5 Helpful Tricks To Improve Restaurant Profit Margins was written for Playlouder by Nadica Mutuleva. Nadica is a freelance writer who’s passionate about creating quality, original content. She holds a Master’s degree in English teaching and a Bachelor’s degree in translation. With 8 years of experience in the freelance writing industry, she has become proficient in creating content that captivates the audience, drives growth, and educates. You can find her on LinkedIn. Please note that contributing opinions are that of the author. They are not always in strict alignment with my our opinions.
You enter a busy restaurant. The menu has solid prices and the place is full. For someone that hasn’t worked in the industry, this can make it seem like restaurants are making a fortune. And yet, the restaurant profit margins these days are mostly below 10% – and even 5% for many businesses.
According to this article by the Groupon, the average profit margin for restaurants falls somewhere between 3% and 5%. This is a comparably lower number compared to just a few decades ago. Today, having a restaurant is costly and unless you know how to reduce costs and maximize gains, you won’t have a lot of money left once you cover all expenses.
These numbers aren’t here to discourage you. On the opposite – if you do things right, you can increase your restaurant's profit margin by at least one percent. This can equal a hefty sum with the prospect of getting even more profits in the future.
But, where do you start? In this article, you’ll learn what to do to boost your restaurant profit margins in no time.
Understanding restaurant profit margins
The profit margin of a business tells you how much money you are left with after you cover the expenses. To calculate this number, you need to consider your total revenue and all the expenses your business has.
Let’s go through the process:
- Define your net income. The net income is your revenue minus expenses.
- If you divide it by your revenue, you get the net profit margin.
- When you multiply the net profit margin by 100, what you get is your profit margin percentage.
There are many expenses for a restaurant these days. These go beyond the money you spend to get the food. You must also calculate the salaries you pay your team, which can add up to over 30% of your revenue.
The food industry is one of the industries with the most job openings. No wonder – a business like this one needs many people to function properly. You probably have at least a dozen people employed, including chefs, waiters, cleaners, and more. Every month, you need to pay them.
There’s also the matter of bills and rent. On top of that, you need to invest in the inventory, make repairs, and have a budget aside for unexpected problems that require funding.
Once you cover all these expenses with your budget, what you are left with is your net profit. The percentage can go as low as 2% for some restaurants, so the goal is to help you maximize this number.
5 tricks that will increase your profit margin
When it comes to business management, we learn by example and mistakes. Ideally, you could try running your business and turn mistakes into learning opportunities. However, not all restaurateurs have the budget to afford this. To help you save time and money and maximize the profit margin fast, we created a short list of very useful tricks.
1. Use technology to improve your restaurant profit margins
There are plenty of ways to affect your profit margin, which can take all of your time and energy. To maximize your profits and make sure everything runs smoothly, you should consider investing in technology that serves precisely this purpose.
Lightspeed is a buzzword in the restaurant industry these days. This tool helps restaurants and bars with everything from diversifying their offerings to turning tables faster. You can read more about restaurant profit margins in their guide and see all that you can get by using such technology.
Some of the things you can achieve by using Lightspeed are:
- Diversify the offering of your business with contactless online ordering and delivery
- Adjust your floor plan on an app to facilitate and optimize the staff’s work
- Speed up service and reduce wait times by automating and digitizing processes
- Take your menu on the road by synchronizing to food delivery apps
2. Monitor your metrics – and act on them!
Business decisions should rarely be based on a hunch. If you want to make smart decisions that will increase your profit margins, you need data. You cannot make any kind of decision without knowing the numbers, so our next trick is to monitor your restaurant’s metrics.
Some of the things you should be monitoring include:
- Labor. Know how much you are spending on labor at any given moment. Don’t just calculate wages for employees – calculate employee benefits and taxes, too.
- CoGS. A good restaurant manager is always aware of the total inventory invested to provide food and beverage to the customers. Know how much you make per every plate served.
- Overhead expenses. This involves every other expense including suppliers, repairs, rent, marketing, and utility costs.
Crunching these numbers is not as difficult as it used to be with restaurant software available at your fingertips. You can get reports on all these in real time if you invest in such technology.
3. Update the layout of your menu
Use menu psychology and menu engineering to construct the most profitable menu for your business. Unlike what many think, menus in restaurants require very thorough planning. You need to find the perfect combination of design and data if you want to increase profitability.
Simply put, menu engineering means finding a balance between low and high-cost food items, as well as promoting items strategically to get more profits.
This is not the same as optimizing your menu prices. Yes, you should know the profitability and cost for every item you feature in a menu, but that's just the beginning.
The idea behind menu engineering is to make sure that everything on the menu is profitable and good for your bottom line. There are 3 steps to this process:
- Segment your menu items. Start by checking your reports to find which items sell the most, and the least, and which items bring you the biggest and lowest profit.
- Use this information to draw more attention to the high-profit, popular items
- If possible, phase out and remove low-profit items
4. Train your servers better
There’s always room for improvement in the restaurant industry, so offer frequent training opportunities for your staff. The people employed in a restaurant, especially the waitstaff, have this incredible ability to make more money than any other strategy you use.
Stop looking at your waitstaff as the people taking orders. A good server can upsell to customers. They can persuade diners to get appetizers and desserts, get more expensive beverages, and give them a slight push to order the most profitable items on your menu.
How can you achieve this?
Consider menu training. Once you complete your menu, make sure that people on your waitstaff learn all about the ingredients, and preparation, and taste everything you offer to the guests. This will give them enough information to be able to give recommendations and persuade customers to order more – and better.
Suggestive selling is known to result in better and more profitable sales at restaurants. If your waitstaff knows how to do this, it can significantly improve your profit margins.
5. Improve the table turnover
If you manage to seat more customers on your existing tables and get more orders, your profit margin will increase significantly. This is the goal of every restauranteur, but how can you actually make it happen?
There are ways to reduce the time a customer occupies your tables without making them feel uncomfortable – or rushed. This is rather delicate but with the right moves, you can improve the table turnover and seat a lot more people daily.
Let’s go through some tricks for this:
- Seat your customers faster. Does your restaurant have a host? If you don’t have one, consider hiring for this position. This is the person that can speed up the seating process. You don’t want people wandering around trying to decide where to seat – it can take a lot of time.
- Serve the food faster. To do this, you need enough waitstaff and kitchen staff. Hiring more people might seem counterproductive because you’ll invest more in salaries. However, if this helps speed up the serving time, it can be a very smart investment.
- Streamline the process. Make sure that your waitstaff and kitchen staff work in sync. Use technology for the orders. The time a waiter spends to get to the kitchen to make the order adds up a lot.
Let’s boost those profit margins!
Every business person is looking for ways to increase their profit margins. This can take some time and require effort but success always requires some work! Go through this list of steps to turn your restaurant into a better place for customers and a more profitable business for yourself!
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