YOUR BUSINESS & ROI
Where & How Much?
Where and How Much? They're questions we all use regarding our business. Where do we put our investments? How much is right? Most of this comes down to how much extra business it will bring in? How much extra capacity can you have? Does this fit with existing customer's expectations and desires?
We at LouveRoof have seen the investments in our product by restaurants, hotels, and retail outlets not only put them on the cutting edge in terms of style and aesthetic, but also drive their own business further than they thought possible.
ROI - Explained
To look at an investment, we have to first consider how much it originally cost and how much it will bring in. To look at it simply in a view of a restaurant, especially one operating where rain and snow are prevalent,
Revenue Per Seat
Revenue per seat is the average spend per seat at a restaurant. To determine revenue per seat, take the total sales in a period of time and divide by the total number of seats. Let's imagine a restaurant that is open during a rainy day. Typically their patio area has seating up to 40 seats outside. Today, they're not seating anyone. Their typical sales inside with 50 seats during any given day is roughly $1,250 per day. That equates to about $25 per day per seat. It also equates to $1,250 lost in potential revenue not brought in.
Table Turnover Ratio
Table turnover ratio is the number of times during any given day, the table flips, or is occupied by a new guest.
Total guests / total seats = Table Turnover Ratio
If the service hosts 50 people, the turnover ratio is one. If they host 100 people, the turnover ratio is two.
Central Perk invests $100,000 to cover 10 tables on their patio. The 10 tables allow for seating of 40 patrons. It is anticipated the investment in the LouveRoof, heaters, and drop shades to enclose the patio, extends its use by 15 weeks worth of days, adding 105 extra days of use per year including snow and rain days.
The average revenue at Central Perk is $25 per seat, and the tables turn over two times per day.
Assuming that Central Perk is operating at 60% Gross Margin on their goods after wages are taken out. Carrying this over, it shows that Central Perk would bring in an additional
Available Seats x (Average Revenue per Seat – Average Cost per Seat) x Table Turnover Ratio x # of Extra Days)
40 x ($25 - $10) x 2 x 105 = $126,000
Annual Gain from Investment – $126,000
ROI Year 1 = 26%
After Year 1, given the longevity of these products, Central Perk is no longer missing out on potential revenue during rain or winter months, enjoying service and increased revenue all year round.