Tuesday, January 20, 2009

The Other Side Of The Profit Coin

Writen by T.J. Schier

If your dayshift manager came to you and asked for more employees or to start an incentive program, would your response be, "Not if it costs me more money..."? If it might, this column is for you.

Let's take the adding labor issue first.
Say you want to lower service times. You figure it will require adding another cashier during peak times. Your numbers look like this: 3 extra hours of labor x $7 extra per hour in wages= $21 extra per shift. Now before you scoff at the idea of shelling out an extra $21, take a hard look at the numbers, engage in some analysis before writing off the idea.

Here's how: Track sales for the three hours with the additional cashier, and keep an eye on the check average. If your team serves 10 extra people per hour, each whose check averages $5.50, you could tack $165 more in sales for the three hours. Not bad for a 12.7 percent investment. That scenario doesn't even touch on the service implications service of adding another staffer. A few extra seconds between each customer frees cashier to actually use some of that suggestive selling training you've spent thousands on.

Use the additional dollars towards your fixed costs—utilities, salaries, etc—and raise the bottom line. What initially might have seemed like an expense has now become a revenue-generating asset and a valuable lesson in ROI.

Now let's look at incentives.
One of the most effective motivators of performance is offering a tangible sign of appreciation. Incentives fall into this category.

Designing an incentive contest where the cashiers earn one point towards a prize for every incremental dollar they generate is a no-risk proposition since employees only receive 'points' when they generate sales above the current average. Such contests are self-funding. You only pay for prizes when performance exceeds current levels.

For example: an employee who after 200 orders has an average check of $5.90, or $0.40 above the store's $5.50 average, earns 80 points for an additional $80 in sales. After five shifts of this performance, said employee will have earned you an extra $400 in sales and him/her 400 points. Spend 20 bucks on a gift card; you'll still walk away with $380 profit. If you know of a better way to turn $20 into $380, please write.

The above program not only offers an opportunity to give employees daily reinforcement of their performance (earning points), but also has a long-term, continuous impact as they save their points toward a prize.

You can use a similar approach to lower costs. Give the kitchen staff points for keeping food costs within a certain range. (But don't set that range too low. You don't want people cutting corners to earn a prize.)

Managers seem to have an innate desire to cut labor to save money, despite evidence that says it is a short-term payoff that could be damaging to service. Instead encourage your management team consider other options. "Need to add another employee? Fine, we need to see X result on the sales and profit lines." Teaching your in-store management team to focus on profitability analysis in this manner allows them to do determine the best way to spend their time and your money.

Profitability needs to be trained. Often times, managers focus on one P&L line without seeing the big picture. Suggestive selling might raise food costs, but it might also increase sales. Many managers may not see beyond the food cost line, however. Educating and training your staff to see beyond initial costs enables them to make sound decisions to drive the top and bottom lines.

If you want to cut costs, instead of capping sales and understaffing the kitchen, keep an eye out for wasted condiments, cleaning supplies, and so on.

Focus on driving more dollars into the register by teaching your staff and management a new train of thought. After all, the front line determines how much goes to the top line and how much makes it to the bottom line.

T.J. Schier is service professional, consultant and speaker with over 20 years experience in operations and training. Founder and president of Incentivize Solutions and podTraining, T.J. has helped numerous clients enhance their service and training programs and spoken to tens of thousands of managers, franchisees and operators in various fields. Visit http://IncentivizeSolutions.com/ for more info motivating today's employees, training today's generation and delivering outstanding guest service; or http://podTraining.us/, a unique new system and the foundation of 'i-learning' - using the device of today's generation, the iPod - to train your workforce.

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