Understanding restaurant profit margins (and how to increase them) the restaurant times gasco abu dhabi


The most common query that we receive while fraternizing with restaurant owners is about the Restaurant Profit Margins–what is the Average Profit Margin for a restaurant, how to calculate restaurant margins, and so on. While there are many parameters to gauge a restaurant’s success, your net profit margin gives you a clear picture, whether the restaurant is going to survive in the long run. Find out more about the Restaurant Key Performance Indicators (KPI) here.The average profit margin differs for different restaurant formats. Anything above 20% can be considered as a decent profit margin. How to Calculate Net Restaurant Profit Margins

Gross Revenue is sales revenue from selling food, drinks, and merchandise plus gains, i.e. income from a transaction that doesn’t fall in your normal business operations. For example – a gain from selling old restaurant furniture or kitchen equipment would not be added in gross revenue. And, Operating Expenses are the costs you incur to run your restaurants such as the cost of ingredients, rent, wages, equipment and depreciation, utilities, interest and taxes, repairs and maintenance.

Now, your restaurant profit margins get affected by a slight change or an unexpected event. For instance, the price of food grains or rent can affect your margins noticeably. The only way you can increase your restaurant profits is to increase sales without simultaneously increasing your operating expenses. The first thing you need to do is to keep a track on all the running expenses of your restaurant. Then you can take steps to reduce costs and increase your restaurant profit margins. Key Areas to Focus on to Improve your Restaurant Profit Margins

• Waste and theft are major threats to restaurant profits. Decrease the amount of food you throw away. Develop a laser focus on correct portion control. Ask your chefs or prep team to pre-measure all food items and always use measuring utensils. Regularly conduct trash talks (asking why something has been tossed in the trash can) with the crew. It will keep your staff mindful about wastage. Also, keep a track on theft and pilferage. Theft of expensive foods or alcohol can significantly increase your food costs.

• Negotiate prices with suppliers. Keep a track of your regularly ordered foods or foods ordered in bulk and ask for discounts on them. Or, buy directly from farmers or producers, which will save you the cut of the middlemen and wholesalers. Also, by sourcing foods locally, you can considerably cut down your freight expenses and food costs.

• Mind your menu. You can actually cut down your food costs marginally, simply by pricing and designing your menu the right way. A number of factors need to be taken into consideration during menu pricing, such as direct costs, indirect costs, volatile costs, etc. Find the correct way of pricing your menu here.

• Now, you cannot just slash down salaries of your staff without creating a risk of hysteria or even mass walkouts. However, you can hire qualified staff and train them well to be efficient and more productive. Also, by incentivizing employees, you can ensure happy staff, high performance, and more loyalty which in turn translates into reduced hiring, training costs, and more profits.

• Restaurants have high utility costs. Apart from using energy efficient equipment, you can also keep a few things in mind to save energy. Program the air condition unit to adjust during nonbusiness or slow hours. Find small leaks and use low flow where possible. Train the kitchen staff to reduce idle times on ovens, boilers, etc. and your dishwashing staff to not run 1/2 racks.

• Dangle temptations- Many restaurants keep candies, toys, etc. for kids that are chargeable at the checkout counter. It’s a great way to earn some quick buck on the side. Conrad Hotel in Pune has kiosks in the customer lounge selling chocolates, cakes, and other baked goodies as customers wait for their tables, while Salt Water Café in Mumbai sells various types of bread, dips, and spreads.