Guident Newsletter – November 2016 – Issue 6

Profitable Business Model First, Marketing Second.

A friend of mine who owned a restaurant on the north side of town called me and asked if I would stop by because he had a few questions.  I agreed and when my schedule allowed I planned to stop into his restaurant (close to lunchtime because he had great food).  I met with him and his wife who both worked in the business at the time.  He said his sales were down and he wanted to ask me questions about how he could increase his sales.  I asked, as I usually do, if I could see a financial statement.  He showed me his year to date profit and loss statement.  I did a few calculations and said it looked like he was working very hard generating little profit.  He said things were going OK and all he needed was more sales.  At that time his wife, who I sensed was getting frustrated with her husband, began to tell me how they were working too hard, not making any money, and it was making life difficult at home also.  Eventually my friend agreed that they were struggling.

I did some more calculations and suggested to my friend that he should raise his main entrees at least by a $1.00 each if he wanted to make any money at all.  He said he couldn’t do that because it would cost him too many customers.  We agreed to disagree and I left without committing to anything.  I did get a really nice lunch though.

A few months later I received another call from my friend asking if I would stop in when I had a few minutes.  I stopped into the restaurant a few days later and he showed me a menu with most of his entrees priced a $1.00 higher than before.  I asked him how that was working for him and he stated his sales dropped off by 15% but he was making more money than he had ever made before.  I suggested that the customers that stayed were staying because he has great food and the customers that left were only there because the prices were too cheap.  He asked, “Now what do we do to make even more profits?”

We began to set a strategy to drive more customers into the restaurant because now he had a “Profitable Business Model” to work with.  Driving sales is not always the first step to increasing profitability.  A business owner must have a profitable business model first; otherwise you are going to end up working harder to lose even more money than you did before.   Honestly, we probably would not have gotten to this point if his wife had not gotten frustrated with our conversation and told me what was really happening.  As businesses owners we have to understand that admitting that something is broken is the first step in developing a fix to the problem.