How To Calculate Profit Margin For Small Business Owners
As a small business owner or manager, you need to speak the language of your ind...
As a restaurant owner, you know that keeping your business afloat is all about the bottom line. And though you’ve worked hard to get where you are, you know it’s time to focus on increasing your restaurant’s profit margin.
This can be tough, especially in today’s economy. But it is possible with some strategic planning, creative problem-solving, and the right software to simplify business operations.
In this guide, we’ll cover what restaurant profit margin is and share how much the average eatery makes. Then, we’ll dive into the practical applications, where you’ll find eight ways to potentially increase your restaurant profits.
Table of contents
- What is a restaurant profit margin?
- What’s the average restaurant profit margin?
- 8 ways to increase your profit margin
What is a restaurant profit margin?
Restaurant profit margin is the amount of money a restaurant makes after accounting for all costs. This number can be expressed as a percent of total revenue. It can provide valuable insight into your business’s health.
For example, if a restaurant has gross sales of $100,000 and total costs of $95,000, the restaurant net profit margin would be 5%.
To arrive at this number, you subtract the total cost from the gross sales to get your net profit (in this case, $5,000). Then, divide that number by total sales ($100,000) and multiply it by 100 to get the percentage.
Another way of looking at this number is that it represents how much money you made for every dollar diners have spent in the period being assessed.
What’s the average restaurant profit margin?
So, what is the average profit margin? It’s probably a lower number than you might think. Per the National Restaurant Association, restaurant profit margins are generally between 3-5%.
But there is no set industry average because factors like menu items, labor costs, and overhead expenses can vary widely from one business to another.
For example, some restaurants may have higher profit margins due to their unique menus or large capacity. In contrast, others may struggle to break even due to high overhead costs, such as rent, food, and labor.
The type of restaurant you own may also play a role in your overall margin. Fast-food restaurants tend to have higher profit margins because they serve lower-cost items, while more upscale restaurants typically have lower margins since their overhead expenses are often higher.
However, no matter what type of restaurant you own, there are general steps you can take to improve your profit margin.
8 ways to potentially increase your profit margin
Since your sales and expenses drive profit margins, the best way to improve your bottom line is to control and reduce costs while selling more. These eight strategies can help you do just that.
1) Evaluate your menu
With food costs increasing and supply chains becoming more unpredictable, ensuring every item on your menu is profitable is vital to your restaurant’s success.
Analyze the cost-benefit of each item on your menu and consider switching to lower-priced options where possible.
As you evaluate, you may decide to remove items that don’t sell well or substitute ingredients to reduce the overall cost. You can also look into offering alternative preparations of existing menu items to drive sales and create different pricing tiers.
2) Install more seating
Adding extra tables or booths to your dining area is an excellent way to increase profits without making drastic changes. However, before taking this step, think about it with customer experience in mind. You don’t want to pack people in like sardines, after all.
And, of course, you’ll need to keep local requirements in mind when considering how many people you can comfortably accommodate.
3) Keep your eye on labor costs
Your restaurant can’t run without your workers. But if you aren’t careful, labor costs can take a big chunk out of your profits.
When scheduling, consider peak times and how many staff members you need to have on hand during each shift. A restaurant scheduling template can help you plan for adequate coverage without overstaffing so you’re not wasting money.
The Sling suite of tools offers an easy-to-read restaurant schedule template that’s simple to use. It might help you with your staffing needs and allow you to keep your labor costs in check.
4) Analyze current expenses
Of course, labor isn’t your only expense. Before increasing your profits, you should know where you’re spending the most.
This is a great opportunity to review current vendor contracts and determine if you’re getting the best deals on food. If you’re not, shop around and see if you can find a better option.
Think creatively when evaluating your expenses; don’t be afraid to change things up.
5) Focus on customer service
Your restaurant won’t last long if your customers aren’t happy. So keep them coming back by providing top-notch customer service.
Train your staff to be friendly and helpful. Instill excellent customer service in all of your employees, from the dishwashers to the waitstaff.
In addition, ensure your restaurant is clean and welcoming. No one wants to use a dirty bathroom or eat off a grimy table.
Finally, consider adding features such as digital ordering or delivery services as a convenience for your customers. In today’s society, not providing these things could mean losing out on a large share of the market.
6) Take advantage of digital marketing opportunities
When local consumers search for restaurants in the area, is yours popping up in the top results? Or is it buried on page 27, under all the other nearby eateries?
To remain visible, consider improving your digital marketing game. Some of the most effective digital marketing tactics for restaurants include creating a website, launching email campaigns, and running targeted ad campaigns on social media.
You can also create content like blogs or videos to keep your customers engaged and aware of what’s going on with your business.
These channels can improve brand awareness and help bring new customers to your door.
7) Utilize data analytics to understand customer behavior
Data is a powerful tool that many restaurant owners don’t take advantage of. By using data analytics, you can gain an in-depth understanding of your customers’ behavior and preferences.
This enables you to make strategic decisions that will help increase revenue and boost profits.
For example, you can analyze which upsells customers are most likely to purchase and which promotions have the highest return on investment.
This data can help you create targeted marketing campaigns to reach the right customers at the right time with an offer that’s more likely to win.
8) Streamline team task management
Task management is the process of planning, organizing, and coordinating tasks to ensure your team completes everything on time while using resources efficiently.
While you must ensure each employee knows their responsibilities, you don’t need to spend all day on task management. Instead, use Sling to streamline things.
Sling includes employee task management software that allows you to assign tasks, view progress, and track performance from one easy-to-use platform.
You can create custom task templates for repeatable processes, such as setting up for lunch or closing after dinner, and quickly copy them for subsequent shifts.
This ensures that each employee knows what to do and when they should do it, saving you time and money in the long run.
Check out Sling for scheduling, task assignments, and more
With a bit of planning, evaluation, and some help from technology, you can increase your restaurant profit margin.
The tips above give you the foundation for success, and Sling can help you take it further. Our platform can give you complete control over scheduling, task assignments, and more.
This helps ensure that you’re keeping tabs on your labor costs and that daily tasks get completed quickly and accurately. Together, these advantages may lead to a higher profit margin for your restaurant.
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This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice.
