The profit margin of a restaurant
When you look at the industry, the average profit on a restaurant is close to 3-5% but can range from 0-15%. However, like most restaurant industries, there is no answer to cutting cookies to your business’s “normal” profit line.
While the numbers that many professionals come up with can vary greatly, everyone can agree that the profit margins of the restaurant industry are minimal compared to other types of businesses. So how do you calculate your expenses and decide what number you are comfortable with as a benefit line for your restaurant?
How to Calculate Restaurant Profit Margins:
There are 2 types of restaurant profit margins: total profit and total profit. Confusion and disagreement about the average profit margin acceptable in the restaurant industry may be because many articles do not distinguish between the two or specify which ones they are referring to.
Restaurant Gross Profit Margin
The full benefit is what you left behind after deducting all the cost of the goods sold (CoGS). This number is helpful if you want to measure the efficiency of your restaurant, but since it does not take into account all the costs of running your business, it is only one piece of the puzzle.
The formula for obtaining the maximum benefit limit is:
[Selling Price–CoGS] ÷ Selling Price=Gross Profit
Gross Profitx100=Gross Profit Margin
So, if you sell one item for 15 dollars and it costs you 7 dollars to make it, your gross profit margin calculations will look like this:
15 – 7 =8
8 ÷ 15 =0.53
0.53 x 100 =53
Fifty-three percent Gross Profit Margin.
Restaurants’ Net Profit Margin
This is the number you will wish to use to evaluate the success and profitability of your restaurant. The profit margin of your restaurant is where you deduct all of the running costs of your business for all your profits. This includes administration costs, salaries, utilities, rent or mortgage, maintenance, taxes, insurance, etc.
The total profit line formula is:
Total Revenue – Total Expenses=Net Profit
[Net Profit ÷ Revenue]x100=Net Profit Margin.
So, if the one is trying to calculate your restaurant’s net profit margin for the past month where your revenue was 100,000 dollars and your expenses were $70,000, your formula would look like this:
$100,000 – $70,000 =$30,000
$30,000 ÷ $100,000 =0.3
0.3 x 100=30
30 percent Net Profit Margin
Average Restaurant Profit Margins by Type
Full-Service Restaurant Profit Margins
That the 3-5 percent profit limit mentioned above is usually applied to full-service restaurants (FSRs) and includes kitchen staff, managers, servers, vendor bartenders, and hosts, however, these numbers can change significantly depending on factors such as restaurant size, price list, price, location, and more.
Fast Food Restaurant Profit Margins
This number depends on whether the area is chained, franchised, or private, but the average cost of fast-food restaurants (QSR) is about 6-9%. The food line of fast-food restaurants is more than a full-service restaurant because they often require less staff, use less expensive ingredients (cold and pre-prepared ingredients), and have a higher level of profit than a full-service restaurant.
Food Truck Profit Margins
Food trucks will usually carry the same food numbers as a brick-and-mortar restaurant, but they benefit from much lower costs, including taxes, insurance, labor, and utilities. And while bad weather can damage day sales, that can be done with event rental funds. Like fast food with QSRs, the average profit on a food truck is about 6-9%.
Catering Profit Margins
Like food trucks, catering businesses benefit from much lower costs using but similar food costs compared to FSR. While the high-end food business can generate a profit of 15% or more, the average price of a food truck is 7-8%.
How to Improve Your Restaurants’ Profit Margin
The dangerous profit killers in the restaurant industry are CoGS, employees, and more. And while there is no way to avoid these costs altogether, there are creative ways to recover them. Two key ways to expand your profit margins are to increase sales and reduce costs.
1. Get on Board with Online Ordering
Suppose you are not using online ordering on delivery orders and delivery orders yet, the first time. Online orders have grown by 300% over food since 2014, with 60% of diners ordering at least once a week.
While using a third-party ordering service may put your name there for new customers. It is an excellent practice to incorporate a traditional online ordering system into your website. You will not save more than 30% on commission fees, but it creates a seamless process in conjunction with your POS.
2. Adopt a Loyalty Program
It will create an environment in which visitors can reciprocate the respect. Make sure your system is easy to use and does not frustrate visitors by being too complicated to use – it could end up with a different effect.
3. Evaluate Your Menu Design
Do you have a high-quality dish on your menu that you get a good response from but don’t order too often? Selling multiple units of that meal can be as simple as changing the menu setting or the words in the description. By using the data extracted from your POS, you can change your menu based on what is being sold or not sold and what items are for-profit or cost-effective.
4. Upgrade Your Technology
Speaking of data extraction, is your POS fully equipped to give you all the best insight? On this day and at this time, your POS should be doing more than process payments, which is usually a lot of legacy programs. By switching to a cloud-based system, your expertise can be integrated all in one place, giving you the best information to help you run your business and grow your restaurant revenue streams.
5. Get Online
Did you know that 90% of visitors research a restaurant before a meal (more than any other type of business)? That means if you have not gone online yet – a minimum of a restaurant website, significant social media accounts, and looking for your Google My Business and Yelp pages – you are missing out on a digital tone with your digital sense of competition.
- Decrease Cost of Goods Sold (CoGS)
- Control Labor Costs
- Reduce Waste and Theft
4. Decrease Staff Turnover