ELECTRONIC HOUSE CALL - February 5, 1999

DOLLARS AND SENSE
Recently I was consulting with a restaurant that had been losing 40 cents on the dollar for a number of years and the owners were tired of writing checks! The challenge was how to sensitize the staff to the situation without creating mass panic among the troops or revealing figures that were likely to find their way into a feature article in the local paper.

Before we started my first meeting with the staff, I asked them all to write down what percentage of the sales dollar they thought was profit. Then I gave them each $1.00 in change and we started to talk restaurant economics. The dollar represented a dollar in sales (they understood that) and they also understood that there were expenses against it. Reading from the NRA's Restaurant Industry Operations Report, we started "paying the bills" using median figures for full service restaurants -- 35 cents to food, 30 cents to labor, 5 cents to benefits and so on by dropping the coins into a cup. They were shocked to end up with 3 cents . . . and that was pre-tax profit!

Then I had them take the money out of the cup and talked about the results that their restaurant was achieving. We started with 50 cents for food and 50 cents for labor. Then I said, "OK, now we have to pay the rest of the bills -- utilities, telephone, rent, etc. -- so we need another 40 cents. Drop it in the cup. If you don't pay your bills, you can't stay in business." As their eyes got wide with panic, I gave the situation time to settle in before pointing out that when the income doesn't cover the expenses, you have to use your own money to stay in business . . . and that the owners were tired of it. They got the message loud and clear and started asking what they could do to help stop the bleeding.

I pass this along in case you want to conduct a little economics class of your own. In my experience, unless you educate them to the contrary, most restaurant workers think you make 25-50 cents on the dollar! By the way, the person who guessed closest to the right answer on profitability got the dollar's change from everyone at the meeting . . . and the restaurant's profitability picture has improved markedly in less than a month!

Have fun!

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