You may not realise it, but you are forecasting your Food or Beverage businesses revenue every day.
You forecast revenue when you write a roster, you forecast revenue when you order food for the kitchen or beverage for the bar, you forecast revenue when your kitchen manages its weekly prep-cycle, and you forecast revenue when you arrange for the servicing of your combi-oven.
Even your opening hours are based upon forecasting revenue.
Your everyday assumptions of how many customers will arrive and when, and how long they will stay forms the very backbone of a business’s key responsibility to manage staff resources to meet the customer demand; to ensure quality service, food and beverage though having enough staff, at the right times, and to create loyal customers that spend more money in your venue, and keep coming back.
SO, what is forecasting revenue?
Forecasting revenue allows us to predict what will happen in the future by understanding what has happened in the past.
To follow are 5 reasons that forecasting revenue is essential for your success.
Writing a roster is perhaps the most fundamental and frequent use of forecasting, whether you realise it or not. By rostering you are attempting to predict how many customers will arrive and when; be it Tuesday lunchtime, or Friday dinner, and to ensure you have the right number of staff to look after them.
Forecasting revenue is an accurate means of understanding when customers will arrive, AND in deciding when to roster the right amount of staff for the business’s profitability. Too few, and sales are lost, and customer service is compromised. Too many staff and money is wasted, reducing profitability.
On average Managers are conservative when they forecast revenue based upon experience and ‘gut feel’; they underestimate, rather than forecasting based upon understanding previous weekly performances. And, when adjusting the roster to meet the higher than expected demand, they over-roster on average by 4%. That is equal to an overspend on wages of more than $5,000 in Cafes, and over $10,000 in Restaurants every year.
2. Understanding your business
Forecasting revenue is essential to understanding the type of business you have, and how your revenue spreads out across a week. Many Restaurants find their revenue concentrates on Friday and Saturday with 45%-60% of their total weekly revenue occurring in just these two days, while many Fast Food and Café businesses spread revenue more evenly across the week, with Friday and Saturday ranging from 35%-40% of their weekly revenue.
Restaurants are much more exposed to drops in revenue because only two days make up most of their weekly takings. If the weather is poor, or Friday is a Public Holiday, or the area has a local special event that draws customers away, the whole week’s revenue is impacted, and profitability challenged.
Understanding what is likely to happen when Public Holidays, or special events occur allows a Manager to prepare, and to utilise opportunities to increase revenues elsewhere, or minimise the loss on the actual days effected.
3. Predicting the impact of Holidays and Seasonal Fluctuations
Not only does the weekly revenue vary across a week, but it varies throughout the year. Easter moves every year, and like in 2019, doesn’t always align with school holidays, over a dozen Public Holidays will be experienced, and trade varies significantly from Winter off-seasons to Summer-peaks. Whether holidays increase or decrease your trade depends on location, though both impact upon how a business is managed. Understanding previous business performances provide an invaluable insight into how to manage upcoming events and is a key strategic input into a businesses yearly planning.
4. Managing Inventory
In Australian Food and Beverage businesses, more money is spent on Inventory than on staff. The average Café spends $30,000 per year more on purchases, the average Restaurant $100,000 per year on purchases more than on wages.
Inventory is both expensive, and in the case of the kitchen, perishable, and must be managed in line with the fluctuations in the weekly revenue that occurs across a year. Having too much inventory either means money sitting on shelves, when it could be used for expenses or improvements, or wasted or poor-quality ingredients because too much has been purchased, and it has either not been used and thrown away, or has been used at the limits of its use by date, when it is no longer at its best.
Effective inventory management is achieved through revenue forecasting because a business is prepared for the drop or increase in revenue that the changing season brings. By understanding when the peak season will begin, Managers can slowly increase the amount of inventory they hold instead of spending a lot of money in a very short period. The same applies when moving from a peak period to a low period; the Manager can use existing inventory and gradually reduce the amount of stock being held, both decreasing weekly expenditure, and reducing wastage.
5. Improving Business Performance
A Food and Beverage business is a complex ecosystem, made up of many moving parts. Just like an engine in a car, to understand how to maximise the performance of a business, we must understand some of the moving parts that impact upon it.
Because Forecasting revenue requires a thorough understanding of what has happened in the past, a business can identify and measure key drivers of that performance.
What is the average spend per customer?
And what is the Revenue that is earned per every hour of labour spent?
These two key measures identify what has happened and can measure what is happening on an ongoing basis. Both of these measures are fundamental to success; increasing the amount of money an average customer spends dramatically increases profitability, because the staffing cost, and all of your overheads remain the same, whilst an increase in Revenue-per-labour-hour demonstrates how much more money is being earned for every hour of labour.
Whether a business realises it or not, it is Forecasting Revenue in one way or another. By adopting a data driven forecasting approach, based upon at least the previous 19 weeks revenue, every business, and every manager, can fundamentally improve the performance of their business.