How a Company Tripled Its Profits by a Slight Change to Their Pricing Strategy

The Beginner’s Guide to Pricing

Part 4 of 4: How a Company Tripled Its Profits by a Slight Change to Their Pricing Strategy

I would like to end my pricing series with a case study on how a successful pricing strategy tripled a company’s profits in just 2 months. Not only was this pricing strategy effective, but it was also creative and different from the majority of businesses in the industry. The business I’m referring to is a restaurant called Bar Marco.

Bar Marco is a restaurant located in the city of Pittsburg. This restaurant opened its door in 2011 and was founded by Bobby Fry. After a few years in the business, Bobby was not happy with the tipping model and restructured his business to eliminate tips. He advised his staff that they would no longer be at minimum wage and bonuses and benefits would be introduced.

After one month of implementing this tactic, Bar Marco’s revenues exceeded expectations by 26 percent. Overhead costs dropped from 40 percent to 32 percent.

Let’s look further into the reasons for this.

1. No Tips

The idea of not having to pay tips attracted a lot of customers to the restaurant. North Americans are used to paying approximately 10%-15% after each meal they eat, and now without the pressure to leave a tip, this model becomes quite attractive.

2. Better Servers

Since employees are now rewarded based on their performance on a long run, and not on a per client basis, they are incented to perform well at all levels. A month after introducing this system, Bar Marco finds that the staff has improved teamwork by 50%. They share tasks and help all customers (as opposed to the ones assigned to them). In return, customers are happier and visit the restaurant more often.

3. Lower Overhead Costs

Bar Marco also gives all their staff benefits and weekly updates on the restaurant strategy. This has definitely improved the loyalty, as demonstrated by the improved process across all departments. The water bill was cut in half, the linen bill was cut in half, and the liquor inventory was lean – all thanks to the new employees recognition system.

Wendy Ha, CPA, CMA

www.wendyha.com

With over seven years of experience working in small-to-medium sized businesses, Wendy is very knowledgeable in all aspects of accounting and tax. Her vision is to bring a fresh and innovative approach to accounting for small businesses and startups, thus helping them succeed in the ever changing business environment.

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