Like any business, the main aim of running a restaurant is to gain profit. While there may be many goals behind opening a restaurant, the operations are always focused on earning a profit. If there is no profit, there’s no money, and eventually, there’s no restaurant. Keeping your profit margin high is the only way to ensure that your business survives.
Unfortunately, the profit margin in the restaurant industry is infamous for being one of the lowest. High labor costs, employee turnover, material cost, and increasing competition have all contributed towards making the average profit margin of a restaurant as low as 3-5%.
What is Restaurant Profit Margin
A restaurant’s profit margin is a profitability ratio that determines what percentage of a restaurant’s sales have turned into profit. It indicates how many cents of profit the restaurant has generated for each dollar of sale.
There are two types of profit margins that need to be tracked at a restaurant: gross and net profit margin.
A restaurant’s gross profit margin is calculated by dividing gross profit by total revenue and multiplying it by 100. The gross profit of a restaurant is calculated by deducting the cost of goods sold (CoGS) from the total revenue.
The net profit margin indicates your restaurant’s true profitability and is calculated based on the restaurant’s net profit. A restaurant’s net profit is calculated by deducting all other expenses (like maintenance, taxes, payroll, utilities, rent, etc) from its gross profit.
How to Improve Your Restaurant’s Profit Margin
Increase restaurant revenue. Train staff regularly. Use technology to increase efficiency. Use marketing to reach more customers. Build strong relationships and increase customer loyalty.
Decrease restaurant costs. Evaluate restaurant operations. Reduce employee turnover. Find the right supplier. Minimize wastage.
Your restaurant’s profitability is important. Make sure you are always aware of what’s happening and keep track of all the important performance metrics.