Optimizing RevPASH and ComPASH
Working with Space and Time to Optimize Pub and Tasting Room Profitability
On any given day of brewpub operations, there are only a certain amount of seats available, and only a certain amount of service time in a day. In terms of the resource based strategy and the business model canvas, we would say that temporal and spatial resources are key resources in your business model. Your revenue is limited by the space you have to place “covers”, the number of tables you can fit in that space, the number of seats per table, the average revenue per “cover;” the average seat yield, the number of food or beverage service hours you provide in a day, and the average time it takes to “turn a table”.
A cover is a bar/restaurant industry term for one customer or guest taking up space in your food and beverage establishment; who is (hopefully) helping to cover your costs.
A party is a group of covers.
Usable seats means the physical number of covers that could theoretically be seated at the same time in your pub.
The average seat yield is how many of your seats actually get used. This is often less than the actual number of seats available, even when all the tables are taken. This happens because sometimes we must seat a party of three at a four-top, or a party of one at a table for two, and so forth.
Turning a table means the time it takes for a customer or group of customers to be seated, order, enjoy food and beverage and the communal dining experience, pay, depart and then get the table reset and ready for the next seating.
RevPASH and ComPASH
The pub manager can strategize about each of these variables, to optimize Revenue Per Available Seat Hour, or “RevPASH.” At CRAFTINGASTRATEGY.COM, we suggest adding another variable into the mix: average contribution margin from the menu mix (see menu engineering PowerPoint slides), and trying instead to optimize (the more important) Contribution Margin per Available Seat Hour (ComPASH).
The equation for RevPASH is:
Periodic Revenue from operations / (Number of operations hours X Number of seatplaces for guests)
The equation for ComPASH is:
Periodic total contribution margin from operations / (Number of operations hours X Number of seatplaces for guests)
RevPASH and ComPASH are diagnostic controls. These statistics indicate the dollar yield coming from your retail operation. They let you know how much revenue and how much gross operating profit each “seat” (really each standard place-setting) is generating, on average, in one hour. It’s kind of like measuring km/liter in your car. The “seat-hour” is like a liter of gasoline that can be used to generate an outcome. In a car, the outcome of interest is distance traveled. In a brewpub or tasting room, it’s revenue. It lets you know how much revenue each place setting is generating for your business, each hour.
ComPASH is the best strategic measure for this seat efficiency-effectiveness measure . All business operations should be more concerned with contribution margin generated by operations than with revenue. Revenue could be high per seat or per table, but perhaps those customers are purchasing loss leaders – consuming vast amounts of menu items that you either break even on, or even lose money on. You want each place-setting in your establishment to be as profitable as it can be, while maintaining an attractive value proposition. To keep track of ComPASH, you must track your total contribution margin for each service period, and add them up. You can do it "per day," but I suggest starting with shorter service periods and then adding them together. In short, ComPASH means knowing: how much gross profit did we make per-setting per-hour on breakfast? How much on lunch? How much on dinner? How much on late night? What was the statistic for each for this week or month? What was it last week or last month? What was total contribution margin per seat-hour across all meal categories per day?
The contribution margin total for the period(s) you want to track is the numerator in the ComPASH equations above. The denominator is the same as RevPASH: how many place settings you had available during that same period of time x the number of hours in that period. See our white paper on information systems basics, and our PowerPoint on menu engineering to learn how to measure and track contribution margins. Once you have a basic calculation of your ComPASH for a normal-busy period and for a normal-slow period, you can set a standard that you would like achieved on a regular basis, and you can also take on the challenge of getting it to grow without compromising your value proposition.
For example, if you have room for 20 covers in your new tasting room, and you are open from 4pm to 9pm (5 hours), then you have 20 x 5 = 100 available seat-hours. If you collect $1000 in revenue on Friday, then your RevPASH is $1000/100 seat-hours = $10/seat-hour. You might set that as the standard to reach every day. Furthermore, if you sold only pints of beer that sell for $5.00 and have an average cost you $1.00 per pint to provide (20% beverage cost), then you sold $1000/ $5 per pint = 200 pints of beer. That means your total contribution margin on Friday was $4.00/pint x 200 pints = $800. Your ComPASH was 800/100 = $8 per seat hour. However, if you sold pints for $6.00 that cost you an average of $1.50 (25% beverage cost), your total contribution margin was 200 pints x ($6.00-1.50) = $900. Your ComPASH was $900/100 seat-hours = $9.00 per seat hour. Cost percent went up, but so did profits!
If you think that it is unlikely to have high revenue and low contribution margins, you are mistaken. Customers, especially repeat customers, are very savvy and know a good deal when they see one. After my first promotion to head chef (at a nice white tablecloth restaurant in San Francisco) we were quite busy, and revenue was high, but it turned out we were not making much money. The food was great, but I was a great food engineer who did not know anything about average contribution margins. I was trained as a saucier, not as an accountant! When I wrote the menu, the prices, especially for the very popular veal chop with morel cream sauce, and the N.Y. steak with stilton were so low that (unknown to me) we were actually losing money every time we sold a veal chop, and only broke even on the steak. And we sold more of those than any of our other menu items! It turns out that veal chops, morels and stilton are incredibly expensive. I left the job at the end of the year and went to Michigan State University to get an MBA in hospitality management. That’s where I learned about RevPASH, Contribution margins, and how to make money with food. I never made the same mistake again.
As with all good control systems, the first step is to set standards. In this case, there will be a number of standards that must be contemplated along with these diagnostic measures (RevPASH and ComPASH). You will have to consider and set at least two standards before agreeing on RevPASH and ComPASH standards. These standards are the standard number of hours you will be open for business and the standard number of seats/place settings for guests in your space.
Standard hours of operation: There is a set amount of time you can take in customers in any given period. There are twenty four hours in a day, no more. Carefully consider the number of retail operations hours you believe your establishment should be open per day, per week, per month, per quarter, and per year. No operation should ever be run at full capacity all the time, or it will break down. A typical rule is never to have a standard above 80% of capacity. That means that if your place is running at about full capacity most of the day you should be closing shop for a minimum of 5 hours per day, to clean up, do maintenance, rest and restock. An operation that is running well below capacity most of the day may find that it can keep the doors open for guests for twenty-four hours. That still leaves a lot of room for setting a standard for how many hours per day/week/month that you want to run your operation.
Standard number of seats or place settings for guests: At least in the short run, there is a set amount of retail space in your establishment. You need to use this space efficiently and effectively. The main focus in a busy establishment is table-turns per period. This means if you can serve four sittings during the dinner hours at the same table or spot at the bar, you may be better off than using that table only three times during dinner hours. I say “may” because you might find that slowing down service leads to higher average guest checks, which might even things out and provide a nicer experience. You should reduce chronically unused place-settings and convert that space to something that is contributing towards business profitability or customer value. Removing place settings will magically make your RevPASH and ComPASH seem higher, so it is not comparable to former numbers once you change your dining room and bar seat arrangements.
Every variable can be adjusted to increase RevPASH and ComPASH, but it’s not always easy to do. In fact, sometimes it goes down before it goes back up, and that can make management uneasy. If a business has too little space, as was the case for PokPok, it could find a way to add more physical space. If it has too much space, you could downsize space. Adding extra place settings and opening extra hours will likely make RevPASH and ComPASH fall in the short run, until that space and time gets fully used. Just try to get back to the standard you had before you added for seats or more operating hours. Then go back to trying to improve the statistic through up-selling and table turns (revenue increases) and menu-mix adjustments (contribution margin increases). In general, gross spatial corrections are longer-term projects. There are other, finer adjustments that can go a long way to helping optimize the use of the space within the time that you have.
When we were really hitting our stride at the 124-seat Valentino’s, a high end Italian restaurant that I ran, we had a line out the door every single night. By expanding our service hours we increased revenue by nearly 30%. We simply started taking reservations from 5pm instead of 6pm, and had the last reservation at 11 pm instead of 10pm. Of course there were costs involved, and workers’ lives, labor and additional materials to coordinate, but even with the staffing and other variable costs, it paid off tremendously. At Haymarket in San Francisco, we extended our hours to include Sunday Brunch. As the chef, I hated it because Sunday had been my day off. But that was a sure way to get more revenue out of limited time and space. I remember the first Sunday, there was a long line already waiting outside the door before we opened. I groaned and the owner cheered.
Tables, stools, chairs, bars and plates, sidewalks, patios: A clever proprietor can use all of these in different combinations to maximize the amount of space available for place settings. In cities where retail space is especially dear, the city may allow a certain number of tables to be set outside on the sidewalk. In Portland, Oregon USA (where we live) almost every brew pub and tasting room has a patio in the back where tables and places can be set. Management is clever about providing a safe and clean path passed the kitchen and offices for guests and servers to access the patio. Mobile bar service stations can be utilized to improve and optimize beverage service at places further from the main indoor dining area.
There are gains to be made just by being strategic with your place setting technology. For example, with slightly smaller tables you can fit more tables in your tasting room, but will more chairs fit comfortably enough around those smaller tables? Design your table and chair arrangements with this in mind! Chairs with armrests require more space than chairs without them.
Some proprietors like to use somewhat smaller tables in their tasting room to increase yield. This can work, but only if you also use smaller plates/place settings! Then, adjust the menu or the service style accordingly. For example, serve bowls of pub fare, or sandwiches rather than entrées. Or use family style service: serve platter-sized portions in the middle of table. For example, serve a large pizza on a stand, or a big salad in a large chilled bowl, or chili-con-carne in a warm terrine in the middle of the table, and provide small plates to go around. This can be a great simple strategy for those with floor space limitations.
Many operations have realized the convenience of having mostly two-top tables, because they can easily be put together to form larger configurations as needed, and are easy to move. This strategy might require some sort of table cover to create a unified one-piece appearance for the guests. Theoretically, if you have all single-sized square tables, you could configure them to maximize average seat yield by putting together just enough for the size of each party.
Nothing creates community like a round table, but they are nearly impossible to combine together. Round table toppers, put on top of a smaller tables (even square ones) can add just enough circumference to fit another chair or two, and provide great atmosphere.
It all has to fit together
The most important rule is that all front of the house space and time adjustments require carefully crafted coordination with back of the house (production brewery, bar, kitchen) space and time and with your value proposition. Adding back of the house capacity without adding more seating capacity will likely be inefficient, and adding more seats and covers without adjusting production space and timing will likely be ineffective. Turning tables faster, or cramming in more seats may generate more revenue in the short term, but some of those crowded and rushed guests may never come back again. Dr. Meckler suggests that three other operations measures are critical: time from seating to server taking the order; time from the guest(s) ordering to the food or beverage to being served; and time from guest finishing to cashing out. We will have more on those diagnostic controls in another white paper.