3 Profit-Killing Mistakes Restaurants Are Making in 2020

The restaurant industry has lost $120 billion in revenue since the start of Covid-19 according to a survey conducted by the National Restaurant Association¹ — and the worst is yet to come.

It’s predicted the restaurant industry will lose an additional $120 billion by the end of 2020.

Even now, as all 50 states have reopened at some capacity, 75% of restaurateurs believe it is unlikely their business will be profitable within the next 6 months.

In fact, 66% of restaurants currently open for takeout and delivery think it’s too soon from a public health perspective to reopen their dining rooms and 55% of those restaurants believe there are not enough customers to justify reopening.

If you’re a restaurant owner considering takeout and delivery or reopening your dining room, it’s extremely important to your business’ survival to rethink your operations to maximize already razor-thin margins.

Unsure of where to start? Here are three mistakes we see many restaurants making and tips on what to do instead.

1. Focusing on the wrong digital channels

Many restauranteurs make the mistake of playing it small when it comes to their online presence. They dabble a little on multiple platforms but fail to go deep on any one or two in particular.

However, using the 80/20 principle popularized by best-selling author, Perry Marshall, it’s likely that 80% of your revenue is coming from 20% of your customers. So Instead of trying to be everywhere, focus your digital presence on where you’re getting the most return.

Take a look at your website analytics and find “referral URLs.” That translates to “what website did people come from before they landed on yours.”

Chances are, many of your visitors are coming from the first 2 or 3 URLs on the list. Invest your time and resources on maximizing the experience on just those websites or platforms.

If for example, Instagram is at the top of the list, take a look at your last 40 posts and find out which ones have the most engagement. Take note of what you said or featured in those posts and do more of it.

More importantly, make sure every post has a call-to-action. Whether that’s linking to an order page on your site or providing your phone number. Never make people have to figure out how to give you money.

2. Not paying attention to reviews

On average, a one-star increase on Yelp leads to a 5–9% increase in a business’s revenue. While one negative review on average can cost you about 30 customers². Let that sink in.

While you can’t control everything people say about you, you can definitely influence how often people leave reviews and what they leave reviews about.

Since we’re on the topic of focusing your resources, get people to leave reviews for the dishes that make you the most profit. Not to be confused with the dishes that are most popular.

Every time someone orders one of your high-margin dishes, encourage them to write a review about it by offering them a time-bound incentive.

For example, your server could say something like “Great choice. The lobster roll is my favorite. Actually, we’re running a promotion right now where if you leave a review and mention your lobster roll on Google before the end of your meal, just show it to me and you’ll get a free slice of pie.”

Before you know it, you’ll have people coming in knowing exactly what they want — the lobster roll.

3. Placing items on the menu with no real pricing logic

If a guest somehow managed to miss the raving online reviews about your high-margin item, increase the odds of them ordering it with smart menu design.

A well-engineered menu can drastically increase your profits by subconsciously influencing what people order.

If you haven’t already, list your costs for every single item on your menu (excluding labor costs). Then on a scale of 1–4, use data from your POS to rank each item by popularity.

Organize every item into one of four quadrants:

1. High profitability & High popularity
2. Low profitability & High popularity
3. High profitability & Low popularity
4. Low profitability & Low popularity

Now consider the following when deciding where to place the items on your menu:

People naturally gravitate to items that are highlighted in red Our eyes gravitate to the middle of a menu first, then the top right corner, then the top left corner Placing a high-priced item next to your cheaper but higher-margin item makes your higher-margin item seem affordable by comparison The sweet spot is 7 dishes per section People subconsciously order the top 2 items in a section more often Additionally, consider investing in a digital menu that guests can access from their phones. It’s an easy and money-saving way to make these updates to your menu on the fly without the added cost of constantly printing new ones or the worry of complying with ongoing COVID health regulations.

While we all hope the havoc of COVID will soon be over, focus on fixing these mistakes to set your restaurant up for success far into the future. It’s just good business sense.

Sources

¹ https://restaurant.org/articles/news/study-finds-coronavirus-still-devastating-industry

² https://www.invespcro.com/blog/the-importance-of-online-customer-reviews-infographic/