 Hello Aces, welcome back to module four, lesson six, pricing your menu using average order value in order for you to hit your revenue goals. In this lesson, you're going to learn how to use AOV. From now on, I'm going to be addressing average order value with AOV. AOV to calculate and price your menu. So then that way you can actually hit the revenue goals that you want to achieve. Now that we figured out all the expenses, we talked about fixed expense, we talked about variable expense, we talked about projections, seeding, so on and so forth. Now we're going to use everything that we have done to calculate the average order value, the AOV. Now, what is AOV? It is basically how much people are spending at your restaurant on average. That means that if I go to McDonald's, how much do I typically spend? I would order a meal probably around eight to nine bucks. And when a hundred people go through the doors, how much are they spending? Some people will be buying an ice cream, other people will be buying a Big Mac burger, other people will be buying a smoothie. So on average, how much are customers spending at that location? That's what average order value means, otherwise known as AOV. Now, why is knowing the AOV so important? It is because if your AOV is too low, then you need a lot of volume in order for you to run a successful business, in order for you to be able to hit your revenue goals and to cover for all your expenses. Case in point, we created our ice cream shop in a mall. And because of the fact that it's in one of the most popular malls in Vancouver in Metro town, we were able to price our item at only $2 in order for us to actually make money as well, because we have that volume. A lot of people are walking through that mall and $2 is a really good deal that they can't give up. And that's the reason why we can make it successful. However, if it takes 10, 20 minutes to drive to that specific ice cream location and they only charge $2, then that would be a very difficult business to run, because there's not going to be a lot of walk in traffic and it's always about just driving there. Then they should not price their ice cream at $2 because they need that volume. Now on the flip side, if your AOV is too high, let's say if it's a $100 wine and steak meal, and you have that location in a community or in an area that people don't really drive to, or that people don't really spend or can't really afford that meal, then that might probably not be the best choice to have that specific menu pricing at that location. So understanding your AOV allows you to craft your menu accordingly so then that way you can start hitting the profits that you're looking for. Now average order value, how do you calculate that? The way to calculate that is your projected revenue per operating day divided by the dining session equals your average order value. Yes, I understand this is going to go straight through your head because it does, I feel the same way. Basically the projected revenue is how much are you projected to make on a monthly basis? How much is that? And we specify operating days because every day is different, because you have slow days, you have busy days and you have prime days. There's so many different days and there's off days. So even though you in a month there's 30 days doesn't mean you operate all 30 days. We need to take into account on the busier days and we need to take into account on days that you don't open. So projected revenue divided by the dining session equals AOV. Now to cover the first part, projected revenue per operating days. We're going to dive into this first. Projected revenue per operating days. How to calculate operating days per month? We all know there's either 30 days, 28 days or 31 days in a month. But how can we account for days that we're not open? How can we account for days that are super busy? That's the reason why we're doing this. For normal days, we accounted for times one. For busier days, we accounted for by times 1.5. For rest days, we times it by one. So the operating days is basically a addition of your normal days plus all the number of busy days minus the number of off days equals the operating days. So basically the very busy days that you have, the regular days, the Mondays to Tuesdays or Monday to Thursdays and then the days that you have off. Basically you have to calculate everything together. And these days depend on your particular concept and who you cater to. Someone that caters to office demographic, that means that their weekends would be much slower than those would not be the busy days. The busy days would be Monday to Friday because those businesses cater to offices. Whereas some other businesses like let's say Fish and Tackles at the Peers, those would be really busy during the holidays or the weekends, Friday, Saturday, Sunday. So understand that these days change depending on who you cater to and depends on the particular concept that you're running. And I understand this might be very confusing. So definitely feel free to go by and then go through this multiple times to really understand what we're trying to say right now. So for Ben's burger in action, guys, Ben's normal days, okay, his regular days would be Tuesdays to Fridays. That means that they do decent, okay, but then they're not like super busy. However, they're super busy on the weekends because they cater to families, okay. So on Saturdays and Sundays, they're really busy and you can see that they're in red. Now on Mondays, they decide to take their days off. So in a 30-day month that you see in this chart, now we can calculate the operating days. We take into account of all the normal days, all the squares here, all these are basically the normal days. So we add them all up, there's 18 of them, 18 times 1 equals 18, okay. The busy days, the red days, there's eight of them, okay. Because they're busy, we give them a higher multiple. We use 1.5 two times the eight days because they're busier. They should be making more money than a regular day. That's the reason how we come up with the 12 days right here. Now because they take four days off, four times one equals minus four. So 30 minus four equals the operating days. That means there's 26 operating days for Ben's burger. And also once again, this might change if you have more rest days or more busier days, some people might have just been busy all day long and that becomes a normal or some people might just have one busy day. I don't know exactly your situation. You need to project for it, which is the reason why you should follow this graph. Now Ben's burgers projected revenue per operating day. So we did the projection that, hey, Ben's burger would be making around 24, 500 per month. And this is a projection that we did in lesson one of module four. The operating days is 26 days. They operate 26 days. What does that mean? Projected revenue per operating day means using their monthly revenue divided by the operating days equals to their projected revenue per operating date. That means every day they open, on average, they should be making $942.31 in order for them to hit this goal. So now that we understand that on a daily basis, Ben should be making $942.31. We need to also understand another concept. The next concept is understanding the difference between lunch and dinner because typically speaking, we spend a little bit differently depending on the type of meal we're having. So we usually pay less for lunch than do we pay for dinner. Then the ratio usually is around one to one depending on the type of restaurant and depending on the cuisine that you're going for. For example, a Chipotle wrap for lunch and dinner is still going to be around $10, $12 and it doesn't really change. Whereas for a restaurant or a fine dining ratio, it's usually one to two or one point one to three. People usually have a burger for lunch or they would have a steak for dinner. So then the pricing would be a little bit different depending on the type of meal that you're having. And that's the reason why we need to break it down even further and to understand that ratio that we're looking at that what kind of restaurant experience are you delivering is lunchtime going to be a $10 quick grab and go meal. And then dinner time would be a $20 fine dining kind of experience to wine and dine with your other half. That is exactly what I'm referring to is that lunch and dinner average order value is a little bit different depending on your specific concept. So for Ben's burger in action, okay, let's say that Ben has 30 seats. Now go back to lesson three. If you haven't been there, we talked about how to calculate seats. Ben has 30 seats. We already established that his projected lunch to dinner our AOV ratio is one to two. That means that he sells burgers for $10, for example. And then for dinner time, he might offer a steak combo for $20, something along the lines of that. And you just need to have that projection. Okay, it's like, what is that ratio? What is the concept that you're really wanting to bring up to your customers? Now projected revenue per operating date divided by the number of ratio equals your AOV. So what is the projected revenue per operating day? It is 942.31. We calculate that based upon the few slides ago. This is how much on average Ben should be making on a daily basis. Now because we want to find the average order value per session, we're going to divide it by a three ratio. Why are we doing this, Wilson? And as if I'm throwing you off, it is completely okay. Just rewind and go through this multiple of times. Okay, the reason why we're doing this is because we need to figure out how much money they should account for for dinner time and how much money they should be accounting to make during their lunchtime as well. So that's the reason why because it's a one to two ratio, we divided by three. So that means each session, they should be making $314.10. That means the projected revenue for lunch is 314.10 cents. Now you can come up with how much should they be making for dinner time, right? If it's a one to three, two ratio, and if this is one, then what is dinner time? Dinner time should be two of this, okay? Dinner time is two of this whole ratio, projected revenue, right? So in dinner time, they should be making $628.20. Lunchtime, they should be making $314.10. That's what he, Ben, should be really aiming at. Now, as we were calculating it, how many sessions are we looking at? How many dining sessions? Because we have 30 seats and we want to be conservative, we're going to have just one lunch rush. What does that mean? That means that only they're going to be packed with people during from the 12 to one and they're only accounting for 30 seats to be conservative once again. That means that for Ben to hit his revenue goals, he needs to price his menu item on an average basis of $10.47. Because lunchtime, he should be making this much in total revenue divided by the number of seats equals each person should be spending $10.47 with Ben. Dinner time, his revenue is $628.20. Same amount of seating. How much should he be making from his customers on average per person? $20.94, okay? And once again, we are trying to be conservative and which is the reason why we only account for one rush per dinner and per lunch. What does this mean, guys? This means that for Ben's to be able to hit his revenue goal of $24,000 and $500, that means he needs to have on average customers coming in, pay him $10.47 for lunch per person on average and $20.94 for dinner on average in order for him to hit this projected revenue goal. This is how you can come up with your ideal pricing in terms of average order value and it allows you to actually have items and recipes out there in order for you to actually price it accordingly to hit the numbers that you're wanting to. And once again, I understand this might be a little bit confusing and that's the reason why we did so much graph for you and you should definitely review this multiple times in order for you to understand the concept. The concept is what you're truly trying to get out of this. Now it is your turn to calculate your AOV to see what pricing you need to set your menu at in order for you to hit your revenue numbers. I have actually gone out and created an Excel sheet for you so then that way you can make it super easy to do. So go into the link below, download it and play around with that chart and then you're going to start to understand exactly how it works. In this lesson we talked about how you can use average order value in order to create your menu so then that way you are one step closer to hitting your revenue goals. And the next lesson, what we're going to be covering is how you can create a financial plan in order to start that profitable restaurant. Basically, we're going to tie in everything that we've learned together into this financial plan. So I'll see you guys in the next video.