A 3-step approach to boosting café profits
Running a café means keeping a tight ship, writes Renae Smith. So here’s a three-step plan of action to boost profits and get your ship pointed in the right direction.
Cafés, for anyone who doesn’t own one, have a reputation of being incredibly profitable businesses. Most people look at the surface operations and compare the cost of what they pay at home for a piece of toast or a cup of coffee and assume that the profit margins of their local café must be through the roof.
While gross profit margins of cafes in Australia average at 65-70 percent (according to ATO industry benchmarks), the net profit for a café is only around 10 percent, with the additional 55-60 percent margin all but wiped out when you pay things like rent, wages and the cost of the assets you need to operate.
So if you run $450,000 through your register each year, you’re likely to only be left with only around $45,000 to pay loans, do repairs, and consider paying yourself something.
How then can you help your business beat the averages and increase your profit margin?
Chart your cash flow
We say it all the time but keeping a watchful eye your finances and understanding what is happening in your business accounts is essential to identifying problems, opportunities, strengths and weaknesses. If you’re worried about your profits, you should be checking your Profit and Loss Statement at least weekly, and if you’re not sure what you’re looking for, sit down with your accountant and get their help.
You need to understand your percentages of profit, costs of goods sold, wage expenses, rent and other items you’re spending money on. The benchmark survey from the ATO gives you an idea of what other companies are spending, but you need to work out where your money is and identify areas that need work.
And while checking your finances may not immediately grow your bank account, understanding where your money is going helps you refine your business practices and give yourself the best chance of success.
Use the figures to fix things
Once you’ve worked out what’s not working, it’s time to look at what is working. Understanding what it costs to make certain items on your menu and then identifying the profit margin of selling those will very quickly show you your ‘best performers.’
Menu items that are ‘selling like hot cakes’ and have high profit margins are your golden ticket to profit success. On the flip side, menu items that cost a fortune to make and only sell every now and then should be shown the door.
Another figure you’re going to become familiar with are your wage expenses. Wages are no doubt going to be flagged up as a pretty hefty bite out of your profit cake.
A lot of businesses panic when they see this and immediately start cutting staff or run on ‘skeleton staff’ until they hope their profit margin is looking better.
This can actually be a very costly mistake. Simply cutting staff without a real plan can cause the service standards at your venue to drop, wait times to increase and customer satisfaction to plummet – leading to less sales than you had before. Instead of cutting at the first sign of trouble, why not take a more measured approach?
Focus up, not down
Instead of focusing on cutting down, focus on selling up. Try making a commitment to do all that you can to increase sales each day. A great motivator is to compare week-to-week financials and always try to beat the previous week’s sales – even if only by a small margin.
Speak with your staff and remind them of the importance of consistency. Good food, good coffee and good service all promote word of mouth and repeat customers.
Upselling is a simple tool that is often underutilised, as people wrongly assume it has to be aggressive.
Simple upselling to larger drink sizes, offering takeaway items with takeaway coffees or adding small additional sides to dine-orders can be a minor change that, over time, really helps the bottom line.
Another great way to increase customer spend is to bundle items. Do your sales records show that many items are often bought together? Why not create a special deal with some of your high profit items (such as a coffee and a bacon and egg roll) which will encourage the items to be bought together more frequently. You could also encourage repeat customers with loyalty programs, VIP events, keep cup exchanges, or gift cards.
Ultimately, however you attempt to increase your sales will depend on your specific venue and customer base. But, by shifting the focus up instead of down, and working out where you can refine your business practices, you may find things begin to improve quite quickly.
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