Everything You Will Need to Know About Restaurant Profit Margins

Restaurant profit margins can ascertain if a company is a hit or a failure. But despite the significance of this metric, many entrepreneurs don’t fully know how to figure their margins, nor how to enhance them.

If you would like to be successful in the fast-paced hospitality business, it is important to do all you can to boost your restaurant gain margin and keep guests happy.

What’s profit margin?

Profit margins are measured in percentages and reveal how much profit a company makes. Restaurant owners will need to understand these amounts to make sure their menu is priced properly.

Gross Profit vs Net Profit

Gross Profit = Gross earnings (all money you take in) – the cost of goods sold

This number shows you if your menu items are priced high enough to cover the cost of the food and beverages, but it doesn’t account for additional expenses.

Net Profit = Gross earnings – the cost of goods sold – all other expenses

Calculating net profit will demonstrate how much money your company actually earned over a period. It accounts for invoices, advertising, salaries, and whatever else you could pay for to conduct your company.

You’ll have to know your net profit to calculate your restaurant’s profit margin.

Profit margin = net profit / gross earnings

By way of instance, your diner may take in #200,000 gross earnings and #50,000 profit after all expenses.

#50,000 / #200,000 = .25

Your restaurant’s profit margin is going to be 25 percent in this scenario.

What is the average profit margin by every kind of restaurant?

Some businesses, like clothes and jewellery, can function on high-profit margins. Diamonds might not cost that much to remove from the ground, but they’re offered at exceptionally high prices.

The restaurant industry doesn’t have the luxury of conducting on high-profit margins such as this. A sandwich is a sandwich, after all, so diners won’t be happy to spend extravagantly on their day lunch.

Let us look at some averages across different types of restaurants:

• Catering and Events: 7 – 8 percent
• Food Trucks: 6 – 9 percent
• Quick food and takeout: 6 – 9 percent
• Total service: 3 – 5 percent

Why are they so low?

As we mentioned previously, the restaurant business is cut-throat. Pricing is competitive, and diners can go to a competitor if they believe that your prices are too high. If that is true, why not restaurants charge more for their meals?

In a nutshell, restaurants have a good deal of expenses. No matter how expensive a meal is, a substantial part of the earnings will go to these overhead costs.

Besides the cost of goods, here are some typical expenses for restaurants:

• Rent
• Salaries and labor costs
• Utilities
• Maintenance and Repairs
• Marketing
• Software
• Accreditation
• Administrative Affairs

Strategies to boost your restaurant gain margin

Spruce up your menu

Regardless of which type of restaurant you’ve got, it is helpful to have a very simple menu. We don’t imply that it has to be brief, but it ought to be easily understandable, and should help diners find the best options.

With a bad menu, you might actually be discouraging guests from purchasing certain products. Just look at all the technology and research used to create menus for a number of the biggest brands. With many businesses relying on tools such as eye-tracking hardware, it’s evident that where an item sits on the menu may impact the psychology of diners.

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Suggestions to revamp your menu and increase your sales include:

• Change up the layout: even when you don’t have the resources to conduct a complete evaluation of your menu, you can redesign the layout to emphasize things that you need to stand out
• Reduce the fat: If your menu is extensive, you are able to eliminate duplicate items or mix them and include a listing of varieties, like a hamburger with choices for bacon, egg, and other add-ons
• Get electronic: Put your menu on a tablet computer or other device to flaunt big-ticket meals and fun drinks. An electronic experience like this is much more appealing than conventional black and white paper, and it can open the door to online ordering

While there will be costs associated with fixing up your menu, the downstream effects will be well worthwhile.

Boost table turnover

Although it’s certainly fine for diners to enjoy their time in your restaurant, you do not want them to spend too much time in the table. The slower your clients complete their meals, the fewer guests you may serve. The fewer guests you serve, the less revenue you may collect.

It’s vital that you raise table turnover to boost your earnings.

Here are some ways to speed up your support:

• Employ tableside ordering: The quicker orders are sent to the kitchen, the quicker they get to the table. Allowing your servers to take orders in the table fast increases efficiency tremendously
• Install a Kitchen Display Screen: Paper order slips are cluttered and outdated. Simplify the back of home process with an electronic display that can track new orders
• Leverage table management applications: Assigning too many tables to a server will lead to chaos. With the right software, you can evenly distribute guests to tables and Enhance quality of service

Redesign your Floor Plan

Your restaurant might have a stylish vibe that brings people in, but your layout could be cutting into your profit margins.

Are you making the most of your space? Would it be possible to add more chairs?

Selecting an appropriate number of tables is a fine balance. Too many, and your visitors will feel cramped and uncomfortable. Too few, and you’ll make considerably less in earnings, possibly requiring a hike in prices.

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How many seats should you have?

There’s not any concrete answer, but the industry standard is 60 percent of your restaurant’s space ought to be dining, while 40 percent is your kitchen, preparation, and storage locations.

Furthermore, you want to give ample room for your visitors. Most restaurants compute this amount by measuring the amount of square footage per visitor.

Here are recommendations by Total Food Service:

• Fine Dining: 18-20 square feet
• Full-Service Restaurant: 12-15 square feet
• Counter Service: 18-20 square feet
• Fast Food and Quick Service Restaurants: 11-14 square feet

If seats are facing back to back, make sure there is at least 18 inches of space between them. This space will allow traffic to pass through while still maximizing your space.

Take Control of Your Inventory to Reduce Food Waste

Restaurants waste a bunch of food. In the united states, institutions contribute 22 to 33 billion pounds of food waste every year. Even more staggering, up to 10 percent of the waste happens before the food hits the table!

A Couple of factors contribute to the large amount of waste, but here are the Top issues:

• Large portion sizes: The typical restaurant meal delivers over 50 percent of recommended daily calories for a single person. With this kind of massive plates, there is sure to be unnecessary food costs as a result of unfinished meals, and diners render 55 percent of leftovers at restaurants on average
• Extensive menus: Offering choice can be useful, but it means keeping a gigantic inventory of diverse products. Restaurants with big menus often throw out enormous quantities of food that is expired, which may add up to a ton of wasted spending
• Staff behavior: Kitchen are active, and the staff would like to turn out high-quality meals fast. This culture may cause poor storage methods that hasten spoilage, in addition to food waste as a result of over-preparation
• Poor supervision: It’s easy to misplace a box in a freezer or stockroom, particularly without electronic inventory management. Many restaurants waste ingredients and food by enabling newer imports to conceal the Present goods, causing them to go undetected and finally perish

Though your restaurant is likely to get some food waste, you can minimize it with the perfect approach.

Primarily, reducing portion sizes and shortening your menus is essential if you’re discovering regular food waste.

Secondly, you need to use modern restaurant management software to document all new stock and update records when every meal is sold. Your system can help keep you from ordering things you currently have in stock and prompt you when particular things are due to expire.

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See Your Utility Bills

Like all companies, your restaurant should keep the lights on. Utilities are essential, but you can take action to reduce how much you spend monthly, boosting your ordinary restaurant profit margin.

Consider the following:

• Look on your lighting: For many areas, increasing natural light helps add to the ambiance and reduces energy costs. You can even use up to 80% less energy if you replace your existing lighting with halogen bulbs, compact fluorescent lamps, and light-emitting diodes
• Review your best practices: Educate your employees on the importance of conservation. Make certain all kitchen staff know to shut freezer and refrigerator doors, and review how to wash dishes without wasting water
• Invest in new appliances: Heating and cooling systems, water heaters, and freezers can drain gigantic amounts of energy. Ensure you periodically upgrade your appliances to maintain a low energy bill

Improve retention and training

The 2019 restaurant turnover rate reach a record-breaking 75%, indicating that you can lose the majority of your workers within 12 months of hire. Hiring and training new employees takes money and time, so reducing this phenomenon can boost your profitability.

Take these measures to increase retention and simplify instruction:

• Establish Standard Operation Procedure: Your restaurant probably has best practices, but can it be codified at a uniform manual? By standardizing how everything is done, you can accelerate training and reduce costs associated with that. Utilizing a powerful point of sale system is among the best ways to shore up your SOP
• Reward excellent employees: Most individuals work to earn a living, so cash is their main motivator. It’s intelligent to offer bonuses and promotions for good work. When an employee asks for a raise, it is often in your best interest to improve their wage somewhat because it often costs more to hire and train a new employee
• Be flexible: Allow your employees to swap shifts or take a couple of days away as needed. Contemporary restaurant management software helps visualize work schedules, so you can quickly identify where you want coverage if an employee requests time off

Take Charge of Your Finances with ConnectPOS Today

Your POS can play an essential role in ensuring high restaurant profit margins. ConnectPOS not just lets you collect payments and process orders, but in addition, it tracks inventory, integrates with accounting applications, and will help manage your seating chart. You can even gather reviews after a meal to improve your social media presence.