OwlOps’ Post

Transcript

How many hours of the day should a restaurant be open? If you're closed, you can't make sales. But if you open and you're not making enough sales, you're losing money. So making that right decision about when to be open and when not to be open can literally make or break your business. It is a fundamental and incredibly difficult question to answer, and it's not always just about the math, but thankfully there is a relatively straightforward mathematical formula that you can apply to be able to make the best decision possible. If you own a franchise restaurant, you might not have as much flexibility here because the franchisor might have told you exactly what hours you have to be open, but you may still have flexibility in terms of. How many people are staffed during certain hours in this formula can still help you answer that question. Now in business, you have fixed and variable costs. Fixed costs are things like rent. It's usually the same month to month regardless of the amount of sales that you're making. Although in some situations you may have to pay a percentage of your sales, in which case rent is actually a variable costs. And a variable cost would be something like food. It can go up and down month over month depending on how much food you're actually selling. You can also have costs that are considered mix where there's a fixed and variable component, something like a utility bill, you probably pay some sort of like connection charge just to be hooked up to the. System and then you also pay for your usage. So understanding these different types of costs is step one to being able to figure out how many hours you're restaurants should be open. The next step is to understand what your gross margins are. For example, if you sell a burger for $5 and it cost you $2 worth of like food and paper and condiments to serve that burger, your gross margin on that burger is $3. Once you understand on average what your gross margin is, you're ready to do some math. In purely mathematical terms, you should be open for as many hours as possible where being open is generating enough margin to cover the variable costs of. Being open for this calculation, you just wanna focus on variable costs because you're going to have the same fixed costs regardless of how many hours you're open. So let's do an example if you're trying to decide whether or not it makes sense to stay open past 10 PM. Currently you're open until midnight, but you have a feeling it might make sense to cut those hours back. From the hours of 11:50. You have $750 in sales and make 70% gross margin. That means you make $525 in margin that can be applied to your other costs for variable costs and just the variable costs of being open. Those extra two hours you have to worry about things. Labour and utilities. Let's say there's $250 in labor for those two hours, $50.00 for extra utilities, and $50.00 for other upkeep and wear and tear related to being open those extra hours. That means the total variable cost of being open those two hours are $350.00. Now if you subtract the $350.00 in variable costs from the $525 in gross profit, you're still left with $175 and that's $175 that can be used towards things like rent and insurance. And as you can see in this example, even though you're not making a ton of money being open those two extra hours because you're still covering your variable. Ross It still makes sense to be open those additional hours. So regardless of what type of business you are, if you're open to the public, this formula can help make sure that you make as much money as possible.