Due to higher minimum wages and a tighter labor market, restaurants are facing increased payroll costs. If you are a restaurant owner, you may be wondering what you can do to cover increased payroll costs without any of your customers noticing. How to Cover Increased Payroll Costs Through Your Menu (Without Losing Customers).
Fortunately, you don’t have to reduce the amount of hours you are open or sacrifice the quality of your food. By being strategic about your menu, you can keep your hours the same, continue to provide your customers with high quality meals, and cover your increased payroll costs all at the same time without losing any customers.
Many restaurants believe that the secret to success is getting butts in seats. The issue with this mentality is that butts in seats do not guarantee that you will make enough money off what you sell in order to stay profitable.
If you’d like to stay profitable and cover your increasing payroll costs, these eight tips are sure to help you out:
- Find the Sweet Spot for Every Menu Item
Plate contribution is the amount of money you can take to the bank, as opposed to the food cost percentage that many restaurant operators focus on. The most effective way to maximize your plate contribution is to find the sweet spot for every menu item. If an item is priced above the sweet spot, you’ll have to deal with pushback, and face a declining customer base and negative comments on social media. On the other hand, if an item is priced below the sweet spot, there won’t be any pushback, but you won’t make enough money to stay profitable. And you are entitled to a profit. But if you hit the sweet spot for each item on your menu, your guests will still love you, they will buy the items more often and you will make enough money to cover the increased payroll.
- Manage Your Throughput
Throughput is the flow of products from the back of the house to the front of the house in your restaurant that can contribute to a higher profit per hour for your business. Since each item you sell has or should have a profit margin, or an amount of money it can generate when a customer visits your restaurant, you need to pay attention to which items you sell because not all items are equal in their ability to make you money. This is pretty easy to do because your guests want to know what you recommend, and so you have a lot of power over what your guests buy from you.
- Highlight Items That Make Extra Dollars in the Bank
When a customer walks into a restaurant, they aren’t completely sure what they would like to order. They often count on the restaurant to make recommendations. For this reason, you should make it a priority to highlight menu items that bring more money into your restaurant. If everything on your menu is good, and they’re asking you for your advice, pick an item that will generate a higher return on investment. These items are most likely whole muscle products like steaks, seafood and shellfish, so focus your highlights around those items.
- Sell More Appetizers, Side Dishes, and Desserts
You can safely assume that your customers will order an entrée. However, you don’t know whether they’ll order an appetizer, side dish, or dessert. These menu items are known as bookends and are important because they are incremental purchases. They do not carry any overhead unless they are being purchased in place of an entrée. Since an extra appetizer per server per hour can cover increased wages all on their own, you should make every effort to sell more bookends. One way to do this is to offer your serves a bonus for promoting those items. Keep in mind, your servers are coin operated, so if you place an incentive on items that generate additional income, they will try to sell those items for you.
- Take Advantage of Mental Anchoring
Mental anchoring is a cognitive bias that describes a tendency to rely too heavily on the first piece of information a consumer sees when making a decision. They use an initial piece of information in order to make subsequent judgements. Once an anchor is set, other judgements are made by adjusting away from that anchor. This leads to bias toward interpreting other information around the anchor.
When a customer comes into your restaurant and notices a very expensive item on your menu, all of a sudden all other items appear inexpensive by comparison. To take advantage of mental anchoring and how humans often think, simply add an extremely expensive item to your menu. For example, if you add a trip for two to China with the chef for $30,000, all of a sudden, a $60 filet mignon can look cheap by comparison.
I cannot stress enough how important it is to use this very important tool on your menu. A number of years ago, American Demographics Magazine which is now a part of Advertising Age did a study on spending in restaurants, and they discovered that there is one time in a person’s life when they are most likely to spend the most money in your restaurant. And that’s the day they buy a house or car or any expensive item. What they discovered is that the consumer compares the expensive purchase to the cost of the items on your menu, and the price of your most expensive item compared to the cost of a house or a new car is really not that expensive.
To make this work for you, just be a little creative and offer an item that includes something ridiculously expensive like a car, a house, a trip or even jewelry to kick the price up over ten grand. In this way, your guests will anchor their purchase decisions to the higher number and will be more inclined to spend more in your restaurant.
- Feature Menu Items
On a weekly basis, talk to your distributor to find out which menu items are on sale. This way, you’ll know which menu items to feature. If pork chops are on sale one week, feature a meal of center-cut, grilled bone-in pork chops and roasted vegetables.
When it comes to pricing featured items, be sure that you are doing so in a way that offers a few additional dollars in income for your restaurant. By featuring items that offer a higher plate contribution and happy customers, you’ll be able to bring a higher profit per hour to your restaurant.
Just make sure the items they put on sale are of a high quality and have a high consumer value. If you put a feature item on your menu that has a lower plate contribution than other items on your menu, skip it. Because you do not want to lower your plate contribution.
- Train Servers to Focus More on Certain Items
Select an appetizer, entree, and dessert and reward your servers with 50 cents every time they sell one of these items. Again, servers are coin operated and respond to increases in pay and incentives, so paying your servers more money if they focus more on certain items is an extremely effective way to increase their productivity and your profits.
When my clients ask me how often you should be training your serves my instant answer is every minute of every day. Your job as a business owner or manager is to always be coaching your servers to make sure they are taking care of your guests, selling the right items and putting on a great face for your business.
- Improve Your Online Reputation
The importance of a good online reputation should not be overlooked. If your restaurant has low ratings on social media outlets such as Facebook, Yelp, OpenTable, and TripAdvisor, it is much more vulnerable to going out of business when your payroll costs increase.
Think about it. The only reason a customer may visit a lower rated restaurant is because it offers low prices. When the labor market increases these prices, the customer who visited your restaurant because of its low prices is unlikely to return.
According to a study by Harvard University, a $1 increase in minimum wage leads to an alarming 14% increase in the likelihood of closure for a 3.5 star restaurant, but that same dollar increase had no drastic impact for a top-rated 4+ star restaurant. This study makes it clear that lower-ranked restaurants with low prices will have a more difficult time surviving the increased labor costs of a higher minimum wage.
What Restaurants Could Learn From Ford’s Increased Wages
Many people believe that Ford increased employee wages because he wanted his employees to be able to buy his cars. This, however, is not true. Ford increased employee wages in order to reduce employee turnover and the production and car quality issues that come with it.
At first glance, having to pay your servers more money may seem like a negative change for your restaurant. However, when you really think about it, you’ll realize that by paying your servers more, you’ll be more likely to retain them and avoid the headaches and costs that come with high turnover. You’ll enjoy the peace of mind of knowing you have a team of motivated and productive servers and won’t have to worry about their work ethic or performance.
Putting It All Together
With payrolls going up, now is the perfect time to fully engineer your menu to make sure your restaurant is getting a higher plate contribution. Every dollar increase in payroll increases your chances of going out of business. To protect your business and your livelihood, it is essential today to make sure that every time a person sits down in your restaurant, you can make enough money to pay your people, keep the lights on, pay your bills and still make a little something for yourself. And keep in mind, you are entitled to a profit, and I would take that even further and say you are required to make a profit. Because if you don’t make enough money, you may be looking for work yourself (and let’s face it, after being a restaurant owner, nobody wants you to be looking for a job).