Offer margin: the sum to do before you publish

Offer margin is the money a promotion actually leaves once every cost is counted. It is the number that decides whether an offer is worth running, and it is the number most venues never calculate. A promotion is announced, the covers arrive, the room looks busier, and everyone assumes it worked. Weeks later, the takings are no higher than before, and nobody can say why.

The reason is almost always the same. The offer brought some new guests, but it also gave a lower price to guests who would have come anyway. The discount on those existing covers quietly cancelled out the profit on the new ones. Without a sum done in advance, there is no way to know how many new covers were needed to make up the difference, and no way to tell afterwards whether the offer reached that number.

This guide sets out the sum to do before you publish any promotion. It explains how to work out what an ordinary cover contributes, what a promotional cover contributes, how many existing covers will take the offer, and the break-even number of new covers the offer must bring. It covers set menus against discounts, extra costs, promotion reporting afterwards, and the decisions the sum leads to. All figures are illustrative; the method is what you can use.

Restaurant discounts are easy to announce and hard to undo. Once guests know about an offer, removing it feels like a price rise. A promotion that loses money every week is worse than none, because it costs margin and still has to be ended eventually.

The sum takes half an hour and answers the only question that matters: how many extra covers must this offer bring for the venue to be better off? Written down before the offer is published, that number becomes the target. Measured afterwards, it shows whether the promotion worked.

It also improves the offer. Venues that do the sum often find that a small change, such as limiting the offer to a set menu, a particular night or a particular time, turns a loss-making promotion into a profitable one.

Start with an ordinary cover on the day the offer will run. Work out the average spend per cover, excluding tax, and the average cost of the food and drink in that spend. The difference is the contribution: what each cover adds towards staff, rent and profit.

Here is an illustrative Tuesday dinner. The average spend per cover is 45.00 excluding tax. Food and drink cost about 30 per cent of that, or 13.50. Each ordinary cover contributes 31.50.

The general idea of contribution margin, revenue less the variable costs of producing it, is exactly this. It is the same idea that underlies gross profit per dish, applied to a whole cover.

Next, work out what a cover contributes under the offer. The spend changes, and sometimes the costs change too.

Suppose the offer is 20 per cent off the bill on Tuesdays. The average spend falls from 45.00 to 36.00, but the food and drink cost stays at 13.50, because the guest eats and drinks the same. Each promotional cover contributes 22.50, which is 9.00 less than an ordinary cover.

That 9.00 is the cost of the discount on every cover that takes it, including covers that would have come anyway. It is the number most often forgotten.

Now estimate how many of the night's covers will take the offer. Some will be genuinely new: guests who came because of the promotion. Others will be guests who would have come anyway, now paying less.

In the illustration, the venue usually serves about 60 covers on a Tuesday. If the discount applies to the whole bill and is widely advertised, most of those 60 will take it. That is 60 times 9.00, or 540, given away on covers the venue already had.

This is the cost the offer must recover from new covers before it makes a single unit of profit.

The break-even number is how many new covers the offer must bring to recover what it gives away. Divide the cost of the discount on existing covers by what each new promotional cover contributes. The idea of break-even, the point at which gains equal costs, applies directly.

In the illustration, 540 divided by 22.50 is 24. The offer must bring at least 24 extra covers every Tuesday just to leave the venue where it started. Add any extra costs, such as an extra server for the evening at an assumed 60, and the number rises: 60 divided by 22.50 is about 3 more covers, so roughly 27 in total.

Write that number down: "This offer needs at least 27 extra covers each Tuesday to pay." It is the target, and the test.

Look at the break-even number honestly. Can the offer bring 27 extra covers every Tuesday? Is there room in the dining room for them? Can the kitchen serve them? Has a similar offer brought that many before?

If the number looks unrealistic, the offer as designed will probably lose money. That does not mean giving up on the promotion; it means changing it so the break-even number falls.

The quickest way to improve offer margin is to limit the offer to guests who would not otherwise have come, or at least to fewer existing guests. A discount on the whole bill, open to everyone, gives the most away. A set menu offered alongside the normal menu gives away much less, because many existing guests will still order from the normal menu at full price.

Suppose that, instead of 20 per cent off, the venue offers a three-course set menu on Tuesdays at 32.00, with a food cost of 11.20, contributing 20.80, plus drinks ordered as usual, contributing about 6.00 more. A promotional cover contributes about 26.80. If only a third of the existing 60 covers switch to the set menu, and each switches from 31.50 to 26.80, the cost on existing covers is 20 times 4.70, or 94. The break-even number of new covers is 94 divided by 26.80, about 4, plus the extra server, about 6 in total.

The same night, the same guests, a very different sum.

Several design choices lower the break-even number:

Each reduces the discount given to guests who would have come anyway, which is where most of the cost lies.

When an offer centres on particular dishes, look at each dish's gross profit. A set menu built from dishes with good margins leaves more than one built from the most expensive dishes on the menu. A promotion that pushes a dish with a high food cost can lose money on every plate.

Our guide to menu engineering covers how to find each dish's contribution. Choose offer dishes that are popular, quick to prepare and profitable at the offer price.

Include every extra cost the offer creates. Extra staff on the night, if the offer brings more covers than the usual team can serve. Printing or advertising to promote it. Any free items, such as a welcome drink. Platform fees, if the offer is promoted through a paid listing. Packaging, if it applies to takeaway.

These costs can be small, but they add to the break-even number. An offer that only just breaks even before extra costs may lose money after them.

The same offer has a very different margin on a quiet night and a busy one. On a quiet night, the venue has empty tables, staff already paid for and a kitchen with spare capacity, so each extra cover adds almost its whole contribution. On a busy night, the tables would have filled anyway, so a discount simply gives away margin on covers the venue already had, and may even displace full-price guests.

That is why the break-even sum should always be done for the specific night and time the offer will run. An offer that pays on a Tuesday may lose heavily if it is allowed to spill into Friday. Write the days and times into the offer itself, and keep them there.

Group offers, such as a set menu for tables of eight or more, and celebration packages, such as a cake and a toast for a birthday, have their own sums. A group set menu usually reduces choice, which can lower food cost and make the kitchen's night easier, and groups often order drinks generously. A celebration package may add a small cost, such as a cake, while bringing a whole table that might otherwise have gone elsewhere.

Do the sum for a typical group or celebration: the price per guest, the food and drink cost, any extras, and how many such bookings the offer needs to bring. Because groups bring many covers at once, the break-even is often reached with only a few extra bookings a month.

Some offers run through third parties, such as booking platforms or deal sites, which may take a fee or a commission on each promotional booking. Others are funded partly by the venue and partly by the platform. Include every fee in the sum, and check who pays for the discount itself.

An offer that looks attractive on the platform can leave very little once the platform's fee and the discount are both deducted. Our guide to aggregator commission shows how quickly fees add up on each order.

Keep the sum on a single page, with the same headings every time:

Fill in the actual results beside each line after the review date. Over time, these pages become the venue's own record of which offers work.

The team needs to understand the offer and its limits. Servers should know exactly what is included, which days and times it applies to, and what to say if a guest asks for it outside those limits. A server who extends an early evening offer to a 9:00 table, out of kindness, can quietly undo the sum.

Tell the team the break-even number too, and share the results. A team that knows the offer needs 20 extra covers on a Tuesday will notice whether it is reaching them.

Restaurant discounts have costs beyond the sum. Guests who come only for a discount may not return without one. Regulars who discover a discount on their usual night may start waiting for it. A venue that discounts often may come to be seen as cheap, which can make its full prices feel expensive.

These effects are hard to put a number on, but they are real. Prefer offers that give guests a reason to come rather than a reduction, and keep discounts for clear, limited purposes. Our guide to promotions that fill the right seats covers how to choose by the gap you are filling.

The sum is only half the job. After the offer runs, check what actually happened. Promotion reporting means comparing the offer nights with similar nights before: total covers, promotional covers, new guests, average spend, contribution, and whether trade on other nights changed.

Compare the actual number of extra covers with the break-even number you wrote down. If the offer brought more, it worked; if fewer, it lost money and should be changed or stopped. Look at how many existing covers took the offer, too: if far more than expected switched to it, the offer is cannibalising full-price trade.

Report the results in a sentence, so the decision is clear: "The Tuesday set menu brought about 14 extra covers a week against a break-even of 6; keep it."

The hardest part of promotion reporting is telling new guests from existing ones. A guest database that recognises returning guests makes it possible: guests who had never visited before are new; guests with a history are existing. Without it, you can only estimate from total covers.

Track whether new guests return later at full price. A promotion that brings new guests who come back is worth more than its offer margin suggests, because those guests become part of the venue's regular trade.

The sum and the reporting lead to one of three decisions. Keep the offer if it beat its break-even number and did not cannibalise full-price trade. Change it if it came close, or if a different design would lower the break-even. Stop it if it fell well short, or if it mostly gave discounts to guests who would have come anyway.

Make the decision on a set date, such as four weeks after launch, so the offer does not drift on by default.

Here is the illustration side by side, for one Tuesday:

Both offers might bring 15 new covers. The discount would lose money; the set menu would make it. The only difference is the design, and the sum is what reveals it.

In servearound, the numbers for the sum come from the service itself. With the Analytics module, the menu report shows each dish's units, revenue and margin once its cost is set, and a cost coverage figure shows how much of the revenue has a cost behind it. Payment analytics shows revenue by hour, how each day was tendered and how deep the discounts ran, and the dashboard shows spend per cover, so you can compare offer nights with ordinary ones.

Every booking and check adds to the guest's profile, so new guests can be told from returning ones when you report on a promotion. See Analytics.

The money a promotion leaves after every cost, including the discount given to guests who would have come anyway.

Divide the discount given on existing covers, plus extra costs, by what each new promotional cover contributes.

Often, because fewer existing guests switch to them, so less margin is given away.

Usually not, because drinks often carry higher margins.

Long enough to include several of the target nights, often four weeks, with a set review date.

Change its design to lower the break-even, or stop it, unless those guests return at full price in numbers that justify it.

Approximate costs are enough for a first sum. The more accurate they are, the more you can trust the break-even number, so improve them over time.

Yes. A team that knows how many extra covers an offer needs will notice whether it is working, and will be careful not to extend it beyond its limits, even when a guest asks nicely.

Look for a design change that lowers the break-even, such as excluding drinks or limiting the hours. An offer that only just pays leaves no room for anything going wrong.

Offer margin is the money a promotion leaves after every cost. Before you publish, work out what an ordinary cover contributes, what a promotional cover contributes, how many existing covers will take the offer and the break-even number of new covers it must bring. Write that number down.

Lower the break-even by limiting who takes the offer: set menus instead of restaurant discounts, quiet times only, specific groups and no discount on drinks. Check gross profit per dish in the offer, include every extra cost, and use promotion reporting afterwards to compare actual extra covers with the break-even, then keep, change or stop the offer on a set date.