Revenue Management 102: Busy Restaurant | Slow Restaurant
This is the second in a series of articles about managing revenue in full-service restaurants. The first article in this series goes over many of the key terms and core concepts discussed in this article.
Click here to read them all.
Because RevPASH is the most effective metric at simulating the revenue for your restaurant, it is the most valuable metric to use to evaluate revenue management decisions. It’s important to remember that you can directly impact Average Check and Turn Time while RevPASH effectively combines these two metrics. Revenue Management strategies differ significantly for a busy restaurant, versus a slow restaurant.
Busy Restaurants and Slow Restaurants
Slow restaurants are what economists call “demand-constrained” because their revenue is constrained by the number of guests who demand their product. Slow restaurants consistently have empty tables during peak hours or struggle to fill the restaurant on a consistent basis.
Busy restaurants are what economists call “supply-constrained” because their revenue is constrained by their ability to supply the amount of product their guests demand. Busy restaurants consistently fill all of their tables during the peak hours of most days, have to run waitlists for their walk-in guests, or have bars that rarely have an empty seat.
Busy restaurants and slow restaurants require different revenue management strategies because in a slow restaurant there is no opportunity cost to longer turn times: if there isn’t a guest to fill an occupied table, then there’s no benefit to speeding up the guests that are already there. In a slow restaurant, your number one focus should be on growing cover counts. Restaurants work best when they're busy: employees are motivated by the challenge of a busy service and guests happier in a lively and engaging environment.
However, in busy restaurants, there is an opportunity cost to longer turn times, if there are guests waiting to fill an occupied table, then there may be a benefit to speeding up the guests who are currently occupying that table[1]. This is true because not every incremental order [2] is profitable. We can compare and evaluate these choices using RevPASH. If the time it takes to execute [3] an incremental order has a lower RevPASH [4] than your average RevPASH, it is (from a revenue perspective) an order you should avoid taking; if it's the same or higher than your average RevPASH, then it’s an order you should actively encourage. Busy restaurants should aim to serve as many guests as quickly as possible because there are guests who demand their products that they are unable to serve. For example, it may be more profitable to discourage desserts (an incremental order) and seat the next reservation than it is to upsell desserts and make the reservation wait longer for a table.
It may seem counterintuitive to not upsell desserts, as this is a tried-and-true restaurant sales tactic, but in the following posts in this series, we will use RevPASH to quantify the cost and benefit of different revenue management strategies, providing hard numbers to describe how you can use the powerful levers of Average Check and Turn Time to proactively manage both your top and bottom line.
Continue checking back here to read the rest of our series on revenue management.
[1] It’s important to note that revenue is only one factor of running a restaurant that needs to be considered when making decisions. All revenue management strategies should be weighed against the impact they have on other factors that drive success in your restaurant, including your guest’s and employee’s experience. Understanding what the balance between these and other factors depends on a number of factors that only you know, and thus the revenue management strategies we describe should always be implemented on a restaurant-by-restaurant basis.
[2] An order could be a whole meal, or just a single meal-part, like dessert.
[3] Take, place, deliver, and consume the order.
[4] Here calculated by taking the revenue from the order divided by number of seats at the table divided by time it takes to execute that order.