Fighting with credit crunch (80/20 Rule)

A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates. In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e. credit rationing occurs). Many times, a credit crunch is accompanied by a flight to quality by lenders and investors, as they seek less risky investments (often at the expense of small to medium size enterprises).

As a consequence, unemployment is rising and people are limiting their expenditure. It has affected all sorts of business. Restaurant business is no exception to it. People are dining less in restaurant. So it is crucial for the entrepreneur to come up with the strategy to survive in this crucial time.

80/20 Rule
The 80/20 Rule states that a small number of causes are responsible for a great number of effects. In business that often means 80% of our sales come from 20% of our customers, so looking after them should be our primary focus. In addition, it further implies 20% of our customers give us 80% of our profit, so looking after that 20% should be a crucial, and the foundation of business survival and success.

So it is essential to focus on those 20% customers who frequently visit the restaurant. Apart from that we should also apply that 80/20 Rule to other areas of restaurant to bear the fruitful result. Those applications can be:

20% of our menu items will give you 80% of our sales, and 80% of it will give us 20% of our sales. It is prudent to look closely at the best and worst sellers on our list and adjust accordingly.
If 20% of our wine and beverage list gives us 80% of our sales, we should check the need to keep so many different labels, especially as it usually involves carrying expensive stock which is a big cost on such idle thing.

80% of food costs come from a very small number of items eg meat, seafood and luxury ingredients. There might need special attention on these food items.

A large reduction in costs could be achieved by working on a small number of the items purchased or suppliers (even one or two). Having only few suppliers can lead us to reliable & prompt supply along with discount. If we have reliable supplier we can also reduce level of stock which reduces the cost of holding stock.We can also assume that 20% of staff will generate 80% of the tips. So, there can be the issue of further training programs for the rest of staff to improve their performance. A small number of staff may be receiving a large proportion of the wages. So we can do the analysis regarding the value for money we are paying.

We can make a strategy to bring business from these 20% customers. It can be as following.
1. Grade our client list A. B. C. D. E.
2. Identify our top 20% (A & B). It can be done by doing record of our business for any ideal particular month.
3. We can create an array of reward schemes, such as free gifts (movie passes etc), Irish river dance programme, group outings, closed door events, special discounts, newsletters etc.
4. Give these gifts often and with regularity, say every 3 or 6 months.
5. Select Cs and Ds for special attention to upgrade to the level of you're A & B clients.
6. Make our Rewards programme and who is a part of it, known to the rest of your list via your newsletters, photos, in-house 'signage' and Case Studies.

One of the most primal needs we have, as human beings, is to be acknowledged; acknowledged for our achievements, acknowledged for our contribution, acknowledged for a job well done, acknowledge for being a worthwhile person. If we fulfill this need in our clients, not only will they continue to advocate us and our business, they may even strive to reach even higher levels of support for us. The rewards are indisputable.
Source: Sunday Times,19th April 2009