Sales forecasts are an essential part of an restaurant’s analysis of success and cost management. There are many theories out there about the best way to manage the sales forecast, but the one ShiftNote believes in is Pareto’s Principle, also known as the 80/20 rule. The rule is everywhere in a restaurant and can help restaurant operators focus on the most important contributors of success - profits!
What is the 80/20 Rule?
You have probably heard this factoid being thrown around in the media today – the richest 20% of the world’s population controls 82.7% of the world’s income. This is what started the 80 20 rule, founded by Italian economist Vilfredo Pareto when he noticed that 80% of Italy’s land was owned by 20% of the population. When he surveyed other countries, he noticed that a similar discrepancy between population and wealth was occurring.
The same thought process is applied in many different mathematical formats. In particular for restaurants and other business management practices, the rule says that 80% of sales come from 20% of customers. This rule is now adopted by many business executives as a tool to maximize business efficiency.
Examples of the 80% Rule in Action
Based on this principle explanation, you are probably already thinking of many different ways this could be applied in the economics of your restaurant. Here are some of the big examples of the 80 20 rule in action daily in your establishment.
- 20% of inventory accounts for 80% of costs of goods sold. Many managers focus on getting the cheapest price for the quality and quantity of goods they serve. They could spend a lot of time doing a cost analysis on major ingredients and trying to find the most affordable vendor available for the goods without looking at the use of goods in dishes or by servers and bartenders. Getting the best deal is not the most important thing, as evidenced by the 80 20 rule.
Perform a full cost analysis on all inventory that is used in your restaurant and break down how it compares to sale of menu items. You will find that 20% of inventory accounts for 80% of costs of goods sold. In this case, you want to focus on getting the best price for that 20% without sacrificing quality to ensure you are making the most profit.
- 20% of menu items sold account for 80% of profits. Similar to the rule above, certain dishes are going to be far and away your most popular. These will account for 80% of the profits.
Sometimes when there is a slump, managers will want to add new dishes to the menu or refresh the menu completely. While there is nothing wrong with getting inventive, you don’t want to have a menu that is bursting at the seam with options where your popular dishes get lost. And if you do want to reinvent the menu, it is important to either keep your most popular dishes or keep the core of the dishes and what makes them popular.
- 20% of servers account for 80% of sales. The rock star servers stand out in your waitstaff without a doubt. But did you know the top 20% of your servers will account for 80% of your sales. This means a couple of things.
First, you need to give your servers plenty of opportunity to grow, develop, and thrive in your restaurant. Listen to what hours they want and work your employee scheduling in a way that respects the waitstaff’s schedule needs. Provide some flexibility in their schedule as needed. When they have feedback and ideas on how to improve, listen to them and apply wherever possible! Second, get the rest of your waitstaff to the level of the 20% with the next rule.
- 20% of personal development accounts for 80% of retention. Turnover is a huge problem in the restaurant industry. Literally thousands of dollars are wasted by your restaurant every year with the turnover your establishment experiences. But investing a small amount of professional development training and resource opportunities can make a huge difference in your retention.
Hold regular training sessions for your staff to give servers the opportunity to learn from each other. Walk the line between appeasing unhappy customers and giving your servers respect and understanding when they have had a difficult night. Provide motivation with sales games and other incentives to reward excellence in their work. All of these support systems can help keep your staff intact and reduce costly turnover.