Consulting Case Study: How $19,000 becomes invisible

By Charlie on May 20th, 2009 | 11

Question: If you were about to flush $19,000 down the drain, would you know it?

stats

The question up there is a serious one. If there were a division of your company that brought in roughly $19,000 a month, would you keep it going? Shut it down? Would you even know it was pulling in that amount of money?

I would hope so, but on a recent consult I found the same old huge glaring omission that I find with pretty much any individual or business person I talk to. I tell you, I’m about to hire a guy to carve these into stone tablets for me. Or one of those chainsaw artists. He can carve up my couch to read:

Some people have no clue how their business is really doing.
Some people have no clue how to keep and use stats.
Usually these are the same people.

Stats? We don’t need no stinking stats!

I can tell you from first-hand experience exactly what happens pretty much any time you ask an individual or business person for his stats.

“Show me your stats, please,” you say.

“….,” says the guy.

“You know,” you say again, after a long pause, “statistics.”

“Statistics?” says the guy.

“Yeah, stats you know. Up. Down. Sideways. Graph paper sort of thing.”

“Oh, yeah. We don’t really have time for that here,” he says, all puffed up with pride.

“Totally,” you say, “I understand. Must be pretty time consuming walking around with that paper bag over your head.”

The application of stats to real-life

The last person I spoke to about stats is in the food business. She runs a restaurant overlooking a golf course. It’s all very gorgeous and the food is unreal.

Now, once a month she holds huge banquets in her restaurant. They close the restaurant to walk-in customers and convert the dining hall into a banquet room. Extra help is hired on for the occasions, and of course it’s all just a lot of work so she only does it “every once in a while.”

This “once in a while” almost became “never” though. And why? Stats, or lack thereof.

Here, let me back up a bit. The way this lady ran her business consisted of making large amounts of money and keeping it in a pile. She didn’t know which portions of the cash, though, came from catering, these large in-house banquets or regular restaurant income.

She knew she was profitable and wanted to become more profitable. That was the overall plan, and the way she was going to do this was twofold.

One, she was going to quit the banquets entirely. They were large productions, took a lot of time and effort and, “closing the restaurant to walk-in visitors for a whole evening is costing us a lot of money.”

Two, no longer having the banquets, she’d be able to fire her head chef (who was in charge of the banquets and was pulling the largest pay check) and replace him with someone or a couple someones who’d cost less.

She figured that by firing the head chef, and canceling the banquets she’d “make more money by having less expenses.”

This of course is all the province of statistics, and when I asked for hers, she promptly went into a coma.

“What do you mean?” she said.

“I mean I need to see your statistics. Mainly income and outgo. We’ll get to the rest later.”

“I don’t really keep stats,” she says. Thus the door to solving this problem opened, and she got some wicked homework.

“Well, over the next month,” I say, “I want you to track every dime that comes in and every dime that goes out. Don’t fire anyone, don’t hire anyone new, don’t change anything else. Just. Keep. Stats. See you in a month.”

One month later

When we met a month later I was happily surprised to see her stats were immaculate.

Inspecting her income graph for the month, I noticed an obvious spike. A large one. If you haven’t already figured it out from my painfully obvious foreshadowing, the income spike was the result of the monthly banquet. In fact, the banquet was worth about $19,000 in income.

And remember how she thought the banquets were too costly? Well, inspecting her expense graph, there was barely a dent for the night. They’d needed a little more food, a little more alcohol and a few extra hands to help with service.

What she thought was a losing night and a terrible idea was actually her largest income producer. What she discovered is sort of old news in the restaurant business. Large banquets of this sort keep tables full, where otherwise they may be empty. Banquets also consume more appetizers, drink more alcohol and order more desserts.

Plus, as she found out, there’s often a double-gratuity thing that happens. Ordinarily, 15-20% is added on automatically to the bill for a tip. But what often happens is that when signing the bills, people often write in another tip. Probably because they’re hammered out of their skulls, but whatever. It’s income.

Moral of the story

Keep stats. You might be losing money with one area of your business and making money with another. You might be losing money overall. But how will know? Without stats, you probably won’t.

Put it down on paper and be accountable for it. Yes, it takes a few extra minutes a day. But believe me, you can afford it.

Sub-moral of the story that I secretly snuck in. Cutting expenses is great and I highly recommend you trim the fat from your expense sheet. But, as our restauranteur found out, cutting expenses to make more income isn’t very sensible.

Sub-sub-moral that I also snuck in: If you run a restaurant, your product is good food. So don’t fucking fire your head chef. Sheesh.