Maximizing revenue is crucial for restaurants, especially amid challenges like inflation, labor shortages, and shifting customer behaviors post-COVID-19. Effective revenue management through tactics such as menu engineering, inventory tracking, and digital staff scheduling boosts both sales and profitability while enhancing customer loyalty. This text explores key strategies and the use of integrated revenue management software for sustained growth.

What Is Restaurant Revenue Management?

At its core, revenue management helps restaurant owners maximize the revenue potential of their restaurant, or restaurants. In practice, restaurants use revenue management strategies and tactics to improve how they manage inventory, supplier management, food pricing, marketing, employee scheduling, and more. Crucial to their success, restaurant operators need to connect efforts to drive top-line sales with cost efficiency in those areas: It wouldn’t help the business to promote sales of low-margin items — or worse, loss leaders — because that would result in rising revenue but falling profits. In short, revenue management tactics are meant to increase customer satisfaction, loyalty, and repeat business, as these are the pillars of a successful and profitable restaurant.

The revenue management practices restaurants employ today were inspired by the airline and travel industries, which have been using data analytics and revenue optimization tactics like dynamic pricing to boost sales and profits for decades. For their part, restaurant owners have developed a number of industry-specific revenue management techniques, from augmenting reservation systems and table turnover times to offering strategic discounts and customer promotions that limit revenue falloff during low-demand periods — think happy hour.

Restaurant owners are increasingly adopting a software-based approach to revenue management. This is especially valuable for restaurants with multiple locations, or franchises that need to manage inventory, staff, logistics, and customer services across a number of properties.

Key Takeaways

  • Restaurant revenue management refers to the tactics and best practices restaurants employ to maximize their top-line sales.
  • Ideally, revenue management should also increase a restaurant’s customer satisfaction, leading to greater loyalty and the long-term improvement in financial success that that loyalty confers.
  • Effective revenue management tactics for restaurants include dynamic pricing, strategic menu engineering, customer loyalty programs, and digital inventory tracking.
  • An integrated approach to financial management, powered by cloud-based software, promotes data-driven decision-making that can help the business unlock more value.

Calculating Revenue for Your Restaurant Business

A restaurant’s revenue refers to the money it earns from the sale of goods and services. In most cases, this refers to the food and beverages a restaurant sells, both in person and via online orders or third-party food delivery sites, as well as sales of merchandise.

The simplest way to calculate revenue is to add up the total amount of money a restaurant takes in over a given period of time, be it a day, a month, or a year. For instance, a steakhouse with sales totaling $20,000 on a busy Saturday can say that it generated $20,000 in revenue that day. However, while good to know, total revenue alone doesn’t provide a detailed understanding of sales and operations nor support strategic business decisions. That’s why many restaurants measure more precise key performance indicators (KPIs), such as revenue per available seat hour (RevPASH) and average revenue per square foot.

RevPASH shows how much money is generated by each seat in a restaurant’s locations. To measure it, the restaurant first calculates its number of seat hours, which is the maximum amount of time its seats could be filled during operating hours. Seat hours are calculated using this formula:

Seat hours = Number of seats in a restaurant x Number of hours it is open

Let’s say the aforementioned steakhouse has 150 seats and is open 12 hours per day, from noon to midnight. Its seat hours would be 150 x 12, or 1,800 seat hours.

Next, to calculate RevPASH for the steakhouse’s busy Saturday, divide its total revenue for the day ($20,000) by 1,800 seat hours, using this formula:

RevPASH = Total revenue / Seat hours

This calculation shows the steakhouse made $11.11 per seat per hour (20,000 / 1,800) on that busy Saturday. By comparing RevPASH values over the course of a week, restaurants can focus on revenue management tactics that will boost sales on days with lower RevPASH, perhaps by offering discounted pricing or attractive daily specials.

Given the high cost of rent, average revenue per square foot provides restaurants with insight into how efficiently they generate sales. Restaurant managers use this KPI, for example, to determine whether they should grow by expanding individual locations or open new restaurants to distribute demand. The formula for a restaurant’s revenue per square foot is:

Revenue per square foot = Sales for a period / Restaurant square footage

Revenue per square foot can be measured for any period, whether a day, a month, or a year. For strategic decision-making, it’s wise to look at monthly or annual revenue per square foot. Going back to our steakhouse, let’s say the restaurant occupies 1,200 square feet and generated $2.5 million in revenue last year. Its annual revenue per square foot would therefore be $2,500,000 / 1,200, or $2,083.33 per square foot.

It’s important to distinguish between a restaurant’s revenue and its operating profit, which refers to the amount of money left over from total revenue after the restaurant has paid off its operating expenses. The three main operating expenses for a restaurant are food costs, labor costs, and rent. Subtracting the sum of those and any ancillary expenses from gross revenue reveals a restaurant’s operating profit.

11 Effective Strategies for Restaurant Revenue Management

Effective revenue management helps restaurant owners strike a balance between customer traffic, sales, and service quality, so they can make the restaurant as profitable as possible, while meeting broader growth and business objectives.

No two restaurants are exactly alike, and each will adopt different tactics based on their size, goals, and the unique demands of their customers. That said, some proven revenue management strategies can help any restaurant improve its financial performance. Ranging from strategic menu design and ingredient selection to customer loyalty program selection, the 11 strategies below are worth considering as part of any restaurant revenue management framework.

1. Strategic Menu Engineering

Restaurants use strategic menu engineering to design, lay out, and price their menu items for maximum sales and profit. Despite it being one of the most critical revenue-driving mechanisms a restaurant can implement, less than half of restaurants use this tactic, and less than one-third implement it effectively, according to Menu Cover Depot.

In practice, strategic menu engineering involves the analysis of menu design, using a standardized menu engineering matrix first proposed in 1982 by Michael L. Kasavana and Donald I. Smith of the Michigan State University School of Hospitality Business in their book Menu Engineering: A Practical Guide to Menu Analysis. First, restaurant managers assess menu items based on factors like sales quantity, food cost, and price per item, and then group them into one of four categories: stars, plow horses, puzzles, and dogs. The categories help restaurant managers decide which items to keep on the menu, which to reformulate to drive additional revenue, which should be repositioned to inspire more purchases, and which could be dropped altogether.

  • Stars: highly popular and highly profitable. As the name implies, stars are worth keeping on the menu. Some restaurants might consider raising the price of their star dishes when rolling out their next menu to boost both their top and bottom lines. That said, it’s important to strike a balance between higher revenue potential and customers’ willingness to spend more money. If the price hike is too large, the popularity of star items might suffer — dragging down sales.
  • Plow horses: highly popular but low profit. Thanks to high customer demand, plow horses are dishes that could have significant profit-making potential. To unlock this potential, restaurants must think about ways to reformulate these items to improve their margins, whether that means using less- expensive ingredients, shrinking portion sizes, or raising prices. In executing any or all those approaches, restaurants should take care not to adversely affect quality.
  • Puzzles: not popular, but highly profitable. Restaurants want to increase sales of “puzzle” dishes because they generate significant profits with every order. The challenge is to make these items more popular. One common way to increase sales for puzzle dishes is to reposition or highlight these items on the menu to draw customers’ attention to them. For example, restaurants will commonly place high-profit items in the so-called “Golden Triangle” of their menu, which refers to three areas of a menu that customers tend to see first: the two top corners and the center.

    Other practices include offering puzzle dishes at a discount to increase sales volumes and, hopefully, show customers what they’re missing. Even simple tactics, like adding flourish to the description of puzzle dishes, can change the way customers perceive them when reading a menu. For instance, an Italian restaurant might change the description of its simple “pasta with tomato sauce” to “homemade egg pasta with tomato, basil and sage sugo” to make it sound more appetizing.

  • Dogs: not popular and low profit. Dogs are effectively dead weight on a menu and should be removed without question. Restaurants should replace these items with more profitable dishes that have a higher chance of appealing to customers. This typically involves experimentation, as well as more menu iterations. But the outcome should be more satisfied customers and higher revenue for the restaurant — a win-win scenario.

2. Capacity Management and Optimization

The goal of capacity management is to track and manage occupancy of the restaurant for maximum revenue and customer satisfaction. While some owners may dream of a crowded restaurant with lines around the corner, restaurant capacity management is about optimizing how many people dine at any given time so that every customer has enough space to enjoy their experience and leaves willing to come back. Below are three of the most common restaurant capacity management practices.

  1. Add capacity with more chairs, tables, and other options like bar seats or outdoor seating. Naturally, this only works for restaurants that have enough space to accommodate a higher volume of diners and enough kitchen space and staff to handle the additional orders.
  2. Extend the restaurant’s operating hours. For example, a busy restaurant that only serves dinner can start opening at lunch to spread out demand or offer a special late-night menu for customers willing to eat after the dinner rush. Though effective, extending a restaurant’s opening hours also entails additional food, labor, and inventory costs, so restaurants must weigh the pros and cons of this approach.
  3. Offer takeout and delivery or partner with third-party food delivery apps for these services. Takeout and delivery orders offer restaurants a high-profit, lower-cost way to increase sales without having to build extra capacity on-site. That said, takeout and delivery orders put extra pressure on chefs, who need to cook more food to meet demand, and requires restaurants to consider special packaging to guarantee the quality of their orders once delivered. It is also worth noting that charges from third-party food delivery companies will eat into a restaurant’s margins.

3. Dynamic Pricing Strategies

Restaurants implement dynamic pricing to maintain a steady stream of revenue throughout their open hours, thus strengthening the profit-making potential of every seat. Through dynamic pricing, restaurants set and adjust menu prices based on real-time market conditions such as customer demand, competitor pricing, and seasonal trends. Dynamic pricing can be applied within the course of a single day — for instance, offering early bird discounts and happy hour drink specials to attract more diners during afternoon hours — or in response to longer-term market shifts like inflation that can affect customers’ spending habits.

Implementing dynamic pricing often requires integration with a restaurant’s point-of-sale (POS) system. An increasing number of restaurants use software-based analytics to inform dynamic pricing decisions, combining data on food costs, inventory costs, customer demand, and other factors to set their prices in real time on digital menus.

4. Enhancing Sales Through Cross-Selling

The goal of cross-selling for restaurants is to encourage customers to purchase extras after submitting their initial order. For example, restaurant servers might highlight popular starters or desserts to their customers to complete their meals or suggest wine pairings to enhance their chosen dish. Some restaurants integrate cross-selling in their menus by printing wine and cocktail pairings alongside the dishes.

To maximize the revenue-generating potential of cross-selling, restaurants must train and equip their staff to cross-sell successfully. In addition to knowing the menu inside out, staff must learn how to promote high-profit items without appearing pushy, so they don’t turn valued customers away. An ideal training program will cover both the latest cross-selling techniques and the social skills required to implement these in a way that feels natural.

5. Optimizing Reservation Systems

While some customers reserve their tables in advance, others prefer to show up unannounced, hoping to find a free table in the moment. Optimized reservation management systems give restaurants the best chance of meeting the expectations of both types of customer. They also reduce the chances of no-shows, a situation that leaves revenue on the table. Equally as important, a well-tuned reservation management system helps restaurants serve and turn over their tables more quickly, which improves customer satisfaction and secures additional revenue during peak times.

Advanced reservation systems, such as OpenTable, Yelp, and Zomato do this through features like real-time updates on table availability and automated reminders. For example, up-to-the-minute table availability information lets restaurants manage both reservations and walk-ins by automatically adjusting seating charts, reducing the chance of overbooking. Automated reminders minimize the chances of no-shows by reminding customers of their bookings and giving them the chance to confirm or cancel. These and other features, like waitlist management, streamline reservation management, take the burden off restaurant employees, improve the customer’s experience, and help restaurants fill all available tables.

Optimized reservation management is particularly important during busy periods. If a customer makes an online booking but doesn’t show up or arrives 30 minutes late, the restaurant is stuck with an empty table and wasted revenue potential. To avoid this, some restaurants impose a maximum grace period of 15 minutes for customers before releasing their table to other diners. Others ask for customers’ credit card details as part of their online reservation and impose a penalty for last minute no-shows or cancellations.

6. Mitigating Revenue Losses

Even the best-managed restaurants can experience periods of lower-than-expected sales. To minimize the negative fiscal impact of revenue losses on the business, restaurants should always be aggressively managing their highest-cost categories. These include the costs of food, including ingredient inventory, and operating costs, which really means employees.

A restaurant’s cost of goods sold (COGS) includes the combined cost of every ingredient required to prepare its menu items. While optimal food costs vary according to a restaurant’s operating model and ambitions, as a rule profitable restaurants restrict their COGS to below 30% of revenue. To maintain this ratio, restaurants must constantly adjust their sourcing strategies and should manage ingredient inventory to avoid costly food waste from over-ordering.

Labor costs are often a restaurant’s highest expense, but they are also its most important. And with the restaurant industry facing major labor shortages, keeping quality staff is no small feat. The objective for restaurants should therefore be to treat -- and pay -- employees well enough for them to feel valued, which can reduce costly turnover. To achieve this while minimizing labor costs, restaurant owners can refine their scheduling to avoid overstaffing during quiet periods.

7. Stimulating Demand During Off-Peak Hours

People generally eat two to three meals per day, but dinner is far and away the most popular time for restaurant visits. Combine this higher traffic with higher-priced menu items and a spike in drink orders, and dinner rushes can generate two to three times more revenue for restaurants than any other meal during the day. But there are only so many “dinner hours” in a day. Therefore, the opportunity — and challenge — for restaurants is to maximize revenue per seat hour during off-peak periods, like late afternoon, when their doors are open but customer traffic is low.

A popular way to overcome this issue is by offering special pricing and promotions during less busy periods, such as early-bird meal specials and happy hour drinks. But there are many other creative ways to stimulate demand during off-peak hours. For example, restaurants can host cooking classes during slow periods, which not only generates revenue but also engages customers in unique culinary experiences that could potentially convert them into regular diners. They could offer co-working spaces to attract remote workers and freelancers during off-peak daytime hours. They could implement a loyalty program with bonus points for off-peak visits. Or they could create a “tasting menu” exclusively for off-peak hours, giving customers a high-end dining experience at a lower price point.

8. Implementing Effective Loyalty Programs

A loyalty program can help a restaurant engage more deeply with customers and drive repeat visits, which is key to long-term success. But restaurants also can use loyalty programs to boost revenue in the short term too. Loyalty programs typically fall into four categories: points-based rewards, item-based rewards, subscriptions, and promotions.

Points-based loyalty programs work by awarding customers a set number of points which are allotted every time they visit a restaurant and/or be based on how much they spend. Points can then be redeemed for future purchases. For example, a family restaurant might offer its loyalty program customers a $5 credit every time they collect 50 loyalty points. Or menu items might be offered for purchase with points rather than money. Digital and mobile apps are typically used with this type of program, as well as the other programs described below, to help customers track their points and manage their points-related transactions with the restaurant.

Item-based rewards programs are generally easier to understand and more straightforward than some others. They involve awarding customers a free menu item after they’ve made a set number of purchases. A classic example is a fast-food chain that offers its loyalty customers a free meal after they’ve purchased nine at full price. Another is the coffee shop with a policy that when customers “buy 10 cups of coffee, [they] get the 11th free.”

Subscription-based rewards programs usually involve customers paying a recurring fee in exchange for ongoing benefits, such as discounts or exclusive access, rather than milestone-based rewards. In early 2020, one casual restaurant chain offered loyalty program members an $8.99 monthly subscription for unlimited coffee. By the end of 2021, they had 600,000 subscribers who, on average, visited the restaurant eight times more often than nonsubscribers.

With promotional rewards, loyal customers are presented with coupons and offers that are applicable only before a set expiration date. For example, a local pizza shop might offer its loyalty customers 10% off all orders made before the end of the month. One Mexican restaurant on Long Island, N.Y., enrolls customers in its promotional program by asking for email addresses and mobile phone numbers when presenting the check. Then, on Fridays when it sees that weekend reservation bookings are low, it sends coupons via text or email for 10% or 20% off a dinner bill. Promotional offers can also help restaurants generate demand for high-profit menu items. For instance, a pizza shop could offer a $2 discount on its highest-profit pie to stimulate orders during off-peak hours.

9. Maximizing Revenue During Peak Times

Most restaurants experience peak traffic at dinnertime, between 6 p.m. and 9 p.m. In addition to daily peaks and troughs in activity, restaurants also see seasonal spikes. For instance, beachside restaurants on the Maine coast welcome more customers during the summer tourist season than during cold winter months.

Restaurant owners have multiple ways to maximize revenue during these high-demand periods. The simplest approach is to increase prices, which in turn means higher profit margins on every dish sold. Other tactics include tiering the availability of tables to favor high-spending regulars, implementing a cancellation fee for no-shows to avoid empty tables, and pointing couples or small groups to two-tops and bar seats. Furthermore, restaurants can increase the number of seats during peak hours by adjusting reservation pacing to minimize gaps between seatings, allowing for an additional turn of tables. And they can use menu engineering (see No. 1) to strategically place higher-priced items in prominent positions on the menu or offer them as specials, thus increasing the average check size.

10. Improving Operational Efficiency and Profitability

By improving the efficiency of their operations, restaurants make their businesses more profitable. But in the context of revenue management — which is about maximizing top-line sales — improving operational efficiency focuses on a much narrower problem set. Restaurants shouldn’t promote sales of low-profit items, like the plow horses discussed above, because success, in that case, would lower overall profitability of the business. Instead, this is where revenue management connects to operational efficiency.

A manager who sees a major opportunity to boost sales of a plow horse, for example, would likely first investigate how to lower its cost to improve margins. Can the dish be made with less-expensive ingredients? Can it be made more efficiently, with less kitchen labor? From ingredient sourcing to menu design and employee scheduling to inventory management, revenue management can help restaurants improve efficiency, brings down costs, and increase the number of items that can be sold at higher margins.

One of the most effective ways for restaurants with multiple locations to upgrade their efficiency is to integrate and bring consistency to their processes with a central technology platform, such as an enterprise resource planning (ERP) system. ERP software integrates data from multiple business departments and locations. With access to in-depth sales, revenue, inventory, customer, and employee data across every restaurant, owners can identify opportunities to streamline and bring consistency to their operations across the board and apply them to every location. In the case of one California-based coffee chain, employees have real-time visibility into inventory in their stores and in the company’s 20,000-square-foot Bay Area warehouse thanks to the use of an ERP system, which allows store managers to track and reorder stock with minimal effort or time wasted.

11. Cost Control Strategies

As just mentioned, the more a restaurant can lower its food, operating, and labor expenses, the higher its margins will be and the more profitable it will become over time.

One of the most effective cost control strategies for restaurants is inventory tracking. Tracking inventory data in real time helps restaurants purchase food in way that helps meet demand without creating undue waste.

Another popular approach is digital time-tracking for employees. By reviewing past labor schedules, restaurant owners can adjust upcoming schedules to maximize the productivity of their most valuable asset — their people — while holding administrative costs to a minimum.

Technology and Tools for Optimizing Restaurant Revenue Management

Digital technology has opened up a whole new realm of possibilities for restaurant revenue management. Not long ago, restaurants couldn’t do more than adjust their menus and pricing once or twice a year to align with the cost of ingredients and customer demand. With digital technology, however, restaurants can enjoy data-driven decision-making capability across their operation — and from moment to moment — to adjust pricing, promotions, and menu design, as well as inventory management and employee scheduling. These tools include:

  • Data analytics for strategic insights: The first and most important step in measuring a restaurant’s financial performance against its internal goals and industry benchmarks is to assess its KPIs. Tracking KPIs against strategic goals enables restaurant owners to better allocate time, resources, and staff to maximize revenue and customer satisfaction, while driving down costs and simplifying operations. For instance, tracking sales data to see which menu items are most popular, which promotions or sales tactics deliver the best results, and how sales fluctuate across different locations can provide insights restaurant managers can use to adjust their strategies.

    Successful restaurants analyze a wide range of data, including customer demographics, weather data, and social media sentiment, to understand where they stand and prepare for potential challenges. They also keep an eye on competitor performance and pricing to keep their own operations competitive in a fast-shifting landscape.

    One Midwest chain of quick-serve restaurants uses the data analytics capabilities of its ERP system to view and compare data across 10 restaurants, 10 real estate entities, and its central management operation. Decision-makers can use various food sourcing and labor management tactics to see how sales at different properties fare, then apply that knowledge across the group to instill consistency and cost efficiency into their entire operation.

  • Business intelligence (BI) systems: Restaurants use BI systems to collect, integrate, analyze, and present business information from various internal and external sources. BI systems can process structured and unstructured data, including historical and real-time data, which restaurants can use to inform decision-making and help realize their broader business strategies.

    While data analytics helps restaurants consolidate and uncover patterns in their data, BI goes further by providing comprehensive views of business operations — in other words, it can potentially guide restaurant strategies by providing visibility into what is most likely to happen in the future, based on what has and hasn’t worked in the past. That makes BI an invaluable tool for restaurant owners committed to improving the performance and revenue-driving potential of their restaurants.

    BI systems use a combination of advanced data visualizations, interactive dashboards, and detailed reporting to provide stakeholders with a comprehensive and easily digestible view of a restaurant’s performance and operations. To make the most of BI systems, restaurants should integrate them into their regular decision-making workflows. That means making BI dashboards available to decision-makers across a restaurant organization, from owners and managers to inventory and operations staff, all of whom can benefit from having reliable intelligence about their operations in a single, accessible location.

  • POS systems for revenue optimization: A POS system is the technology restaurants use to take customers’ orders and process their payments. POS systems combine hardware, like the tablets used by front-of-house staff to manage bookings and to take orders, with software applications that power crucial operations behind the scenes.

    For instance, POS systems help restaurants track and manage inventory. They also provide real-time data on customer behavior, menu performance, and sales. Ideally, this data also flows into a customer relationship management (CRM) system, providing restaurant owners with access to information that will allow them to successfully apply revenue management practices like strategic menu engineering, dynamic pricing, and loyalty programs.

  • Advanced CRM tools: CRM systems provide restaurants with a database of all their customer information. Using CRM data, restaurants can integrate sales, marketing, customer support, and other customer services to develop their customer strategies. Advanced CRM software also integrates with a restaurant’s POS system, providing decision-makers with valuable information on each customer’s history, favorite dishes, loyalty status, and more. The more that restaurant staff and stakeholders know about their customers, the better equipped they are to deliver tailored experiences that promote loyalty and sales, such as personalized cross-sell and upsell offers.

    Moreover, CRM systems allow restaurant marketing teams to accurately track and compare the results of their campaigns. With key data on the cost, engagement, and revenue generated by each campaign, restaurants can zero in on the marketing strategies that resonate most effectively — and cost-effectively — with their customers.

  • Digital solutions for seamless operations: A restaurant’s ability to various technology systems is essential to running an efficient operation. Integrating data from CRM, inventory management, and POS systems used by front-of-house staff is especially important for restaurants eyeing growth and expansion because they must juggle an increasingly large network of people, processes, and technology.

    Effective systems integration not only helps restaurants automate and improve talent, inventory, and revenue management, it also leads to greater customer satisfaction. Where fragmented systems lead to disjointed customer service and inconsistent experiences, an integrated approach helps restaurants align the key elements that make dining a pleasure, from thoughtful menu design and competitive pricing to simple reservation processes and unobtrusive capacity management.

How NetSuite Can Help Restaurants With Revenue Management

To stay competitive, attract and retain customers, and maximize revenue in an era of rising food costs and changing customer habits, restaurants need to implement processes and technologies that help their businesses become as flexible as possible. NetSuite ERP’s financial management capabilities provides restaurants, franchisors and hospitality groups with an integrated cloud-based platform that enables them to do exactly that.

NetSuite supports core back-end processes like financial management, inventory management, and procurement, and integrates these with daily restaurant operations like fixed asset management, franchise management, CRM, and POS technologies. It also consolidates data from all of these essential restaurant operations, providing decision-makers with comprehensive insight into their financial and operational performance so they can optimize, course-correct, and boost their revenue-driving potential each day.

Effective revenue management is a vital tool for restaurant success. By optimizing elements of their operation, such as menu design, food pricing, reservation management, and table turnover, restaurant owners can generate additional revenue and build lasting relationships with customers that drive repeat business. In parallel, revenue management software and performance analytics can help them address inefficiencies in their operations, which, in turn, drives down costs and improves their profit margins. While there is no one-size-fits-all approach to revenue management, every restaurant stands to benefit from more frequent analysis and improvement of their financial performance.

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Restaurant Revenue Management FAQs

How do you calculate restaurant revenue?

A restaurant’s revenue is the money it earns from food and merchandise sales. To calculate gross revenue over a given time period, also known as the top line, restaurants simply need to add up the total sales they generated during that period. Many restaurants take this calculation a step further by calculating the revenue they generate per available seat hour or their average revenue per square foot.

What are the four components of revenue management?

The four components of revenue management, also known as the four levers of revenue management, are pricing, inventory management, food and merchandise design, and meal duration.

What is a good revenue for a restaurant?

A restaurant’s revenue will fluctuate, depending on a number of variables, including the type of food it serves, its core customer demographic, opening hours, and seasonal variances in menu prices, to name a few. A more telling indicator of a restaurant’s financial performance is its profit margin — that is, the ratio of revenue left over after the restaurant has paid off its food, inventory, labor, and other costs. Restaurant profit margins can vary from 0% to 20%; the national average hovers close to 5%. In today’s economy, anything above this figure would be considered a healthy profit margin.

What is revenue management for food service operators?

Revenue management is the process by which food service operators manage their pricing, inventory, and services, and seek to influence customer behavior. Common revenue management tactics include strategic menu engineering, dynamic pricing, reservation management, loyalty programs, and demand-generation during off-peak times through promotions like early-bird specials and happy hours.