Anyone who’s run a restaurant for some time knows that they must rely on a thin profit margin. Thus, influencing this statistic is crucial to success.
You can’t control every factor, unfortunately. The economy, supply costs and industry trends all have significant sway. When it comes to calculating these numbers, you may consider gross profit margin, which refers to the money you make after subtracting your cost of goods sold.
However, it’s more effective to measure net profit margin. This refers to the amount left over after sales and the cost of doing business; that includes COGS but also taxes, labor and other expenses. Therefore, net profit margin is a more accurate assessor of success.
Average Profit Margin
Restaurant profit margins have improved in the past decade. Now the industry averages around 10%, with 5% considered low and 20% meaning you’re doing well. Of course these numbers depend on what restaurant model you use, for example full-service won’t do the same amount of business as a fast-casual establishment.
Managing your profit margin has only grown more important as COVID-19 eats into profit. As you budget, spend time brainstorming ways to generate more profit and automate certain processes to reduce labor costs. For example, start with accounting. eatOS Point of Sale comes integrated with Gusto, a streamlined accounting and payroll software that reduces the manual workload.
Use eatOS reporting and analytics to examine why your sales are dipping or whether your cost reduction methods work. Tracking these metrics gives you a basis for change.
Improving Profit Margin
Increase Sales
There are two main methods for changing your restaurant’s profit margin. The first is to get more money coming in. Those same POS metrics that told you what needed reinvigoration can direct you to revenue streams that could use some more attention. For example, online ordering platforms thrived in 2021; promote these channels to draw in more sales. You can also offer catering services or rent your space out to private parties for a little extra income.
Additionally, consider implementing rewards programs that encourage repeat visits from guests. Returning customers tend to spend more on average than first-timers, so incentivizing their return pays off.
Reduce Costs
Streamlining and automating your time-intensive processes makes your restaurant more cost effective. Minimizing food waste and upgrading to self-service technology that reduces labor costs will tremendously impact profit margin down the line, though the savings may seem small on a day-to-day basis.
You can also cut costs by diversifying your supply channels and negotiating better deals with vendors. Buying certain ingredients in bulk, for example, saves costs while still paying vendors fairly.
Reservations are another area where it’s common to lose money. Decrease the risk of no-shows with Point of Sale software that sends out automatic reminders twenty-four hours in advance, take deposits up front so you’re not completely missing out on a walk-in’s tab, and employ late cancellation fees too.
The Future of Your Restaurant
Influencing your profit margin means the difference between your restaurant closing forever or thriving through the rest of 2021. By increasing sales or reducing costs, you can save your business a lot in net profit margin.
