2. June 1999 • 17
F O C U S O N F O O D S E R V I C E
appliedtoapilotrestaurant,and
developguidelinesthatrestaurant
operatorscanusetoincreasetheir
revenueperavailableseathour.
InthispaperIdiscussthefunda-
mentalsofrestaurantrevenueman-
agement,examinemethodsofmea-
suringrevenue-managementsuccess,
explainhowthosemeasuresare
differentfromthetraditionalgauges
ofrestaurants’success,andoutlinea
five-stepapproachtoestablishinga
revenue-managementsystem.
OverviewofRestaurantRevenue
Management
Restaurantrevenuemanagement
canbedefinedassellingtheright
seattotherightcustomeratthe
right price and for the right dura-
tion. The determination of “right”
entailsachievingboththemostrev-
enuepossiblefortherestaurantand
alsodeliveringthegreatestvalueor
utility to the customer. Without that
balance, RM-type practices will in
thelongtermalienatethosecus-
tomers who will feel that the restau-
ranthastakenadvantageofthem.
Revenuemanagement,oryield
management,iscommonlypracticed
inthehotelandairlineindustries.
Companiesimplementingrevenue
managementreportincreasesin
revenueof2to5percentoverthe
resultsofpriorprocedures.Revenue
managementrequiresafocusonthe
revenueperavailableinventoryunit.
Forexample,hotelsmeasurerevenue
peravailableroom-night(com-
monlyreferredtoasRevPAR),
airlinesmeasurerevenueperavail-
ableseat-mile(RPSM),andcruise
linesmeasurerevenueperavailable
cabin. Whenrestaurantoperators
applyrevenuemanagementtotheir
restaurants,Irecommendthatthey
measuretheirresultsintermsof
revenueperavailableseathour
(RevPASH).
ConcentratingonRevPASHhas
major implications for the way in
whicharestaurantisoperatedand
evaluated.Manymanagerscurrently
measuretheirrestaurant’ssuccessby
tallyingtheaveragecheckorby
maintainingcertainlabor-and
food-costpercentages. Whilesuch
measuresarevaluableformanypur-
poses,theydonotexplicitlyreflect
arestaurant’srevenue-(orprofit-)
producingperformance.RevPASH,
ontheotherhand,combinesinfor-
mationfromtheaveragecheckand
seatuse(oroccupancy)toprovidea
measureoftheflowofrevenue
throughthesystemandtoindicate
howeffectivelyarestaurantisusing
itsproductivecapacity.
Restaurantoperatorshavetwo
mainstrategicleversthattheycan
usetomanagerevenue:namely,
priceandmealduration.2
Priceisa
fairly obvious target for manipula-
tion,andmanyoperatorsalready
offer price-related promotions to
augmentorshiftpeak-periodde-
mand(e.g.,earlybirdspecials,spe-
cialmenupromotions).Moreso-
phisticatedmanipulationsofprice
include day-part pricing, day-of-
weekpricing,andpricepremiums
ordiscountsfordifferenttypesof
partysize,tables,andcustomers.
Managingmealdurationisabit
morecomplicated.Ontheproduc-
tionside,managersmuststreamline
andcontroltheirservice-delivery
process,aswellasunderstand
customer-arrivalpatternsandde-
terminewaysofinfluencingmeal
duration.3
One of the things that
makesimplementingrevenueman-
agementsodifficultinrestaurantsis
the fact that their explicit unit of
saleisameal(orevent)ratherthan
anamountoftime—althoughone
couldarguethatthetruemeasureof
therestaurant’sproductistime.4
Whileonecanestimatealikely
meanlengthforthatmeal,theac-
tual duration is not set. By compari-
son,implementingrevenuemanage-
mentismucheasierforthehotel,
airline,cruise-line,andcar-rental
businesses,becausetheyselltheir
serviceforanexplicitlycontracted
amountoftime.Restaurantsrarely
selltablesforafixedamountof
time,andinmostwesterncultures
arereluctanttobroachthistopic
with customers. Moreover, North
Americanrestaurateurscannoteven
rely on the practice common in
somecountriesofchargingforthe
cover.
One of the stumbling blocks to
successfulimplementationofrestau-
rantrevenuemanagementisthe
strugglethatrestaurantoperators
haveindevelopinginternalmethods
ofmanagingmealduration.Inthe
contextofmanagingmealduration,
one should not think only of reduc-
ingdiners’averagemeallength.
Quite often the factor interfering
withrevenuemanagementisthe
variabilityinmeallengths,andnot
justtheirduration.Someofthe
waysinwhichmanagerscaninflu-
encemealdurationincludechang-
ingreservationpolicies,redesigning
menus,andpacingserviceproce-
duresandmakingthemmoreeffi-
cient.Managerscanalsotrainem-
ployeestorespondtocustomers’
apparentwishesregardingthelength
ofthemeal. Whilesomecustomers
maywishtolingerovercoffee,for
instance,managersmightbesur-
prised at how often the holdup in
turningatableistherestaurant’s
ownlackadaisicalapproachtoser-
viceandservers’inattentiontocus-
tomers’needs.
2
Kimesetal.,June1998;seealso:SherylE.
Kimes and Richard B. Chase, “The Strategic
LeversofYieldManagement,”JournalofService
Research, Vol.1,No.2(Nov.1998),pp.156–166.
3
For a discussion of the effects of altering the
service-cycle time, see: Christopher C. Muller,
“ASimple Measure of Restaurant Efficiency,”
on pages 31–37 of thisCornell Quarterly; for an
analysis of arrival times, see: Brian Sill and Rob-
ert Decker, “Applying Capacity-management
Science: TheCaseofBrownsRestaurants,”
on pages22–30ofthisCornellQuarterly.
4
An argument made by: Daryl Ansel and Chris
Dyer, “AFramework for Restaurant Information
Technology,” on pages 74–84 of this issue.
4. June 1999 • 19
F O C U S O N F O O D S E R V I C E
revenue. Arestaurantcanrunat
90-percentofcapacityandstillnot
makemoneyifmenuitemsaresold
at too low a price, for example.
Becauseitembracescapacityuse,
checkaverages,andcostmargins,
revenueperavailableseat-hour
(RevPASH) is a much better indica-
toroftherevenuegeneratingper-
formanceofarestaurantthanthe
commonlyusedmeasuresthatIjust
discussed.RevPASHindicatesthe
rateatwhichrevenueisgenerated
andcapturesthetrade-offbetween
averagecheckandfacilityuse.If
occupancypercentagesincrease
evenastheaveragecheckdecreases,
forinstance,arestaurantcanstill
achievethesameRevPASH.Con-
versely,ifarestaurantcanincrease
theaveragecheck,itcanmaintaina
similar RevPASH with a slightly
lowerfacilityuse.
Exhibit1givesahypothetical
illustration of this principle. The
fourrestaurantsintheexhibitall
havethesameRevPASH($7.20),
buteachachievesitinadifferent
manner.Restaurant Ahasafacility
useof40percentandanaverage
checkof$18.00,whileRestaurant
Dhasauseratioof90percentbut
anaveragecheckof$8.00.Restau-
rantsBandCalsoachieveda
RevPASH of $7.20, but with vary-
ingfacility-useandaverage-check
statistics.
Theeasiestwaytocalculate
RevPASH is to divide revenue (or
profit) for the desired time period
(e.g.,daypart,day,month)bythe
numberofseat-hoursavailabledur-
ingthatinterval.Forexample,as-
sumea100-seatrestaurantmakes
$1,500onFridaysbetween6:00and
7:00 PM. Its RevPASH would be
$15($1,500÷100seats¥1hour).
Similarly,ifthatsame100-seatres-
taurantmade$5,000overafour-
hour meal period, its RevPASH
wouldbe$12.50($5,000÷100
seats¥4hours,or$5,000÷400
availableseat-hours).
RevPASHiscloselyrelatedto
thenumberofturnsandthelength
ofthemeal,orservicecycle. Asthe
numberofturnsincreasesandmeal
lengthdecreases,theRevPASH
increases.Justaone-minutereduc-
tion in meal time during a high-
demandperiodcanleadtoanin-
creaseinRevPASHof1.5to2.0
percent. Returning to our hypo-
thetical100-seatrestaurantwithits
four-hourdinner,saythatitsaver-
ageservicecycleis60minutes.In
thatcase,therestaurantcanpoten-
tiallyhandle400customersper
night.Iftheaveragecheckis$15,
itsmaximumnightlyrevenueis
$6,000,anditspotentialRevPASH
is $15. If the meal time can be re-
ducedto59minutes,therestaurant
canhandleanadditional6.8cus-
tomers.Iftheaveragecheckre-
mainsat$15,itspotentialnightly
revenueincreasesto$6,102and
itspotentialRevPASHincreases
to$15.26(a1.7-percentincrease).
Withtheincreasedvolume,the
checkaveragecouldevendrop
by$0.20,andrevenuewouldstill
increase.
Reducedmealtimescanbe
achievedbychangingtheservice
process,alteringstaffinglevels,or
altering the menu. Thefirstfew
minutesofreductionarenotthat
difficultorexpensivetoachieve,for
example,bypickingupthepaceof
greeting,seating,andchecksettle-
ment.Deepreductions,however,
mayrequiresubstantialinvestment—
forexample,byaddingkitchen
equipmentormoreemployees. A
return-on-investmentanalysisthat
considerstheeffectsofservice-cycle
changesonRevPASHcanhelpop-
eratorsdecidewhetheraprospective
investment is worthwhile. In making
theirplansmanagersshouldremem-
berthatcustomerpreferencesand
expectations limit the minimum
feasiblemealdurationandwillset
atheoreticalminimumacceptable
RevPASH.
RevPASH-basedStrategies
Onceoperatorsunderstandtheir
RevPASHpatterns,theycande-
velopstrategiesfordealingwith
highandlowRevPASHperiods. A
full discussion of the RRM strate-
giesavailablewillbepresentedina
subsequentpaperofthisseries.Dur-
inglowRevPASHperiods,manag-
ers can either try to attract more
customersandincreaseuseorrely
onsuggestivesellingtoincreasethe
averagecheck.Duringthoseperiods
withhighRevPASH,operators
shouldconsiderraisingmenuprices
or try to reduce meal duration so
thattherestaurantcanincreaseits
turn rate.
RevPASHcanbeusedatdiffer-
entlevelsofanalysisandfordifferent
purposes. Attheindividualrestau-
rantlevel,managersmaychooseto
develop hourly or quarter-hourly
RevPASHfigurestohelpdevelopa
Exhibit3
HourlyRevPASHforSeptember
5:00 PM 6:00 PM 7:00 PM 8:00 PM 9:00 PM
Sunday $2.39 $6.72 $6.43 $6.36 $3.63
Monday $0.19 $2.91 $2.92 $3.52 $2.95
Tuesday $0.61 $2.96 $5.46 $4.61 $5.47
Wednesday $0.75 $2.70 $3.92 $4.29 $2.26
Thursday $0.22 $1.47 $4.86 $3.37 $2.84
Friday $1.49 $6.04 $8.76 $8.17 $9.21
Saturday $2.72 $6.22 $11.89 $12.60 $11.59
5. 20 CORNELLHOTELANDRESTAURANTADMINISTRATIONQUARTERLY
revenue-managementstrategybest
suitedtotheirrestaurant.RevPASH
canalsobeusedtoevaluatethe
effectivenessofanoperation’sserv-
ersandmanagers.
Saythatthemanagerofourhy-
pothetical100-seatrestaurant
wantedtounderstandherhourly
RevPASHpatternsforSeptember.
Obtainingdatafromtherestaurant’s
POSsystem,themanagerfound
thatherhighestRevPASHperiods
wereonFridaysandSaturdaysfrom
6:00to10:00PM andonSundays
from6:00to9:00 PM. Themanager
canusethisinformationtohelp
developrevenue-managementtac-
tics specific to high and low
RevPASHperiods.Forexample,
duringhigh-RevPASHperiods,she
mayfocusonreducingthemeal
timebyhavingtableserversskip
suggestionsofdessertsorafter-
dinner drinks. On the other hand, at
low-RevPASHtimesshemayde-
cidetoincreasetheuseofsuggestive
sellingorevenreducemenuprices
toboosttraffic.
ComparativeRevPASH
Regionalornationalmanagers
coulduseRevPASHtocompare
performanceofdifferentrestaurant
units. One would want to adjust the
unit RevPASH according to an
area’s cost of living, but a unit-by-
unit comparison of RevPASH
would give a good indication of the
relativeperformanceofdifferent
restaurantsinanarea,region,or
nation.
Consider a city with six restau-
rantsfranchisedbyaparticular
chain,asshowninExhibit4.Res-
taurant4enjoyedthehighestaver-
agecheck($12.10)ofthesixunits,
butitalsohasthelowestRevPASH
($4.25).Ontheotherhand,restau-
rant5hasthelowestaveragecheck
($9.45),butthesecond-highest
RevPASH($6.25).Relativeperfor-
mancemeasurementscanbecalcu-
latedbydividingonerestaurant’s
performancebytheaverageperfor-
manceofalltheunits. Thus,the
checkperformanceofrestaurant
4isaboveaverage(1.14),butits
RevPASHperformanceisonly0.83
($4.25÷$5.20).Byusingrelative-
performancemeasurementslike
these,regionalmanagerscanbetter
evaluatetherevenuegenerationof
therestaurantstheyoversee.
Onecouldalsocalculateand
comparecompetitors’RevPASHto
getasenseofhowwellarestaurant,
aregion,orachainisperforming.
Forexample,theRevPASHofa
particularrestaurantcouldbecom-
paredwiththeaverageRevPASHof
thecompetitivesettoevaluateper-
formance(seeExhibit5). Thistype
ofcalculationisdoneforhotels,for
example,bySmith TravelResearch
reports.6
While competitive infor-
mationisnotreadilyavailable,one
Exhibit4
HypotheticalcomparisonofcheckandRevPASHperformance
Average Check RevPASH
Restaurant check RevPASH performance performance
1 $10.50 $6.45 0.99 1.24
2 9.75 4.50 0.92 0.87
3 11.25 5.25 1.06 1.01
4 12.10 4.25 1.14 0.82
5 9.45 6.25 0.89 1.20
6 10.60 4.50 1.00 0.87
Average $10.61 $5.20 1.00 1.00
Exhibit5
CompetitiveRevPASHperformance
Unit Average check RevPASH Check ratio RevPASH ratio
Your restaurant $12.50 $5.60 0.89 1.12
Competitive set (mean) $14.00 $5.00 — —
Note: The two ratios compare the subject restaurant’s performance to its competitive set.
6
See: «http://str-online.com/products/
star.html».
6. June 1999 • 21
F O C U S O N F O O D S E R V I C E
maybeabletodevelopinformation
toperformsuchananalysis.
TheFiveStepstoRRM
Whendeveloping anRRMsystema
restaurantoperatormustfirstunder-
standcurrentconditionsandperfor-
mance.Followingthis,theoperator
mustevaluatethepossibledriversof
thatperformance. Thisunderstand-
ingwillhelpmanagersdetermine
howtoimproveRevPASHstatistics.
Finally,themanagermustmonitor
theimpactofimplementedchanges
onrevenueperformance.Idescribe
eachofthesestepsbelow.
(1) Establishthebaseline.Mostman-
agersknowtheiraveragecheck
andtheirlabor-andfood-cost
percentages,butfewcanaccu-
ratelyestimatethecapacityuse
or RevPASH of their restau-
rants. To develop a RRM pro-
gram,operatorsmustcollect
detailed information on arrival
patterns,mealtimes,RevPASH
patterns,andcustomerprefer-
ences. Thisinformationcanbe
collected from a variety of
sources,includingthePOS
system,guestchecks,andme-
thodicalobservation.Once
collected,thedatamustbe
analyzedtodeterminethe
meananddeviationofdining
time and daily and hourly
RevPASHpatterns.
(2) Understandthedrivers.Once
thebaselinedatahavebeen
collected,managersshould
analyzethefactorsthataffect
mealdurationandRevPASH
performance.Simpletoolssuch
asprocessanalysis,7
service
blueprints,8
andfishbonedia-
grams9
canbeusedtobetter
understandthepossiblereasons
forwhymealslastaslongas
they do and to help identify the
mostimportantproblemsin
controlling meal duration.
(3) Makerecommendations.After
identifyingthecausesofthe
mostimportantproblemsaf-
fectingtheservicecycle,man-
agersshoulddevelopdetailed
recommendationsonhowto
correctthoseproblems.Some
solutionsmaydealwithreduc-
ingtheoverallmealduration,
while others may deal with
reducing variability in particu-
larservicesteps(e.g.,order-
taking,bussing),andstillothers
mayinvolvetablemanagement
orcustomer-arrivalmanage-
ment. Themanagershould
analyzepotentialreturnon
investmentforeachrecommen-
dationtoensureprudentdeci-
sionmaking. Alaterarticle
willpresentasimplemodel
for evaluating the ROI of
RevPASHimprovements.
(4) Implementthechanges.ForRRM
tobesuccessful,restaurantop-
eratorsmustensurethatmanag-
ers,servers,bussers,andother
employeesclearlycomprehend
thepurposeandpracticeof
RRM. This requires a position-
specifictrainingprogramthat
helpsemployeesunderstand
their role in RRM and how
RRM can benefit both the
restaurantandemployees.Addi-
tionally,operatorsshouldalign
anyemployee-incentivepro-
grams to coincide with the
objectives of RRM.
(5) Monitoroutcomes.Aswithany
businesspractice,thesuccessof
RRMcannotbeensured
without measurement of im-
provement. Afterestablishing
thebaselineandimplementing
RRM,operatorsmustdevelop
asystemtomeasureRRM
performance.Oneshould,for
instance,monitorRevPASH
andtheaverageandstandard
deviation of dining time and
comparethosefiguresto
baselineperformance.
FuturePapers
Thisarticleisthefirstofaseries
onrestaurantrevenuemanagement.
In future articles I will discuss spe-
cifically how to develop an RRM
systemandestablishabaseline—
includingthetypesofdatato
gather,thepossiblesourcesofdata,
andtheanalysisandinterpretation
oftheinformationcollected. These
andtheotherrestaurantrevenue
managementpointswillbeillus-
tratedwiththeactualexperience
ofa100-seatrestaurantinIthaca,
New York.
Theserieswillreviewmethods
foranalyzingthepossiblecausesof
problems,includingserviceblue-
prints,fishbonediagrams,andpro-
cessanalysis,anditwillexamine
restaurantrevenue-management
strategyandtactics.Iwillalsodis-
cuss how to combine the informa-
tionobtainedfromthebaselineand
causalanalysistodevelopspecific
strategiesforincreasingRevPASH.
Finally,thepaperswillexamine
issues surrounding RRM imple-
mentationanddiscussmethodsof
establishingappropriateincentive
andtrainingprogramsforservers,
managers,andbussers,alongwith
suggestionsonhowtomonitorthe
successoftherevenue-management
system.Bytheendoftheseries,
I hope to have drawn an outline
ofhowtoimplementrevenue
managementinyourrestaurantand
therebyimproveitsrevenue-
generatingperformance. CQ
7
For example, see: Sheryl E. Kimes and
Stephen A. Mutkoski, “The Express Guest
Check:SavingsStepswithProcessDesign,”
CornellHotelandRestaurant AdministrationQuar-
terly, Vol. 30, No. 2 (August 1989), pp. 21–25.
8
G.Lynn Shostack, “Designing Services That
Deliver,”HarvardBusinessReview,January–
February 1984, pp. 133–139.
9
D. Daryl Wyckoff, “New Tools for Achieving
Service Quality,”CornellHotelandRestaurant
AdministrationQuarterly, Vol. 25, No. 3 (November
1984), pp. 78–91; and U. Apte and C. Reynolds,
“Quality Management at Kentucky Fried
Chicken,”Interfaces, Vol.25,No.3(1995),pp.6–21.
