Unlocking Restaurant Profitability with Chip Klose

In this episode of the Restaurant Technology Guides podcast, host Jeremy Julian dives into the intricacies of restaurant profitability with special guest Chip Klose, a bestselling author and host of the Restaurant Strategy Podcast. Chip shares his journey from theater to fine dining and emphasizes that profitability is the key measure of success in the restaurant business. He discusses the biggest challenges in achieving profitability, including managing revenue, cost of goods sold, and labor—all moving targets. Chip provides practical insights into operational strategies, marketing techniques, and customer retention methods to help restaurant owners enhance their profit margins. Listeners will learn how to implement effective systems, evaluate menu items, and ensure repeat business to drive overall growth and stability in their restaurants.

00:00 Restaurant Strategy

01:05 Introduction and Guest Background

01:53 The P3 Mastermind Program

04:13 Ideal Audience for P3 Mastermind

07:15 Challenges in Restaurant Profitability

13:53 Understanding Revenue Growth

18:22 Marketing Strategies for Restaurants

22:22 Engaging Customers from the Start

23:23 Creating Repeat Customers

24:16 Data Acquisition Importance

26:21 Personal Touch in Hospitality

30:43 Managing Prime Costs

34:29 Optimizing Menu and Labor

37:56 Final Thoughts and Free Gift

Transcript

Speaker: 0:02

This is the Restaurant Technology Guides podcast, helping you run your restaurant better.

0:14

Have you ever wondered what really goes on behind the scenes of restaurant profitability and success? Today, we're pulling back the curtain and revealing the untold stories, surprising insights and game-changing moments that you don't wanna miss. Today's guest is none other than a bestselling author, chip, close. Chip has been in the restaurant business for quite some time and has an incredible insight to really be able to drive. Profitability, which in his opinion, and he talks about it on the show, is the only measure of success within the restaurant business. Please stick around until the end where he shares some really great insights on how restaurants need to be thinking about these things. If you don't know me, my name is Jeremy Julian, I'm the Chief Revenue Officer for CBS North Star. We wrote the North Star point of sale solution for multi-units, and now onto the episode.

Jeremy Julian: 1:06

Welcome back to the Restaurant Technology Guys. thank you everyone out there for joining. As I say, each and every time, I know you guys have got lots of choices, so thanks for hanging out today. I am joined by an industry expert. I would say, and I know he's gonna probably be like, ah, yeah. But, but I've been following, his stuff and kind of the content that chip's been putting out. So I'm gonna let him introduce a little bit about, his background, a little bit, where he came from, and then we'll talk a little bit about one of the big things that, a lot of people open restaurants for, but. Few seem to have, have mastered as profitability. And so why don't you get, get our audience a little bit of a primer as to who you are before we jump into why they should listen to you. And I hang out for 30 minutes.

Chip Klose: 1:40

I appreciate it. first things first, thanks for having me on the show. you're a big deal. This show's kind of a big deal. I appreciate the opportunity to come and chat with the audience. I imagine there's probably a fair amount of overlap. people who listen to both my podcast and yours. so I'm the host of the Restaurant Strategy Podcast. the founder of something called the P three Mastermind. I've been in this industry for 25 years, my first job was in restaurants. My second job was in, my third job was in restaurants, and, everything in between. I took the side door into the industry though because I was, going to school for theater. I came to New York, to be an outta work actor. And what do you do as an outta work actor? You get a job in restaurants and, after about, I don't know. Eight or 10 years. I realized my, my theater resume was okay. but my restaurant resume was pretty good. certainly much better. I had a, I dunno, a dozen Michelin stars in the resume. At that point. I had worked with three different James Beard Award winners, so I really started on the operational side, so I was a busser. I folded pizza boxes, I wash dishes. I was a host, I was a server. I moved up to captain, I got into fine dining. I managed, and that's what I did through the heart of my career. 20 years in New York City, mostly in fine dining, opening restaurants, running restaurants. I worked a lot as a Matre d so I was the front of the restaurant. I was responsible for driving revenue, filling butts in seats. at a certain point I got really interested in marketing, so I started doing marketing for restaurants. I was always an amateur photographer. segued that into being a professional photographer. So did a lot of content capture both. photo, video, all of that started doing marketing for restaurants.'cause I looked around and I said, Hey, restaurants, really either don't do marketing or they're not good at marketing. And I think there's a gap I did that, that led me to go back to school. I got my MBA at the age of 42, during the pandemic. That's what I did. And really over the last many years, I parlayed all that operational experience, all that marketing experience, into coaching. So I run that coaching program called the P three Mastermind. So currently I have scaled that program up to four unique groups. We have over 150 people currently enrolled in the program, and we are laser focused on profitability. Because I think independent owners and operators, get into it for all the right reasons and they get out of it for all the wrong reasons. So I don't teach anybody how to create a great experience or to provide hospitality or how to cook or whatever. They got all that covered, but I show them how to do it profitably. How to actually make a living, provide some stability, build legacy for themselves, their families, the people who work for them. that's the program I run, the P three. mastermind is laser focused on profitability, which is what I spend a great deal of time talking about.

Jeremy Julian: 4:12

I love it. and talk to me, who is the ideal audience for the P three mastermind? Is it, is it multi-units? Is it single unit operators? super high volume, super low volume. Talk to me a little bit about those people, because I think, when people get done with this, they're gonna be like, I gotta figure out how to get more of what he's, putting down. And I'd love to, to, just take it off at the onset. What are those things? Who are the right people if they're sitting there listening? when we're going through our conversation about the things that you've learned.

Chip Klose: 4:35

I appreciate, it's a great question. For the most part, we say you gotta be open at least a year.'cause I don't wanna be working with any new restaurants. I opened a ton of restaurants during my operational career and that's a whole other beast. So you gotta be open at least a year. We like to say you gotta be doing at least a million dollars in revenue. And there's a couple of reasons for that as that it's an investment of time and an investment in money to work with me and my team. and we wanna make sure that the restaurants are doing enough revenue to really see the impact of the work that we're going to do. The other thing is that I'd say most of the members in the group are between 1,000,005 million A UV, and I would say they're like six locations or less. More than half of our people are multi-unit owners, and there's a sweet spot right there. And the people that I love working with are the people who are doing something right. They're growing, they've got multiple locations, but they don't yet have those systems in place. And I've had the great fortune of working with some very accomplished people and working with much bigger groups. And so all I do is I help bring some of the systems that I learned from. Other groups and bring them to the independent owners and operators. What happens is when you get 10, 20, 30 locations, you've got directors of operation in place, you have regional managers. You have A CFO, you have a CTO. You have people in place who can help you navigate this. But where I think there's a huge need is that two to 10. Two to 10 locations, man, I know what I'm doing. This town loves it. The next town over loves it. I'm gonna put it in the next town. I'm gonna put in the block over, I'm gonna put it at the university. I'm gonna. But they don't necessarily have the systems in place to be able to step back from the operation the way that they should be able to do, to focus on further development, things like that. So we teach them the systems, give them the tools so that their teams at the unit level can do what needs to be done to make sure every unit is profitable. That helps you grow and scale, more consistently. It helps you get access to, cheaper capital, better terms. It helps you. Be able to have that franchising conversation, if that's a direction you want to go, that we find that, NOI, that operating profit, if we can really focus on that, making sure that every location is profiting, consistently and at the level they're supposed to be, then there's a lot that follows after that.

Jeremy Julian: 6:58

Yeah, I love that. There's a leadership speaker that I talked to that says I have to, he goes through once or twice a year to evaluate what's working so that he knows how to replicate it. And I think all too often restaurants get to that five or six and go, I dunno, I figured it out and I got five or six, but now when I wanna get to my sixth or seventh or eighth, they can't. you said something on the intro of just why do restaurant owners hospitality. People get into the business oftentimes. I'd love your take on that before we dig into kind of what you guys did do to dig out why they're not growing profitably at consistent levels. But what are you finding when you interview your clients where people, talk to our listeners out that are like, that's me. They get into the business'cause they want to serve, they want to help, they want to build up people. But what are some common things that you see people. That want to get into the space? What are they trying to get into the space for and what is it this lack of profitability preventing them from doing?

Chip Klose: 7:49

you know when you're a kid, right? When you ask a kid, Hey, do you, what do you wanna be when you grow up? And what do they always say? They say, I'm gonna be a firefighter, a police officer, a teacher. I'm gonna be an astronaut. I'm gonna be. A chef there. There are things that they say, because those are things that they see. Most kids don't ever see an architect. They don't see an engineer, they don't see, there's tons of jobs that they don't see. But the things that are visible are the, as my son would say, the community helpers. The people that we see. So I think what happens, same thing is true in our industry. You see a restaurant. And you say, oh, I know what that is. We make food, we give'em a menu, they pick, here's all the stuff I can make for you today. Pick what you're in the mood for and I'll make it for you, and then we'll make sure you have a great time while you're here. That's, I think, why people get into it. That's what I get. That's why I get into this industry.'cause you get to have the greatest stuff on this planet. Great flavors and food and combinations and wine and spirits and beer. All the coolest things and you get to be a host and we come to restaurants to entertain and celebrate and mark occasions like, that's incredible. So I think most people get into this because they're good at something, because they love this. They want to provide and serve people and all that. And what happens is, I think, is that most people either ignore or are unaware of the rules. Let's be clear, the rules are always changing. The rules in the seventies are different than the nineties are different than today. So what are the rules? The rules of profitability, meaning you can't spend more than you're bringing in. And so it's easier said than done. I think we, we have a job and that determines what house we buy, what car we buy, what apartment we rent. We say, this is how much I make, and so I wanna make sure that I don't go over budget because I can only afford a certain amount. The same is true in restaurants, and yet it's more complicated. So when I went back to school, when I went back to get my MBA, so I went to St. Joe's. St. Joe's has the only program like it that I've ever seen. It's an MBA in food marketing. It was literally made for me,

Jeremy Julian: 9:50

that even existed.

Chip Klose: 9:51

Oh, it's incredible. But I was around people who were in CPG retail, massive, like broadliners, big box supermarkets and food service, right? So I got to see all these things, and one of the big questions that I wanted answered was this question. Our restaurants are full every night. They're packed. People are spending money on wine and beer and drinks and food, and we got tomahawks going out and all this. Why aren't they profitable? It's funny, I was paired up on a project with a guy, in my very first semester and he was a food scientist at Campbell's. So St. Joe's in Philadelphia, right across the river is a Campbell Soup Company and they have a really great leadership program and they will help pay for you to go back to school and become part of the leadership. So all these people were trying to get their. Business school paid for. And it was funny. And I said, why are you doing this? You're a food scientist. Why go into business school? And he gave me his answers and he said, what about you? I said, I've spent my entire life in restaurants and I don't understand why they're not profitable. I don't understand why it's so hard to make money. And without even skipping a beat, he goes, oh, that's easy. I said, what's so easy? And he says, it's because you guys have three moving targets. I said, what do you mean? He says, you have three moving targets that at Campbell Soup, we pretty much don't have. And he said revenue is a moving target. So at Campbell's, we have salespeople who are selling our soups a quarter ahead of time. He said, so revenue is not a question, but at the restaurants, you can't tell who's coming in, how many people are coming in, what they're going to buy, right? So you can't be sure how many covers you're gonna do and what your average, guest is gonna spend.

Jeremy Julian: 11:32

Yeah, and how many tomahawks do you need to cut versus how many salmons do you need to cut?

Chip Klose: 11:35

So because revenue is a moving target, therefore, to your point, cost of goods sold is a moving target. If I buy too much, I'll have waste, and that'll cut in my profitability if I don't. Bring in enough. I'm gonna have 86, I'm gonna run out of food, I'm gonna piss people off. They're gonna say, I don't wanna go back there. They ran outta half the menu. So revenue is a moving target, therefore COGS is a moving target, obviously. Then labor is the other big moving target. I think there's days gonna be busy, so I staff up, but let's say. You know right when the concert was gonna get out across the street, it starts raining. So everybody just runs to the subway, runs to their cars, and they don't come out afterwards. So I think it's gonna be busy, but it ended up being slow and that directly cuts into my business. He said at Campbell's, again, we have salespeople who sell months in advance. So revenue's not a moving target because we know how many sales we have. We know how much product to buy, so how many cans, how much ingredients to fulfill the number of orders that we have. We also. Know how many people it takes to run the line, to put that many, to get that many cans off the line, so to speak, since a revenue cogs in labor. Aren't our moving targets. Now we have other moving targets, right? They lock in, deals for products months ahead of time, years ahead of time. And there are other challenges they have, he said. But the three that you have specific to your industry, we don't have, and that's what makes it so hard. It was like. I was three months into the program and I was like, holy crap. It just gave me such clarity on it, and so we spend a lot of time talking about the three moving targets and how important it is to wrangle that, right? Obviously cogs and labor, that's prime cost. Most people listening to this. Podcast will understand how important it is to manage prime, and then revenue has to do with growth. So can you manage your key expenses in relation to revenue, and then what are the levers you can pull to actually grow revenue? That's, I think, why it's so difficult, and I didn't get that. At least I couldn't articulate it as clearly as that guy articulated, and now I lovingly steal it and I tell everybody.

Jeremy Julian: 13:38

Yeah, this is my 30th year in this industry and I've never heard it articulated nearly that, that, that succinctly. So thank you for that. I likely will be stealing some version of that same thing because I never really had thought about those three pillars being so critical. So let's double click on, use one of those corporate terms. Let's double click a little bit on kind of the revenue side of things. You did take, some marketing stuff. You were in marketing. how do you guys even think about driving revenue? Because I think certain places have a revenue problem in the off hours, in the shoulder hours. Certain people have the quality of the revenue that's coming in and it's getting eaten in away by certain things. So I'd love to have you walk our listeners through the different revenue levers that you guys can pull when you're talking with people in your mastermind and through the things that you guys are doing.

Chip Klose: 14:20

Totally. It's a great question. So in the Mastermind we spend a lot of time talking about profit. So it's about locking in, managing our expenses, primarily cogs and labor in, in relation. To our revenue, and then we focus on growth, right? So it's profit and growth really has to do how do we grow revenue when we grow revenue, right? It's on the operation side and on the marketing side. And I think some things, happen that people get wrong. Number one, there are only a couple of ways that we can actually grow revenue, right? So when we talk about revenue, revenue growth, we can sell more of the product. We can sell, that product for more money. Or we can sell a variety of different products so we can sell more of the product that's more butts in seats, right? We can increase covers. number two, we can sell the revenue, we can, increase the price of the product. So literally we can increase prices, or we can find a way to increase PPA, the per person average, right? So that each

Jeremy Julian: 15:18

Selling more products to the same guests. That's already butts in the

Chip Klose: 15:20

correct. So there's. Those are the two ways. And then the third way really is a variety of different products. So different day parts are different products. The kind of person who comes in for lunch is looking for a different solution than they're looking for dinner. Private dining is another product. Catering is another product, merchandise, cookbooks, those are all different products.

Jeremy Julian: 15:38

nights, beer nights, all of those kind of things.

Chip Klose: 15:40

so what I'm really, what I'm really interested in doing is not giving people the answers, but giving them a different frame. For thinking about the question. So when we talk about revenue growth, let's make sure we're understanding what we're talking about.'cause usually when we say, I need to grow revenue immediately, people are just talking about getting more butts in seats, right? So from an operational perspective, I'm gonna say, what are we doing to increase check average? Thereby, we have to understand what point A is, where's our check average? Now, on average, what does each person spend when we, when they walk through the door, we should see like a little number over their head. I know that's$36.$36.$36, and what. Is my team, right? What's the menu? What's the layout? What's the team currently doing to generate that$36 per person? And are there additional things that we could do to grow that? From 36 to 39, a$3 increase per person, when you look at the thousands of people that you take care of every month,$3 times, thousands of covers ends up being a really meaningful. growth in revenue. So the first thing we do from an operational perspective is what are the levers we can pull to increase PPA? That's a whole man. We could do a whole podcast just on that. On the other side of the operation is what are we selling our people? are we maximizing all of our revenue streams? Breakfast, lunch, dinner, happy hour, late night. Catering, private dining, personal chefs, merchandise, cookbooks. what are all the things we can sell to people and are we doing a good job? A great example, I spent eight years at Gotham, so Gotham Bar and Grill was, one Michelin star for, years and years before they closed. And I was there at, in, in the height of what? when they were popular and one of the things that we were trying to determine, and this really stemmed from our managing partner, said, we can only get so many covers in. We can only charge so much before we meet that threshold. And they say, man, it's really too expensive to go there. So he was really intent on finding other things to sell people. We basically had a Gotham Selections program where we had catered pantry products, spice blends, olive oils, balsamic. Quality ingredients that he was sourcing, that we were curating for people. It was another product we could sell. We started the chocolates program, right? These were high-end bean to bar chocolates that we could, it was an additional thing we could sell to people. It was all revenue through the register, but it wasn't increasing the price of the meal. It was just finding additional things to sell people. So we could sell them at the end of the meal. We could sell them via the, the website. We could sell them via email, right? Operated as a, as an e-commerce brand for a while, and we were got really good at finding additional products to sell our people. So have you exhausted all of your revenue streams? So on the operation side, those are the pieces on the marketing side. Then again, we have to simplify further rather than buts in seats, right?'cause butts and seats usually mean how do we get new people in the front door? And I think most restaurants do a particularly bad job. At retention. So when we talk about marketing, I wrote about this in my book. I wrote a book called The Restaurant Marketing Mindset, and in it I talk about a triangle. I said, at the end of the day, there's really only three things a restaurant needs to do to market itself. Number one, it has to focus on customer acquisition. I call that attraction. What are you doing to raise awareness and convince people to come try you for the first time? There are things you can do to make that happen. Number two, customer retention specifically, what are you doing to get those first timers back and what are you doing to increase the frequency of visits? Airlines are really good at this. Hotels are really good at this. Restaurants are particularly bad at this, right? And again, there are great examples. We can look at what Delta does. We can look at what Ritz Carlton does. We can look at what Starbucks. Does they do it better than we do, but what are we doing to get new people in the front door? What are we doing to increase the frequency of visits? And then the third piece to the triangle is what I call evangelism, which is word of mouth. What are we doing right? If we know word of mouth is so powerful for our industry, which I think we'd all agree, it's like the most powerful marketing tool out there, then we gotta put our thumb on the scale. What are we gonna do? What can we do to make sure it happens? More often or that it happens every single time. When I ask people, I'll, go to trade shows and I'll say, what's the best marketing tool we have? And everyone says, word of mouth. I say, you're right. I say, sir, what's your word of mouth plan? And they look at me, I say, miss, what? What's your word of mouth? I, what do you do in your restaurant? And there's always some guy in the back, he raises his hand, he's that's not really how word of mouth happens. I said, oh, tell me how it happens. He said, somebody comes in, they have a great meal. We take care of them. And then they go tell their colleagues. They go tell their mom. They go tell their, I said, I totally agree, but if that action is so powerful. Wouldn't we wanna manufacture it? Wouldn't we wanna do more things to make sure that everybody goes to tell everybody about it? That's what a great church does. There's a reason I call it evangelism. A restaurant grows the same way a church grows. Church doesn't grow by the pastor. Shaking enough hands, church grows. When people in the congregation are moved and they can't help, they're compelled to go speak about it. man, I was at church yesterday and I heard this thing. And it really resonated with me. And somebody says, wow, that sounds great. That sounds like the kind of place that I'd love. You should come with me next Sunday. Maybe we will. That's how the church grows naturally. It's the same way a restaurant grows. So when we think about operations, it's about compartmentalizing. And when we think about marketing, I think we also have to compartmentalize so that everything we do, every action, every tool, right? Whether it's Google Ads or Facebook ads, or web or whatever it is. That we know what it's trying to accomplish. So we can measure, this is what I did to accomplish this goal. Did it do it or did it not? If it did it, let's do more of it. If it didn't do it, let's scrap it and go back to the drawing board.

Jeremy Julian: 21:24

I'd love to have you just,'cause I had a guest on recently that talked about some executive that they were talking about, and they were like, we already have 20,000 people in our database. We think we've exhausted this whole town that's coming and. his marketing person would say to him, you realize that people are moving every day. People are not coming back. So you've gotta constantly be on that growth trajectory and adding new names to your list.'cause people are passing away, people are moving outta town. People are, something is happening that you're going to, by the nature of everything that's going on, you're going to lose customers. And so you have to ensure that you're constantly adding to that database. And so I find all too often, we have enough, we place an ad or we send an email and people come and so we're in a good spot. But I would encourage all of our listeners out there to always be adding to that list and always be communicating.

Chip Klose: 22:12

do you know the two big things? just to go a little bit deeper there, when we talk about marketing, I'm a, I approach marketing from an operator's perspective. There are a couple of simple things we can do that, that make this tangible. So let me share those. Number one, we should be asking every single person, every single table. Whether they've been here before and it sounds tired, it's cliche. Hey folks, how you doing? My name's Chip. I'll be taking care of you. You've dined with us before. We've heard it done badly,

Jeremy Julian: 22:43

Yep.

Chip Klose: 22:44

but when it's done we come over and say, hi, welcome. Glad to have you tonight. My name is Chip. Or don't say your name. I come from fine dining. We never say your name, I'm glad to have you tell me. Have you guys dined with us before? And when they say no, we say that's incredible. Can I ask you a question? What? What made you come in today? They'll tell you. Say, oh, you know what? I work with this woman, she's in the next cubicle, she's in the next office. Or, my brother was raving about this. Oh, my mom loves this place. You'll find, you'll figure out what of your marketing is working, right? So number one, you get answers to your questions. Number two, then you say, okay, whatever we did. some of our marketing worked and they got'em in here. And it's like John Taffer talked about this with 12 years ago. The goal is not to get'em in. The goal is to get them back.'cause if you can drive towards repeat visits, then you got'em for life. So you make it your point, I always say you jam something in their hand. We will definitely get them back. So rather than saying, so usually what you say is, Hey, have you been here before? And they say, no, it's our first time. Usually what you get is just a big smile, Oh. amazing. Welcome. I'm gonna take really good care of you, and you should do that. You should say, oh my God, that's amazing. I'm gonna point out the signatures. I'm gonna point out some of my favorites. I'm gonna show you the best way to experience this place. That should happen. But then at some point in the meal. We should do something that will get them back. So that's a way to operationalize. That's a simple bounce back program. You put a postcard, a business card, a poker chip, something in their hands that says, Hey, come back and you get X next time you come back. The other thing you can do, very simple. I used to do this. So when you work at a restaurant and if you take reservations, you've got a computer system. If you have a restaurant and you just have a wait list, it's walkin only. You still need a computer system because customer acquisition without data acquisition, as my friend Rev CIO always says, customer acquisition without data acquisition is an absolute waste. It's like going to the bar, buying somebody a drink. And they say, Hey, can I buy you a drink? And they say, sure. And you buy him a drink and you say, great. And you just walk away. And they walk back to their friends. You walk back to your friends, you buy them a drink for a couple of minutes of conversation and maybe a phone number, right? If you don't take advantage of that thing. I used to do this all the time and I used to do it, and people used to think I'm crazy because people would walk in and say, Hey, do you have a table for two? It's an empty dining room behind me. It's easy to say, yeah, absolutely. Follow me. But if you just stop and say, yeah, I think we could do that. My name's Chip, what's your name? And they say, oh, it's Ted. Ted. What's your last name? Oh, Ted Smith. Ted Smith. You in our system. And I'm already typing on the computer and I say, oh, do I have you in here? Is this your phone number? Or if you're not, I say, oh. It looks like I don't have you in here. What's your phone number this way for the next time? And you put it in there and say, great. What's the best email address? If you do that, 50% of the people would say, I'd rather not give you my information. Fine, but the other 50% will give it to you. What happens is it's a 32nd speed bump that when you say, and they come in and say, Hey, do you have a table for two? Let's be real. People say, yeah, I think we can do that. My name's Chip. What's your name? You'd be amazed. And how people light up and they say, oh yeah, that's right. It's not just transactional or it doesn't have to be. If we wanna pretend like we're in hospitality, let's actually be in hospitality. Let's introduce ourselves, let's get to know people. If you can get their name, their phone number, their email address, it'll take you all of 30 seconds. And that's if they, people have to think deeply about it, but otherwise say, great, now you're in our system. Follow. And then you follow the same track, but now you've got them. There's so much you can do with that. once you have that, those are two easy ways to operationalize marketing. That's marketing.

Jeremy Julian: 26:14

Yeah, and people think it's Facebook ads and Google AdWords and all of those kind of things, but at the end of the day it's creating a memorable experience. Recently I celebrated my anniversary with my wife. We went to Carbon in Dallas. They did exactly what you said. I had been for a business dinner. Now I was taking my wife there. They created an. Unbelievable experience. We've now told bunches of people, the manager has reached out to me post to say, Hey, I'm so glad that you had such a great, they asked for a Google review'cause they knew I'd had a great experience. I've gotten comments now on that Google Review that's marketing that creates this word of mouth that's in an industrial area in downtown Dallas. carbon, I'm sure because of being, you know where you're at. But it was one of those things that I think, but it really requires. Thoughtful and intentional ways of going about it. Chip, and I'd love for you to, and you have to train your staff to do these things and so

Chip Klose: 27:02

You have to be aware of

Jeremy Julian: 27:03

that idea. You have to be aware. You have to evaluate what you're doing and go what is not working, and then get them into that place to be able to do it a little bit differently because that difference, just, that difference in the way that you took the 30 seconds at the onset versus the way that you normally do it can create double digits increase in profit if you do it properly. is that something you're learning and,

Chip Klose: 27:22

hundred percent. and anybody listening to this, I'm sure you've never been to a restaurant that did it. Most times you walk in and say, Hey, do you have a table for four? Yeah, right This way, just by doing it, you win. You beat out 99% of everyone else in your market simply because you're aware of it. There are these little moves. So yeah, while Google ads work, and I think you should do them while meta ads work, and I think you should do them not before you do some of this basic blocking and tackling where you say, data acquisition is absolutely crucial to the success and growth of our business. And what are all the ways we're gonna do that? So don't just do a plug and play. Oh, my POS my POS system offers loyalty programs. We'll do it. You should do that, but don't rest on your laurels thinking that's enough. Find all the different ways. So when I used to do this, when I used to get people's information, I would mark it in my old days as MHD, I'd mark them on the sheet, and at the end of my night I was done. I'd go upstairs, I'm doing my closing report, I'm sitting, I loosen my tie. And what I would do is I would text. I would text people and I'd say, Hey, I just wanted to thank you again. This, my name is Chip. I'm the maitre d at this restaurant. You just came in. I hope you had a great meal. If you ever need anything in the future, just let me know. Or I would ask a question like I meant to ask you, and I would do this purposely. Sometimes I would stop by the table, but I would, I, I always stop by, but I meant to ask, what did you think of the, and I would just

Jeremy Julian: 28:51

the sole of the ribeye of the

Chip Klose: 28:53

What did you think of the tomahawk chop? And they would go, oh my God. It's like nobody does it, but I just extended the hospitality from beyond the four walls and like now they're in my phone. I'm in their phone. So from time to time I used to say this, I used to spend, I say, if you texted five people every day from your reservation list, if a manager did this, if a Mat D did this. If you did it every day, it would change your business overnight. So if there's any operators listening to this, you start doing this, you become absolutely, crucial, so valuable to the restaurant you work at. That's how you get raises. That's how you present yourself as valuable to a competitor. That's how you get better jobs and better pay when you do just these simple things. And so it's just being aware of it and doing it. And so the things I'm just teaching you. Now I'm all, everybody's listening to it now. Operational. Take notes, right? List this out. Do this and this. It becomes an SOP standard operating procedure when somebody walks in without a reservation and asks for a table for four. This is the script we do.

Jeremy Julian: 30:00

Yep.

Chip Klose: 30:01

That's all it is. That's all it is.

Jeremy Julian: 30:04

and it's so intentional. one last thought real quick'cause we're getting close to time and I know that, we can fall off. I love all of the marketing ideas and again, there's so much that we could do to talk through that through. Tell me some of the areas that you find could chip in kind of the other two prime costs that people miss most often. food cost and, probably even more so menu selection, because I think all too often people, and you watch taffer, you watch, Robert Irvine, you watch, all of these guys on these TV shows, they're going in and beating the crap outta people'cause they're. Stocking stuff that's not selling. But I'd love for you to talk a little bit about how you evaluate those two prime costs of food cost and labor cost to give people one or two things that they need to be thinking about within their brand.

Chip Klose: 30:43

I talk a lot about the 30, 30, 20 rule. It is a rough rule of thumb. 30% cogs, 30% labor, 20% for everything else. So imagine all of your expenses going into one of three buckets. All the product you bring in to turn around and resell to your customers. That's cost of goods. That goes into the first bucket labor, meaning all your people costs, your salaries, your hourly wages, your taxes, your benefits, all that goes into the second bucket, and any other expenses that don't fit into the first or second bucket, go into the third bucket. That's what we call the everything else bucket. The rough rule of thumb, at least in the year 2025, is 30. 30 20. If you keep your cogs at max 30% of revenue. And labor max 30% of revenue and everything else to 20% of revenue, you do the math. That equals 80. That leaves 20% leftover. I believe what we do is way too important and way too difficult to not make money doing it. I think to the husband and wife out there who's got a million dollar restaurant, I think$200,000 going to your bank account, I think is a very good living. For running a restaurant, I don't think that 4%, right? That$40,000 taking home$40,000 on a million dollar restaurant, I don't think that's proper compensation for the work you do. So immediately, again, rather than just talking to you about what to do, I think give yourself a frame. Now, if you live in California, I think you're gonna have a hard time getting your labor below 35%. So it has to be made up in the other ways. So if you're at 35% for labor. And it means your cost of goods. Your blended cogs can't be over 25%. Understanding where your buckets are or where they should be, and then looking at where they are now. That's how you begin to combat the problem. and the, it's different state by state, it's different municipalities, it's different by

Jeremy Julian: 32:35

Even product categories.

Chip Klose: 32:36

understanding that when you then look. To drill down your cost of goods, your beverage has gotta be 20% or below your food cost has gotta be 30% below. And I know people say, oh, it's dollars, it's gross profit. oh, we've got our lobster. We, it's at 55% cost, but we make so much money. Fine. We can have that conversation. But those are sort of shades of gray. Ours is a, business of percentages. broad strokes. 30, 30, 20. You need to keep all your expenses at 80%. You need to understand where your bread gets buttered, What are your popular items? What are your profitable items? How do you highlight them? How do you strip everything from your menu? So all that's left are the items that are very popular, very profitable, the things that get photographed, the things that people will rave about the next day. Certainly we've been to restaurants where oh my God, I gotta tell somebody about this. Like I talk about carbon. There are plenty of those items on the carbon menu that are just like, I gotta tell somebody about this. I can't believe this. How much is the chicken parm Carbone?

Jeremy Julian: 33:39

$38 I think.

Chip Klose: 33:41

It's a lot

Jeremy Julian: 33:42

Yeah, it was for a piece of chicken

Chip Klose: 33:44

for, so every else in the world, it's like 14, 16 bucks. It is easily two x and that's part of the conversation piece. It says 38

Jeremy Julian: 33:53

I had a 60 day dry age ribeye that my wife was like, you're paying what? That's a car payment for the steak. But I did, and I've told bunches and bunches of people about it because of it.

Chip Klose: 34:03

Yep. it, so it's understanding. It's understanding what are the things that get ordered all the time? What are the things that are gonna, get raves that are gonna spread about your place. That's the, that more helpful to me saying, do this, to lower your food cost. Do this to lower your labor cost, understanding how your buckets are. The thing I'll say about this though, and it's an indirect answer to your question, is. Every potential solution has to be on the table. So if we say, if I walk in and say, you gotta lower your back of house labor by X number of percent, and I have a chef and I've had this conversation before, they say, I can't do it. I can't put out this menu. With that few people, I said, great, this is what you can afford. So build me a menu that runs on this. I got six guys back there. You can't afford more than four. Build me that menu and the best restaurateurs out there. I had John Taffer on my show. He talked about compression. He said, there's this a natural compression happening in the industry and I never heard it. Put that way, and he's absolutely right. He built Taffer Tavern with the idea being that they would be between 50 and 52% prime. And so he was looking for consistency and he was looking for a way to roam at the least amount of people possible. He's I see the way the world is going, and I don't think we can get into this place where we're running 60, 65, 70% prime. We just can't make money. Gone are the days of cheap labor, We have to understand that you've got to, I talk about, as I was working at a Michelin star restaurant, I came in as a consultant and one of the things we ended up doing is that you, the way we cut labor is we got rid of the pastry cooks at night. And basically what we said is we determined the pastry, the hard work of being a pastry cook is in the day baking and making T wheels and, making ice creams and stuff like that. But at night it's just, putting the dish together. It's just assembling the dish. So what we did is pastry was right next to Garmer. They're both on the cold side. We said we're gonna pull some of the items off the garmer, right? So less things are gonna come off garmo, less things are gonna come off pastry. And then these people can also execute desserts. The strange thing that happened is we had less, apps that we offered. We had less desserts offered. We increased dessert sales and cut. Our backhouse labor. at the same time. It's again, that idea of compression that John Taffer is now talking about, I think it's absolutely right. You have to be willing to make bold moves like that

Jeremy Julian: 36:34

And to kill your darlings. Sometimes there's times that people, oh, I, but we've had this menu item in here forever. It's not selling, it's not driving profit, but we've had it there forever. And and so to your point, there's these things that all too many restaurants and you have to have those hard conversations, with these owners.

Chip Klose: 36:50

Or, and to your point, oh, it's your darling. Oh, but we're famous for this and all this, okay? But it's not helping us right now. So if this is so good, so here's my$12 chocolate cake. So make it a$19 chocolate. Call it the, it's the signature. Call it the signature. All the other desserts are 12. Our famous one is 19, so then I'd be happy to sell it right

Jeremy Julian: 37:13

because now you're driving to exactly what you're looking

Chip Klose: 37:15

there are things that we did right? McDonald's, the fries are at what 7% cost, then the number one item on their pix. Which makes sense. There's only one side dish. They pretty much serve fries with everything, so it makes sense. But they're also at 7% cost. And when I tell you they're taking advantage of you as the consumer, it doesn't make you angry because they're actually worth it. No one, only a psychopath goes to McDonald's, orders a Big Mac and says, no, hold the fries, the burger and fries are that match. Just because, That they make so much profit on, it doesn't make you like them any less. In fact, I admire it even more so they, they know what they're doing. In most of these instances, we just look at the big boys and see what they're doing, and we just have to emulate them. So why are they doing that? We should do it.

Jeremy Julian: 37:56

one last question before we wrap up, and I know you've got a free gift for our listeners. How do, for those listeners that are out there that are like, I don't want, I didn't open up a restaurant to spend 40 hours a week in the office doing numbers. I know that's not the case, but I know you get that feedback often from people where they're like, I didn't open up a restaurant to sit and deal with p and Ls and sit and deal with my profitability. While I agree with you wholeheartedly, that they should be thinking about these things more, but how long does this really take in a week when you've got your system set up properly?

Chip Klose: 38:25

It's funny, when we work with members in the P three Mastermind, we can help them set it up. We ask for six months in the program. Within the first 90 days, they see a huge change. The idea is creating a system that's not extra work, right? If you are forecasting, I'm gonna give you a better way to forecast. If you are already budgeting, I'm just gonna give you a better way to budget, and if you are not forecasting and budgeting, those are the two actions that will take roughly 30 to 60 minutes a month,

Jeremy Julian: 38:52

30 to 60 minutes a month. I want to, I wanna repeat that. Sorry.

Chip Klose: 38:56

30 to 60 minutes a month, and then daily check-ins. When I say daily check-in, it's two minutes actually looking at very specific numbers because you know what they mean. You know what they're telling you. So it's not busy work. It's not a lot of line items, it's saying. The number one is the revenue setting, revenue targets for your team, making sure they're hitting them every day. The way you figure that out is you open up your spreadsheet the next morning and you make sure that they hit the number that you needed them to hit, and then making sure they kept their ordering and their scheduling on budget. Those are the three biggest culprits back to our three moving targets. So if you can properly wrangle those, and yes, it's 30 to 60 minutes a month and get this, honestly, it's not a task that you even need to do. Forever.'cause once you learn how to do it, my goal is always to show you how to do it in a way that's very easy to teach your team to do it. It's something the GM in your location or something your executive chef in the location should be doing. this is not a repeat, not an owner action. It is an operator action. And so what we need to do is provide the framework for what needs to happen and proper oversight. For how it needs to happen. So give you ways to check on the things that are happening. You shouldn't have to, you shouldn't have to do it.

Jeremy Julian: 40:15

I love it. I, again, as I said on the onset, I'm a huge fan. I know you've got a gift for our listeners. They've got other ways they can stay connected. You've got a book already out. I think another one on its way, you've got the podcast. So tell the people how to get connected, how to stay connected, and how they can learn more about, engage and even with the Mastermind in your team.

Chip Klose: 40:32

Yeah, super easy. So if this resonates with any of you guys out there, I've got the podcast, the Restaurant Strategy podcast. We have conversations around this at two episodes every single week. Go check out the podcast. What I'm gonna offer up to you guys is that if you wanna do a free p and l review with me, 30 minutes, absolutely no strings attached. It's the first thing we do with all new members. We can certainly talk about the Mastermind and talk about what it might look like with you, but we'll go through that diagnostic exercise. We'll look at the numbers. I'll show you what I see. I'll give you a handful of action items, and if you wanna continue the conversation and talk about how we might help you with that in. The Mastermind, I'm happy to have that conversation. And if no, you just want to go take care of it yourself, I'll give you the action items. You can do it. So I will give you a special link you can include in the show, in the show notes, so that people can do it, but it's a link directly to my calendar, not anybody else. It's me. You can book time to get a free p and l review. It'll be 30 minutes and you'll come out of that. I think with a lot of clarity about where your business is at and where I think it can go.

Jeremy Julian: 41:36

again, we just spent 42 minutes and you've, you've delivered some pure gold, so thank you for what you do. I'm passionate as you are at watching restaurants succeed, and I hate watching restaurants struggle. so thank you for continuing to put that, info out there. Thank you for helping restaurants. to our listeners, guys, like I said at the onset, you guys got lots of choices, so thanks for hanging out and make it a great day.

Speaker 2: 41:57

Thanks for listening to The Restaurant Technology Guys podcast. Visit restaurant technology guys.com for tips, industry insights, and more to help you run your restaurant better.