There’s more than one way to boost your restaurant’s profit margins. In fact, there are several.
How you go about growing will depend on which strategies work best for your location, clientele, staff and target market. Ultimately, you need to do one of two things: increase your sales volume (without reducing net profit margin) or reduce expenses (without decreasing sales).
In this article, we’ll look at strategies that center on one of these two approaches. If you’re looking for options, we’ve got ‘em.
Calculate your net profit margin
First things first. You need to know your net profit margin.
To determine your net income, take your gross revenue, and subtract the operating expenses.
Net Income = Gross Revenue – Operating Expenses
Next, take your net income and divide it by the number of sales, multiplying by 100 to get a percentage. This will give you your net profit margin.
Profit Margin = (Net Income/Number of Sales) * 100
The resulting figure will give you an idea of how profitable your restaurant is per sale. Ideally, you want to increase this figure. The higher it is, the more you make for every meal sold. As of 2018, the average for full-service restaurants was 6.1%.
Once you have your current net restaurant profit margin, you’re ready to look for ways to boost it.
The average net profit margin for full-service restaurants is about 6.1%. – Forbes
Reduce overall food costs
Consumer-facing businesses account for 40% of waste by weight. To improve your profit margins, look for ways to reduce this waste to reduce your overall food costs.
For example, look at the top 10 food items you keep in stock. Take advantage of the volume of products you purchase by negotiating with suppliers for discounts and ordering in bulk.
Or you might consider buying from local farmers instead of using a middleman when possible. You’ll save money on shipping expenses, as well as provide your restaurant with fresher ingredients at a lower cost. This is one of the easiest, fastest ways to immediately boost your restaurant’s profit margin.
Additionally, think about creative ways to use food. If you like to make fresh salads with broccoli, save the broccoli stalks to use in soups. If you serve hamburger, use any leftover meat to make meatball appetizers. If you have foods, such as fish, nearing their expiration date, use those foods for a special.
To improve your profit margins, look for ways to reduce this waste to reduce your overall food costs.
Finally, do not offer a complimentary appetizer. Either forgo a complimentary appetizer or train your staff to ask customers if they want the appetizer rather than bring it out immediately. This reduces food waste and unnecessary food costs.
Review your menu items
Regularly review your menu, replacing low-performing, high-cost items with alternatives.
Become savvy with ingredient swapping. Expensive doesn’t mean better, so try swapping things like lumpfish roe in the place of caviar or use trout instead of salmon for an entrée.
A good menu layout is critical to boost your restaurant’s profit margin. Where you place items on the menu impacts how your customers order. Incorporate relative placement strategy into your menu planning.
Place an expensive, high-profit item next to an even more costly, low-profit item to encourage your customer to choose the high-profit item.
Looking for more profitable menu ideas? Check out our most profitable restaurant concepts.
Daily specials are helpful for a variety of reasons.
They’re a great way to increase profit. They allow your chefs to be creative while using up any excess food products already available. Plus, you can charge more for specials.
Remember to look for easy entrées that can be prepped ahead of time so that you don’t need to hire extra staff.
As a bonus, consider daily specials isolated marketing tests. You get to see if your customers like other options. If something performs well, you can add it to your regular menu.
One of the best things you can do as a restaurant owner to increase your restaurant’s profit margin is hire highly qualified staff and hold on to them.
Train your staff well and incentivize them to keep them happy. Reducing turnover helps to keep your training costs lower and improve profits.
During times when the restaurant is slow, offer your employees the option to go home early. Some people will take you up on it, and you can lower payroll expenses when they do.
Train your staff well and incentivize them to keep them happy.
Utility costs are often high for restaurants, but they can be minimized with energy-efficient equipment. If you haven’t already, invest in a smart thermostat to allow you to adjust the temperature during non-business hours.
One of the best things you can do is to train your staff to upsell to increase your restaurant’s profit margin immediately.
Train your staff to know what wine and foods pair well together. They need to know how to make recommendations that feel authentic to your customers.
And get your team excited about your menu. Be sure to teach them which dishes are the most profitable for you to sell.
You might even consider offering the server who upsells the most on your next shift a free meal (or some other perk).
Establish a rewards program
Most restaurant owners love regulars. Establish a rewards program to let your regulars know you appreciate them.
It can be something simple like a punch card—after ten purchases, they get a free entrée. Or if your valued customers spend a specific amount of money, they get a gift card or free appetizer.
You can even get creative with this and ask customers for their email addresses to build a customer database of your highly engaged customers.
Establish a rewards program to let your regulars know you appreciate them.
Selling merchandise, such as shirts and hats, is an excellent way to improve your profit margin. It has the bonus of being free word-of-mouth marketing too!
Get creative with your restaurant’s theme. Invite staff and guests to submit design ideas. For a fairly modest investment, you can roll out your first restaurant-specific swag… and make a little more profit in the process.
Keep your eyes on the prize
All of these things will help you boost your restaurant’s profit margins. But keep in mind, a boost in profits is only worth it if it sticks.
We’ve focused on tips that will make you more money and keep your customers happy. That’s the balance you want to aim for.
Do that, and your profit margins will see a lasting surge.