Examination of Revenue Sources

A recurrent theme of this book is that effective RMs use accurate data and their own insight in the application of disciplined tactics that predict buyer response to prices, optimize product availability, and yield the greatest profi ts. To do that, foodservice RMs must fi rst have a clear understanding of how their operations generate income. As a foodservice RM, there are a variety of ways you could assess the sources of your revenue. In most cases, however, your income analysis efforts will be focused on one (or more) of the following:

· Revenue centers

· Day parts

· Service styles

Those RMs undertaking revenue center analysis typically seek to answer two important revenue source–related questions:

1. What was the dollar amount of revenue generated by each revenue source?

2. What proportion of total sales was contributed by each revenue source?

To calculate the proportional contribution level of each revenue center, the following formula is applied:

Revenue center sales/Total revenue = Revenue center contibution %

For RMs operating multiple revenue centers, the ability to better understand the relative contribution of each center can be critical to assessing and evaluating income-producing effectiveness.

To calculate the proportional contribution level of each day part, apply the following formula:

Day part sales/Total revenue = Day part contribution %

You have now learned how to closely examine where your revenue is generated (revenue centers) and when it is generated (day parts). In many operations, it is just as important to analyze the service format utilized for revenue generation. Historically, a traditional restaurant served its guests in a dining room or other dining area. Dine-in service still constitutes a major delivery style. Increasingly, however, alternative service styles are popular with diners. Drive-through and carry out, also known as take-out or take-away services, may be important forms of revenue generation for your foodservice operation. If that is the case, a regular appraisal of the revenue contribution of these alternative delivery sources will be an important part of your RM duties.

 

Measurement of Revenue Change

It is fairly easy to see why reducing foodservice expenses in an effort to optimize profit is so often a failing strategy. There are two main reasons this tends to be so. In the typical expense reduction plan:

_ All savings achieved are intended to go to the seller.

_ The actions producing the savings typically reduce buyer’s value.

You have learned that revenue generation and thus changes in foodservice revenues can be viewed as being driven by the number of guests served and the amount purchased per guest (check average). The impact on revenue is less clear when an increase in guests served occurs in conjunction with a decrease in check average, or when a decrease in the number of guests served is accompanied by an increase in check average. Because that is true, foodservice RMs must monitor sales both in terms of dollar sales and the number of guests served. In both of these mixed-results cases, an overall revenue increase is to be desired if profits are to grow and if concurrent increases in expenses such as food and labor are to be absorbed without profi t reductions. Note that this is very similar to the situation in the lodging industry, where RMs must simultaneously monitor occupancy and ADR if they are to accurately assess total revenue generation.

Assessing Revenue Increases:

This year total sales - Last year total sales = Total sales difference

 

Evaluation of Revenue-Generating Efficiency

One of the many challenges facing foodservice RMs relates to the identifi cation of the specifi c factors that will indicate the presence of effective revenue optimization strategies. Recall that revenue optimization consists of disciplined tactics used by RMs to predict buyer response to prices, optimize product availability, and yield the greatest profi ts. Creative RMs can assess their ability to optimize revenues in a variety of ways. For most foodservice RMs, however, a comprehensive assessment of their operations’ effectiveness means evaluating the three key revenue-related factors of facility usage, labor usage, and capacity management. How RMs measure and interpret performance in these three important areas is addressed in the remaining portion of this chapter.

Revenue per Square Foot

The formula used to calculate revenue per square foot is: Total revenue / Total square footage occupied = Revenue per square foot.

Revenue per Labor Hour

The formula for computing this measure of labor productivity is: Total revenue / Labor hours used = Revenue per labor hour.

Revenue per Available Seat Hour (RevPASH)

The formula for RevPASH is: Total revenue / Available seat hours = Revenue per available seat hour (RevPASH). To calculate RevPASH, RMs must be able to identify the number of diners served each hour, as well as the amount these guests spend (revenue).