The International Network of Hospitality Consulting Professionals

A Lodging Industry Consultant’s Nightmare

The Consultant’s Nightmare

At what point in the client inquiry do you begin to realize that this is another call for free advice? Or the client really does need your help, but has no idea what a good consultant typically charges and will certainly gag when he/she finds out?

How do you as a lodging industry consultant sell what the client needs, but doesn’t want to pay for? How do you go from inquiry to lead to agreement to dollars?

What are the alternatives?

  • Provide a little pro bono advice in hopes that this will lead to something?
    • Probably not a good idea, because advice is what you sell and giving free advice rarely if ever leads to getting paid.
  • Charge what the client is willing to pay?
    • Discounting your services sets a precedent you don’t want.
  • Quote a nominal fee plus a percentage of future upside?
    • Might be good and might not be as you are dependent on the client’s performance not yours.
  • Define the value for your services in the client’s terms? Show or calculate an ROI on your services?

If you can ROI your services in the client’s terms you stand an excellent chance of capitalizing on the opportunity. Start the conversation with a couple of questions. What would be a desirable outcome? Is there value if we can help you get there now vs. trial and error over time?

If nothing else the client will clearly define his/her expectations, but it will also provide you with the parameters to calculate the ROI on your services. Let’s look a few basic examples for my fellow lodging industry consultants:

  • Improved food cost of 2 points. Over a 12 month period that would result in $____ in department profit.
  • RevPar increase of 5% – increase in rooms department profit of $____
  • Energy audit and recommended actions – potential of $____ in savings over a 12 month period.
  • Average F&B check improvements
  • Shift the rooms mix to higher rated segments and improvements in ADR.
  • Channel distribution – reduction in commissioned business by X%. Savings will flow through to the bottom line.
  • Task force – fill the gaps and avoid lost revenues. Even if the Task Force is more expensive than the full time equivalent there is ROI potential.
  • Pay for short term resources on as needed basis vs. hiring full time when the need is temporary.
  • Pay me now or pay me a lot more later when the problem escalates.

Bottom line is that if a lodging industry consultant can show the client how you can have a positive impact on his/her business and put it in dollar terms you will greatly improve your chances of getting hired. You need to remember, however that there is a fine line between demonstrating expertise and giving away too much free advice. Know what to say and what to hold back – don’t add to the Consultant’s Nightmare!!

 

About the Author:

Chuck Kelley is a Partner with Cayuga Hospitality consultants a network of independent consultants specializing in hospitality/lodging https://cayugahospitality.com/consultants/chuck-kelley/. He spent 32 years with Marriott International, beginning as an Assistant Restaurant Manager and worked his way up to Executive Vice President responsible for Marriott’s Caribbean/Latin America Region. Along the way he held positions as Director of Restaurants, Director of Marketing, Regional Director of Sales and Marketing, General Manager and Country Manager Australia. A graduate of the University of Hawaii, with a BS in Travel and Tourism Management. He is an active member of the Baptist Health South International Advisory Board and previously served as Chairman of the Caribbean Hotel and Airline Forum for the Caribbean Hotel and Tourism Association. He served with distinction in the US Army in Vietnam having earned a Purple Heart and Bronze Star for valor in combat.

The Million Dollar Question – Cocktail Profitability and Recipe Deviation Cost

Million Dollar Question

When is the last time you examined the relationship between production cost and recipe deviation rates or calculated cocktail profitability? It’s probably been a long time, if ever. Everyone is quick to tell you what they think about cocktail profitability, but reluctant to disclose why. Reluctant disclosure is pure speculation influenced by opinion. Unfortunately, speculation is the foundation for failure in the bar business.

Two things are certain. Money is the byproduct of success, and accidentally succeeding in the bar business does not occur.

High volume nightclub operators, restaurant tycoons and the best bar owners all have one thing in common. They embrace bar math because it empirically proves cocktail profitability. I constantly tell clients, “Don’t tell me what you think. Show me the numbers because numbers don’t lie.” Regardless of your role in hospitality, seniority level or executive title, abandon what you think it costs to create a cocktail and do the math. Bar math begins with calculating cost per ounce and portion cost. Cost per ounce (CPO) determines how much an ounce of liquor costs. Calculating requires dividing the wholesale liquor bottle cost by its total ounces. For example;

·         Liter = 33.8 ounces

·         Liter Bottle Cost ÷ 33.8 oz. = CPO

·         750ml = 25.4 ounces

·         750ml Bottle Cost ÷ 25.4 oz. = CPO

 

Vodka Bottle Cost Bottle Size Ounces CPO
Smirnoff $24.98 LTR 33.8 $0.74
Smirnoff $15.47 750ML 25.4 $0.61

Portion cost (PC) examines the relationship between cost and serving size. Calculating portion cost requires establishing cost per ounce (CPO) then multiplying by serving size (SS).

·         Liter = 33.8 ounces

·         Liter Bottle Cost ÷ 33.8 oz. = CPO

·         Cost Per Ounce × Serving Size = PC

·         750ml = 25.4 ounces

·         750ml Bottle Cost ÷ 25.4 oz. = CPO

·         Cost Per Ounce × Serving Size = PC

 

Vodka Cost Size Ounces CPO SS PC
Absolut $26.23 LTR 33.8 $0.78 0.25 $0.20
Absolut $26.23 LTR 33.8 $0.78 0.50 $0.39
Absolut $26.23 LTR 33.8 $0.78 1.00 $0.78
Absolut $26.23 LTR 33.8 $0.78 1.25 $0.98

These calculations are phenomenal barometers for gauging cocktail profitability. However, gauging profitability and achieving it are radically different Achieving profitability requires application. Cocktail production is the most powerful application in the bar business, but systematic cocktail production per recipe is the most profitable.

A great cocktail is always profitable because it does not fluctuate. Taste and cost to manufacture remain constant. Systematic production ensures consistency. The most profitable way to make a cocktail is right the first time. By right, I mean per recipe based on beverage cost. For example, a seven ingredient Adios costs $0.89 to manufacture.

Bottle Bottle Bottle Recipe Portion
Adios Cost Size Ounces CPO Ounces Cost
Taaka Vodka $7.99 LTR 33.8 $0.24 0.25 $0.06
Taaka Gin $6.99 LTR 33.8 $0.21 0.25 $0.05
Ron Rio Rum $6.99 LTR 33.8 $0.21 0.25 $0.05
FC Triple Sec $6.99 LTR 33.8 $0.21 0.25 $0.05
FC Curacao $6.99 LTR 33.8 $0.21 0.25 $0.05
Sprite $81.98 5 Gallon 640 $0.13 3 $0.38
Sweet & Sour $52.58 5 Gallon 640 $0.08 3 $0.25
Adios Beverage Cost $0.89

Recipe deviation rates destroy cocktail profitability. A bartender’s unwillingness to prepare cocktails per recipe is financially debilitating. Witness the profit destruction incurred by ingredient substitution and over pouring. The $0.89 production cost inflates to $2.40.

Bottle Bottle Bottle Cost per Serving Portion
Adios Cost Size Ounces Ounce Size Cost
Absolut $26.23 LTR 33.8 $0.78 1.5 $1.17
Taaka Gin $6.99 LTR 33.8 $0.21 .25 $0.05
Bacardi Silver $15.68 LTR 33.8 $0.46 1 $0.46
FC Triple Sec $6.99 LTR 33.8 $0.21 0.3 $0.06
FC Curacao $6.99 LTR 33.8 $0.21 0.3 $0.06
Sprite $81.98 5 Gallon 640 $0.13 4 $0.52
Sweet & Sour $52.58 5 Gallon 640 $0.08 1 $0.08
Adios Recipe Cost Per Ounce $2.40

Recipe deviation rates cause production cost inflation. Rising cost equal profit loss. Over pouring and ingredient substitution yield a -$1.51 loss. Losing -$1.51, per Adios compounds faster than polished steel. Selling 1,060 Adios annually, with a 20% recipe deviation rate, yields -$320 loss.

Adios Loss Sales Forecast Deviation Rate Adios Sold Loss
-$1.51 1060 20% 212 -$320
-$1.51 1060 30% 318 -$480
-$1.51 1060 40% 424 -$640
-$1.51 1060 50% 530 -$800

At first glance, a -$320 annual loss seems inconsequential, but appearances are deceiving. This loss only reflects one cocktail with a 20% deviation rate. Reality sets in when you realize your product mix reflects 90 cocktails. The million-dollar question is “how many cocktails are going across the bar for a loss and how do you fix it?”

Hiring a bar consultant is the answer.

About the Author:

RideoutWith more than 20 years of hands-on operating experience, Preston has a proven track record of success for developing sustainable bar business models, bartender training, cocktail creations, cost control and profitability, Preston is the author of a number of books, manuals and articles pertaining to bar operations, profitability, standard operating procedures and achieving excellence in customer service.

Preston’s expertise is highly sought by casino executives, distillers, bar owners, architects and nightclub management companies. His consulting methodology is transparent, simple and straight forward. Preston identifies problems, creates operating systems and provides long term sustainable solutions.