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The "30-30-30-10" Rule

In the restaurant business we have sales, and three main categories for expenses.

  1. Cost of Goods – this is the cost to purchase food and beverage.

  2. Labor Cost – this is the cost to pay your people.

  3. Other Cost – this is everything else, stuff like rent, insurance, maintenance and marketing.

When we subtract expenses from sales we should have some money left over, that is called PROFIT.


The goal of the 30-30-30-10 is to spend:

  • 30% of sales on Cost of Goods

  • 30% of sales on Labor Cost

  • 30% of sales on Other Cost

  • This should yield a 10% Profit.

Your costs may not be exactly 30% in each category, but if you are a little high in one area, you will have to be lower in another to achieve the 10% profit.


Let’s imagine you have an amazing location with high rent or mortgage. You will most likely have high other cost (let’s just say 33%). This means your labor or cost of goods will need to be lower than 30% if you still want to achieve the 10% Profit.


Some restaurants have really low rent, which allows them to run a higher cost of goods or labor cost. The combinations are endless. The problem is that most restaurants can’t find the right balance and therefore they never make money.


I know that some of you are squirming in your seats right now, saying

something like – EVERYBODY KNOWS THIS… this is rookie stuff…


OK – I agree with you. Because you are right, this is rookie stuff!


But here’s my challenge to you… Take out your P&L Statement and see what your numbers are?

  • Are YOUR numbers in line with the 30-30-30-10?

  • Does your restaurant actually have a 10% Year to Date Profit?

  • Did you TAKE HOME 10% of your sales last quarter or last year?

  • Did you write yourself a check worth 10% of your sales last year?

If the answer is YES, That’s fantastic! You are a WINNER in the PROFIT Game. If your answer is NO… please stick with me for a bit longer…


I really want to help you achieve the Gold Standard – a 10% Profit.


Let’s drill down a little and take a deeper view of each expense category:


First is Cost of Goods is the easiest of the three to manage because YOU design the menu, you decide what the recipes will be, you design the portion sizes and the prices. If you design a menu that should yield a 30% cost of goods, why would your cost of goods every be high? That’s the really good question isn’t it?

It turns out that there are three thousand reasons why your cost of goods could be out of whack and they include buying at the wrong price, over portioning, spoilage, theft, giving away free stuff as you know the list goes on and on and on and on. BUT - The real reason is POOR leadership and WEAK management.

Come on, it’s the truth - You know it and I know it.


Then, we have Labor Cost. This is the hardest one to manage because of the human element. The biggest weakness in restaurant owners and managers is also our biggest strength, we LOVE people and want to please them.


This is the dichotomy that leads to high labor cost. We like our people and want them to be able to feed their family. This love affair must go both ways, they must want us to succeed too. Do your people want you to win? Do they know what winning is? Do your people know what you financial goals and challenges are?


It's really funny because most restaurant employees have no idea what things cost. Most restaurant employees – think the owner is RICH! And can therefore pay them more money!


Then Finally, we have Other Cost, which is everything else. This is rent or mortgage, utilities, insurance, trash removal, legal fees, accounting fees, licenses. These things are pretty much set before you ever open the restaurant to the public. Then you have some flexible OTHER costs that can vary month to month like china, glass and silverware, disposables, linen, cleaning chemicals and marketing.


Now that you understand what the three main cost areas are… You simple need to make it happen.


Managing the Money is really pretty simple – Sales must be 10% Larger than Expenses.


Think about this. You are the owner of a restaurant. You control everything that happens inside your restaurant walls. You control the menu, and the prices that you charge. You control who gets paid and how much they get. You signed the rental agreement or mortgage papers. You are the leader. Why would you ever let costs get out of control?


It all comes down to level of acceptance and level of expectation. What are YOU willing to accept as a restaurant owner?


Controlling costs involves making tough decisions of what stays and what goes? Be sure to choose wisely and above all – DON’T GET SO CAUGHT UP IN CUTTING AND SAVING MONEY – THAT YOU SAVE YOURSELF OUT OF BUSINESS! (Hey, this happens every day).


Let's go back to the P&L Statement...

Here’s something that absolutely blows my mind. One of my purveyors recently told me, that more than half of ALL of the restaurant owners and managers they sell to – get ready for this:


MORE THAN 50% OF RESTAURANT MANAGERS AND OWNERS = DON’T HAVE A P&L STATEMENT…


I asked ARE YOU SERIOUS..? YES – he said he was serious. I almost passed out!

I was in shock… I couldn’t believe it.


Why would someone invest hundreds of thousands of dollars into a restaurant and not have a budget or a P&L? How could someone run a business without knowing what sales and expenses are?


OK, OK, I know what you are thinking now… You are a restaurant owner and you do have a P&L and you do use it, (Your just not at 10% Profit yet).


This brings me to my next question…

  • Do your MANAGERS have access to the numbers on the P&L?

  • Do your KEY PEOPLE have access to the information on the P&L?

  • Do they (or) are they using this information to improve your business?

Here’s another question…

  • What’s the difference between someone who can’t read AND someone who doesn’t or won’t read?

How about this?

  • What’s the difference between someone who knows their numbers and someone who doesn’t do anything with the information?

  • Do your MANAGERS have goals, targets or budgets for: Sales, Cost of Goods, Cost of Labor, and Other Costs?

  • What about PROFIT Goals?

  • Do your key people share in the profit of the restaurant?

Let's go back to the "Gold Standard"...

My goal is to help you build a financial system that will yield a 10% profit - the Gold Standard in the restaurant business.


My goal is for you is to have a ZERO accounts payable balance, and take home 10% of your net annual sales, year after year after year.


This Fundamental is a simple black and white science. To make a ten percent profit your sales must be 10% greater than your expenses. If you are already doing this, you are a rock star! If you are not, I will show you the way.


80% of all restaurants in America are struggling to pay their bills, they survive by robbing Peter to pay Paul. 15% are making some money AND only 5% are achieving the gold standard of 10% take home profit.


A Ten Percent – TAKE HOME Profit: A 10% profit may not seem like much of a profit to you, but do you know that the profit of an average McDonalds is only about 5%?


AS YOU THINK – SO SHALL YOU BE: In the 1600’s (only 400 years ago, people believed the Earth was the center of the universe – Wrong!


300 YEARS AGO SOME People believed the world was flat – Wrong!


On May 5, 1954, the world record for running a mile was four minutes and one second. Running a mile in under 4 minutes, was considered impossible, because people were not designed to run that fast. On May 6, 1954, Roger Bannister ran the mile in 3 minutes, 59.4 seconds. The world learned that running the mile in under 4-minute mile was possible. Over the next year, Bannister’s record was beaten, several times. As of this writing, the record is 3 minutes 43.13 seconds, almost 17 seconds faster than the impossible.


I’m here to tell you that earning a 10% Profit in your restaurant is POSSIBLE – IF you make it a priority and build a money management system to make it happen. Think about it - you are the boss, you are the leader, it’s up to you to set the goal and make it happen.


In cooking, we use a specific recipe for each dish, in business the recipe is called a system. When our cooking knowledge and skills improve, our dishes become more consistent and more delicious.


The same thing happens with a money management system, when your money management systems improve, your profit will improve.


Most restaurant systems are designed to lose money. The only thing holding you back from making a 10% profit – is your thinking.


HERE’S THE THING:

Most restaurants are DESIGNED to break even or just GET BY…

The problem started long ago – on the drawing board. Most restaurants have been flawed since way before they ever opened.


Most restaurant owners don’t have a SERIOUS BUSINESS PLAN! Most restaurant owners started out as ARTISTS and ARTISTS don’t need a business plan…


Da Vinci didn’t have a business plan… It just sorta happened, it always just sorta works out – doesn’t it? I don’t know about you – but I’m not smart enough to just make this stuff up as I go, I need a PLAN! And, my people need a plan…


I need to study the numbers and the trends. I need to work my ass off to keep everybody up to speed and on the same page… I have a P&L, and a Budget and a forecast. I know exactly what my sales are everyday, compared to last year. I know that sales in both of my restaurants were up 13% Last Year!

What about YOU? Do you know your numbers, Do you write yourself a 10% Profit check every month?


My goal is to help every restaurant owner – make a 10% Profit – every month!

In conclusion:

The restaurant business is one of the toughest businesses on Earth. BUT – It’s NOT Rocket Science.

The restaurant business is actually a very simple business. We buy food, we make it taste great, we sell it for more than we paid for it – SIMPLE!


There are very specific steps that we use to achieve success. Everything about the restaurant business is simple and easy do. The problem starts when customers walk in the door.


It’s difficult to keep all the balls in the air. Managing the money is usually the last thing creative chefs, mixologists and restaurateurs want to think about.


Money management is easy, SALES MUST BE GREATER THAN COSTS.

Once you hit the break-even point 60 cents from every dollar will fall to the bottom line as profit!


LET ME SAY THAT AGAIN – Once you hit the Break Even Point 60 CENTS of every additional dollar will fall to the bottom line as PROFIT!


So, that means - Whenever you want to earn more money – All you have to do is increase sales, the increased sales will increase your profit.


You may have a warped belief system; you may believe that you are supposed to struggle because the restaurant business is hard.


The fact is that every restaurants has a money management system. Your money management system is perfectly designed to earn the amount of money that you earned last month.


80% of restaurant money management systems are designed to break even or lose money.

15% are designed to make a 5% profit and 5% are designed to earn The Gold Standard – a 10% Profit… I want to help you get into the TOP 5%...


HOW DO I GET THERE?

The Truth is there is no one size fits all solution. You need a system to achieve the 30-30-30-10.


If you had the knowledge and ability to build such a system, you would have done it by now.

You need a coach to help you get strategic and build a Professional Money Management System.


You need a coach who knows how to build such a system. My name is Peter Harman – I am the Food Guru - My Goal is to help you Build a Better Restaurant.

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