The owners are a passionate couple who pour their hearts into creating incredible food, yet they struggle to make ends meet. They decide to focus on cutting costs. They trim the menu, reduce staff, even compromise on ingredients. But instead of thriving the restaurant loses its charm and customers begin to drift away.
Now let’s consider a different approach, one that emphasizes increasing revenue rather than decreasing your expenses. It’s a path that leads to growth, innovation and financial freedom that every restaurant owner dreams of. (Disclaimer: eventually you have to get to cutting costs with systems. But when you need sales, focus on increasing revenue first.)
I often talk with restaurant owners just like the couple I just described. They fit that description, and their annual sales are under $850,000 a year, most often ranging from $350,000 to $750,000 a year. When your restaurant is in that range, you likely won’t be able to afford a full management team, and you will be key in the day-to-day operations.
When I talk with these restaurant owners, I let them know they need to increase their volumes first. Here is why: If I helped save 10 points on a $500,000 a year restaurant, that’s $50,000. When you’re already in a financial bind, this just means working your butt off with not much reward. But if a restaurant is able to get sales well up to $850,000 or $1 million, that 10% could become life-changing money. Imagine making $100,000 more per year on the same sales you’re doing right now. To get there, this means increasing sales first and finding efficiencies before cutting costs.
When focusing on a revenue-first approach and getting your sales up, you need to focus on what makes your restaurant unique. Invest in a great hospitality experience and in marketing. There are a lot of strategies you can use to increase your revenue. (I offered a plan for how to increase restaurant sales $250,000 year on my podcast, The Restaurant Prosperity Formula, episode 45.)
With that said here are three quick strategies for increasing revenue:
- Enhance your menu by offering items that will set you apart from the competition.
- Improve your guest experience by training your staff.
- Leverage your social media by telling your story and connecting with your community.
Now, let me tell you about a passionate restaurant owner who reached out to me some months ago because she had a dream for her restaurant which wasn’t her reality. She struggled with sales, employees and not knowing what she needed to do to make money. We got on a call and during our hour-plus Zoom meeting I learned about her passion for the industry, her dream, the challenge she was facing in her restaurant and that her annual sales were under $250,000 a year. I immediately explained to her my coaching program wasn’t the right fit for her because based on her volumes, 
what I would teach her couldn’t reduce her expenses enough for her to make money. First, she needed to increase her sales. I had to be very frank with her, and I told her to focus all her efforts on growing her sales above $850,000.
A year later I got an email from her saying, and I quote, “David on my discovery call last year, you told me that you wouldn’t coach me because I only made $250,000 last year. You told me to figure it out. I closed for two months and rebranded myself. I made $480,000 in five months. I’m on track to finish the year with $800,000 a year in sales.” Now she’s on a path where systems can change her life, and she can make money in the restaurant business, the money she deserves to make.
When implementing a revenue-first approach, here are some mistakes to avoid:
- Don’t sacrifice quality for cost savings. Going against your core values on quality is a certain recipe for disaster with your customers.
- Make sure you look at what you’re spending money on and balance expenses with expenses that are really investments in growth. The next time you find yourself well reaching for the scissors to cut another expense, pause and ask yourself is this the path to prosperity or are you cutting away the very soul of your restaurant.
The key to true success in the restaurant business is not found in trimming away but building up, nurturing growth and embracing the revenue-first approach.
David Scott Peters is an author, restaurant coach and speaker who coaches restaurant operators how to stop being prisoners of their businesses and to finally financial freedom. His first book, Restaurant Prosperity Formula: What Successful Restaurateurs Do, teaches the systems and traits restaurant owners must develop to run a profitable restaurant. Thousands of restaurants have worked with Peters to transform their businesses. Get his three principles to restaurant success at http://www.davidscottpeters.com.
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