In the USA, improving a restaurant’s profitability is one of the significant steps involved in growing a restaurant. Every restaurant owner wishes to improve the profit margin, after all, profits keep the doors of a restaurant open. There are several factors that go behind the restaurant profit margin. Even simple adjustments as to how the restaurant functions would also help improve the profit margins.
Knowing where you stand month-to-month or even week-to-week helps in giving you a clear idea about the sales and cost and helps you manage your restaurant profit margin.
“The gains in profitability has been encouraging. If restaurant owners can maintain or improve margins, 2018 could be a good year” as quoted by Libby Bierman the analyst at Sageworks, In an article by Forbes.
This article would help you understand how you can effectively supervise the operations at your restaurant and manage the profit margin.
Calculating The Restaurant Profit Margin Effectively
Improving the restaurant’s profit margin does not happen overnight, a lot of effort and analysis go into it. Before you could start calculating the profit margin you should be aware of what exactly it is.
There are two types of restaurant margins, gross profit margin, and net profit margins
Gross profit margin: It is a financial metric used to asses a restaurant’s financial health. It is what is left after you deduct the direct cost of goods sold. It can be calculated as :
Gross profit margin = Revenue – Cost of goods sold / Revenue
Net profit margin: It is the ratio of net profits for a restaurant. It is typically represented in percentage. It calculates how much of the dollar collected by the restaurant translates to profit.
It can be calculated as :
Net profit margin = Net profit / Total revenues
Improving Your Restaurant Profit Margin
To improve your restaurant profit margin, it is essential to focus on two things –
- Increasing sales
- Reducing cost
1. Increasing Sales
Increasing restaurant sales is all about upselling your restaurant specialties and adding more to what you already have.
According to the stats revealed by Statista, there is a steep growth in the restaurant industry’s food and drink sales in the US. Which ensures high-profit margins and keeps your business running successfully.
These are some things you can keep in mind when trying to increase sales.
(i) Introduce Offers And Deals On Weekdays
Generally, the business is slow over the weekdays as compared to the weekends this is because there are several deals people can avail over the weekend. According to a report by USA Today, sales are expected to grow by 8.1% in November and December for the restaurant industry!
You can introduce offers/deals on weekdays or holidays like Thanksgiving, Christmas, etc. and attract more customers to your restaurant. You can offer discounted appetizers, combo deals. You can also host special events during the weekdays like “ladies night” or other such activities to pull in more customers over weekdays.
Coming up with innovative deals/offers at your restaurant is an excellent way of increasing business on a slow day which helps in improving the overall profitability of the restaurant.
Another great and innovative way of increasing the profit margin is to introduce “chef specials,” you can get creative and come up with innovative dishes or seasonal dishes prepared using seasonal ingredients and price it a little higher than the other items on the menu. Exclusivity appeals to the customers and can be of great help in improving the restaurant profit margin.
(ii) Analyze The Menu
Analyzing the menu from time to time is very important to improve the restaurant profit margin. You can examine the profitability and sales of each item on the menu, this would give you a clearer picture of the items doing well and the ones you need to get rid of.
Analyzing the menu also helps you identify if the items are priced appropriately or not. It helps you determine if there is scope to increase the price of the items or if you need to lower it to attract more customers. Analyzing your menu can be a difficult task, but it is much required if you have dishes that are not performing well on your menu that eliminates the scope of adding new food items that might work for you.
Having a lengthy menu with not so attractive dishes wouldn’t serve your restaurant business rather a limited menu of popular dishes would help you improve the restaurant profit margin.
2. Reduce The Expenses
There are several factors that you need to keep in mind when planning to reduce the restaurant’s overall cost, all the miscellaneous things need to be taken into account when wanting to reduce the cost, after all, a penny saved is a penny earned!
These points would help you take care of all the little things that can help lower the bills.
(i) Control Internal Pilferage
Internal thefts and pilferages make it very difficult for a restaurant owner to run his/her restaurant successfully. According to the National Restaurant Association, In the US internal employee theft is responsible for seventy-five percent of inventory shortage.
Having an efficient POS system at your restaurant can help you prevent that. You as a restaurant owner would have the central access which will make it easier for you to examine the daily stats as the information is available on your fingertips!
With everything being accounted for it makes it difficult for people to cheat and steal from you. A POS system is a great way of managing your restaurant on the go.
(ii) Evaluate Supplier Contract
It is crucial to evaluate your supplier’s contract over time to ensure you are getting the best deals. You can make a list of your top-selling items and the raw material required for cooking, and you can look through different suppliers and the price at which they are selling the raw materials. If you come across a supplier who is offering the same material at a subsidized cost, you can change your supplier or use the price the other supplier is offering to negotiate with your current supplier.
Doing this on a regular interval would help you choose the right supplier and would also help you improve the restaurant’s profit margin as it does not make any sense to pay more for the same raw materials which you can buy at lower rates.
Improving the restaurant profit margin is every restaurateur’s wish, while some can achieve it, some struggle with the same. Improving the profit margin is not a task that needs to be taken care of by one person, everyone who works at the restaurant or helps manage it contributes towards it.
Overnight improvement in your profit margin is a myth but certainly achievable in the long run. Keep a check on the daily operations of the restaurant, and you should be good to go.