New Cornell Study Helps Restaurant Managers Maximize Revenue

A new study by Cornell Professor Sheryl Kimes provides fresh insight into ways restaurant managers can drive higher revenues. The study, published recently by The Center for Hospitality Research at the Cornell Hotel School, shows how managers can build revenue by focusing on operations and menus, rather than on more traditional measurements such as average bill amounts, or the ratio of food and labor costs to total revenue.

Using a model based on revenue per available seat hour, Kimes identifies two key levers that can be used to maximize revenue - demand-based pricing and duration management. The study underscores the value of setting prices according to certain characteristics of customer demand. Kimes exhorts managers to measure two key characteristics - the extent to which customers are willing to dine off peak, and the relative importance customers place on price versus the overall dining experience. Through this research, managers may find that offering selected discounts and specials on certain meals can help to drive revenue.

“Menu engineering can play an important role in helping restaurants maximize revenue, especially during traditionally slower periods,” Kimes observed. 

Duration management helps restaurateurs gain control over the most erratic facet of their operation, which is the length of time customers sit at a table. The study puts forth several tactics to manage duration, including reducing the uncertainty of arrival, reducing the uncertainty of duration, and reducing the time between meals. According to the study, managers can reasonably predict when customers are most likely to appear by carefully managing reservations and by creating a forecast based on the restaurant's history. Although a restaurateur cannot directly control the customer's use of a table, careful control of operations -- including menu design, kitchen operation, and service procedures – can help to maximize customer flow without diminishing the dining experience.

Kimes cites Chevys Arrowhead, a Phoenix-area restaurant that has reworked its operations to improve revenue. An analysis of its operations and its customer characteristics found that its table mix (mostly 4-tops) was inappropriate for its customer base (mostly singletons and couples). It also found that it could tighten up its post-meal procedures, particularly settlement. The restaurant was reconfigured, servers were retrained, and certain key positions were added.

“The result was an increase in revenue from higher occupancy that paid for the increased capital costs in one year,” Kimes said. “The revenue improvement in this instance was to the guest's advantage, since menu prices were not changed as part of this revenue-management implementation.”

Access the PDF file of the complete research report.