Free For All? Not So Fast: Comping in the Restaurant Business

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The diner on table 8 is a frequent regular, who always brings in new guests when she dines. So, you comp their desserts—Friends and Family discount. The couple at table 17 has an allium allergy, but the chef forgot about the chives in the potatoes; free entrée—Apology Comp. The owner’s sister-in-law is dining with her daughters–100% Owner’s Comp. And there goes $400 from that evening’s revenue.

 

That $400 can very quickly become five, six, or seven percent of sales that you’re letting go. Of course, there is reason—value, even—to discounting guests’ meals. But there needs to be control and accountability. Otherwise, your 10% EBITDA can quickly drop to only 4% or 5%. In this month’s Enterprise Insight, we will discuss three key steps in controlling discounts: first, defining comps vs. voids; second, budgeting for comps; and third, reporting and reviewing with management.

 

Comps versus Voids

This first tenet is simple: a void removes the item from gross sales, and a discounted item is shown positively in gross sales and then negatively in discounts. These different impacts call for different functions: if something was entered in error, or was ordered but never delivered, then this is a void. Anytime food or drinks hits the table but shouldn’t be billed to the guest should be comped, or discounted, from the bill. The primary reason being what we reviewed above: the impact on gross sales. If gross sales do not accurately reflect in totality what is actually served, then food and labor costs percentages will be inaccurate.

 

Budgeting for Comps

A key component to managing the amount you discount—ie, the difference between gross and net sales—is having a budget. Try to keep comps below 3% of gross sales. There are additional considerations, though: for example, if you have a marketing budget predicated on comping certain guests—writers, bloggers, industry—then include that, as well. So, if you want comps at 3%, but anticipate using freebies for marketing costs worth 2% of sales, then total comps should be 5%. This is particularly common when a restaurant first opens, and operators need to build buzz.

 

Reporting and Reviewing

As we just mentioned above, comps are often used for distinct purposes. This is why reporting and reviewing these figures with management is so important. If, as in the prior example, 40% of comps are meant for marketing purposed, but no one is watching, an operator won’t ever know that the bartender is just too generous, or the kitchen is making too many mistakes.

 

Thus, we recommend reviewing weekly, as we do with our clients: comps by type, comps by menu category, and if possible, where the comp types are used by category. For example, if you’re trying to build up your bar business, you need to review the current distribution of comps with management and then push them to using more Friends and Family discounts on drinks. If you notice too many Apology comps in the Food category, audit the kitchen operations, because something is not right. We recommend using at least the following types for reporting: Friends and Family, Apology, Owner’s, Marketing, Employee Meal, and Manager Meal. One for every reason. Then train the team accordingly.

 

To review: discounts have real value—both in functionality and cost to your business. Thus, it is important to establish the right parameters and protocol for usage, and then report and review the comps frequently. Otherwise, you can easily see a gap between gross and net sales that represents a gap in understanding your operations.

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