Unlocking Success with the Profitability Matrix

In hospitality, consistent profitability relies on understanding how key financial elements interact and impact the bottom line. The profitability matrix is a comprehensive framework that examines the critical components of a venue’s financial performance: revenue, COGS, wages, variable overheads, rent, and operating profit. By analyzing these elements together, managers and chefs can identify opportunities to optimize operations and achieve sustainable growth.

The profitability matrix is also a cornerstone of the PERI framework (Plan, Execute, Results, Improve), where it plays a crucial role at every stage. It is used in planning for budgets, in forecasting to align goals with expectations, in results to analyze actual performance, and in improvement to measure progress over time.

1. What is the Profitability Matrix?

The profitability matrix provides a structured way to assess and balance the six key financial pillars of a hospitality venue:

1. Revenue (Sales): The total sales generated during a specific period.
2. COGS (Cost of Goods Sold): The direct costs associated with producing menu items, including food and beverages.
3. Wages: Labor costs expressed as a percentage of revenue, encompassing front-of-house and back-of-house staff.
4. Variable Overheads: Expenses that fluctuate with business activity, such as utilities, cleaning supplies, and marketing.
5. Rent: Fixed costs associated with the venue’s premises.
6. Operating Profit: The revenue remaining after all costs are deducted, representing the venue’s financial health.

By using percentages, the matrix provides a clear, actionable snapshot of financial performance, ensuring managers and chefs understand where improvements are needed.

2. How the Profitability Matrix Fits Into the PERI Framework

The PERI framework (Plan, Execute, Results, Improve) ensures that every aspect of hospitality operations is aligned with achieving financial success. The profitability matrix is integral to this process:

Planning:

• The profitability matrix is first used during budgeting to define targets for sales, COGS, wages, variable overheads, rent, and operating profit.
• It sets clear financial benchmarks for the venue, helping managers and chefs understand how their daily decisions impact the bottom line.

Execution:

• The profitability matrix is used in forecasting to predict weekly performance and allocate resources effectively.
• Managers and chefs use forecasts to align staffing, inventory, and marketing efforts with anticipated sales.

Results:

• The profitability matrix measures actual performance against forecasts through profitability reports, including weekly reviews and monthly profit and loss statements.
• This comparison highlights areas where forecasts were met, exceeded, or fell short, providing insights for future adjustments.

Improvement:

• The matrix is used to track changes over time, measuring the impact of strategic adjustments on profitability.
• For example, reducing wage percentages or improving sales can be monitored to confirm whether improvements align with goals.

By embedding the profitability matrix into the PERI framework, venues create a cycle of continuous improvement driven by data.

3. Why Sales is the Key Driver in the Matrix

Although cost alignment ensures efficiency, sales growth is the most critical factor in achieving profitability:

• Revenue Covers Costs: Higher sales help spread fixed costs like rent and utilities across more income, reducing their impact on profitability.
• Scalability: Increasing sales allows a venue to scale operations and improve margins, even if some costs (like wages) also increase.
• Opportunities for Improvement: Strong sales provide the flexibility to reinvest in marketing, improve the menu, and attract more customers, creating a positive growth cycle.

In the profitability matrix, costs must be aligned, but sales is the number that drives every other improvement.

4. The Role of Weekly Coaching Sessions

The profitability matrix is a cornerstone of weekly coaching sessions, where managers and chefs receive guidance on their performance and actionable steps for improvement. These sessions ensure:

• Understanding Key Metrics: Managers and chefs learn to interpret the matrix and understand how changes in one area affect overall profitability.
• Accountability: Regular reviews highlight areas needing immediate attention, such as rising wage percentages or declining revenue.
• Action Plans: Teams leave coaching sessions with clear strategies, such as marketing plans or event promotions, to drive sales growth.

For example, if rent is 10% of revenue, increasing sales by 10% immediately reduces rent as a percentage and improves profitability without major cost adjustments.

5. A Practical Example of the Profitability Matrix

A hospitality venue generating weekly sales of $40,000 applied the profitability matrix to optimize its operations:

• Revenue: Weekly sales of $40,000 were stable, but profit margins were lower than expected. Recognizing the importance of sales, the venue began prioritizing revenue growth through targeted promotions.
• COGS: At 33%, food costs were above the benchmark of 28%-32%. Beverage COGS were slightly better at 28%, within the target range of 25%-30%. The chef adjusted portion sizes and reviewed supplier pricing to bring food costs into line.
• Wages: Weekly wages totaled $14,000, or 35% of revenue—at the upper end of the benchmark range. By optimizing rosters and reducing shifts during slower periods, wages were reduced to $12,000 (30% of revenue).
• Variable Overheads: At $7,200 per week (18% of revenue), these costs were above the target range of 12%-16%. Small adjustments to utility monitoring and better marketing allocation reduced these costs slightly to $6,800 (17% of revenue).
• Rent: At $4,000 per week, rent was 10% of revenue, above the benchmark of 8%. This highlighted the need for increased revenue to cover fixed costs.
• Operating Profit: After implementing these changes, the venue’s operating profit increased from 6% ($2,400 per week) to 12% ($4,800 per week).

However, the high rent and variable overheads underscored the importance of continuing to grow sales. Driving weekly revenue to $44,000 or more became the primary focus.

6. Long-Term Benefits of the Profitability Matrix

Integrating the profitability matrix into the PERI framework and weekly coaching sessions delivers lasting advantages:

• Sales-Centric Decisions: Managers and chefs learn how boosting sales directly impacts profitability.
• Balanced Operations: Costs like wages and COGS stay proportionate to revenue.
• Measurable Improvements: Using percentages makes it easy to track progress and identify the financial impact of changes.
• Strategic Growth: Understanding operating profit provides clarity for reinvesting in the business or expanding to new locations.

The matrix fosters a culture of data-driven decision-making and continuous improvement.

Conclusion: Unlock the Full Potential of Your Venue

The profitability matrix is more than just a financial tool—it’s a framework for understanding the complex dynamics of a hospitality venue. Integrated throughout the PERI framework, it ensures that every stage—planning, execution, results, and improvement—is aligned with achieving financial success.

While cost alignment is important, sales is the most critical number in the matrix. By prioritizing revenue growth and using the matrix to track and guide performance, venues can create a strong foundation for long-term success. In an industry where every dollar counts, the profitability matrix ensures you’re not just running a venue—you’re building a thriving business.