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THE LAW OF NUMBERS - MAKE MONEY BY REDUCING THE NUMBERS

Mar 14, 2016
Article #324
Author: Mel Jones

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I learned early in my career about the laws of numbers as it relates to managing costs; cost of running a business to be exact.  I'm not talking about money per se, I'm talking about the number of items one must keep track of in a business.  In the restaurant business I'm talking about the number of ingredients and liquor, beer and wine items needed to make a finished product. That's where most people just don't understand the laws of numbers. 

As a former cost accounting manager, a position I held way back in the early stages of my career, one quickly learns that an organization's cost structure is closely tied to the number of items (or parts) it has to track, to buy, to stock, to maintain, to order, to pay for, etc.  The more the number of items in your business, the higher the cost structure to maintain those items. For example, a business having 100 items is going to have a lower cost structure than a business with 1,000 items. It takes more people hours to order those 1000 items, inventory them, use them, pay the bills for them, keep track of them, spoilage, theft, etc. 

So you're asking what does this have to do with the restaurant business, right!  Lots!  Do you know how many ingredients you have on your menu and in your kitchen?  Probably not!  Do you know how many beers, wines and liquor brands you carry?  Probably not!

The items a restaurant carries can dramatically increase or reduce the cost of running the business. The more the number ingredients on a menu, the higher the cost of maintaining that menu. The more the selection of beers, wines and liquors on your menu, the higher the cost of maintaining that inventory. It simply takes more people hours to maintain.  And in the area of food, spoilage is higher and well as theft with a business with a high ingredients count. 

Why carry 10 different Vodkas when 2 or 3 will work?  Why carry 30 beers brands when 10 will work?  Just pick the best sellers and your customers won't be disappointed. Or if you want to be unique, then pick the best brands and only carry those.  But reduce the number of brands of the same item you carry and costs will go down. 

Instead of having a menu with 400 ingredients, cut it down to 200 ingredients.  If that means simplifying your menu, then do it!

You're worried about losing customers!  If you produce the highest quality products, with great service and you simply have fewer choices for the customer, your customer will not bulk because they will love the higher quality.  

In fact some of the most successful restaurant chains keep their number of items low. Take Chipotle for example.  Chipotle carries less than 40 ingredients on their menu and each store sells no less than $2.3 million and earns the corporate office $620,000 per store.  Think that's an accident! 

And take La Super Rica in Santa Barbara, a restaurant Julia Childs made famous.  This restaurant has a line from 9am until closing.  They have perhaps 30 items on their menu, but probably only 30 ingredients in total. This restaurant only has 5 employees and does no less than $10,000 a day.  How do they do it?  High quality, fair prices, simple processes and low ingredients counts. Its easier to maintain the quality of 30 ingredients than it is 400 ingredients. 

If you don't know the number of ingredients on your menu and you don't know the number of wines, beers and liquor brands you're carrying, then no doubt your cost structure is too high.

Reduce the number of ingredients and brand.  Pick the best ingredients and brands and watch your business grow.

                                                                                                                                                                                                                                                      

Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry.  Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer.  Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world.  There he participated in more than $11.5 billion of merger and acquisition transactions.  He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University.  Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions. 


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