Profit margins are always a focal topic amongst business owners- regardless of which industry you are in. With competition and market penetration at an all-time high, brands across the globe must continuously develop creative ways to remain profitable and relevant among consumers.
The restaurant industry specifically has become oversaturated with the “next big thing” or the “hip, new trend” that has opened up around the corner or down the street. The National Restaurant Association reports that over 1 million restaurant locations exist in the United States alone, resulting in 15.3 million jobs for the working population.
By the end of 2019, the NRA predicts that the projected sales of the restaurant industry will reach $863 billion. You heard that right- I said billion.
So how do restaurants compete with such statistics? How do restaurant owners remain competitive to the ever-growing demands of consumers? Whether you own and operate a full-service restaurant, a fast-casual establishment, or a quick-service restaurant one of your main areas to focus on is undoubtedly boosting sales and increasing revenue and profit margins.
So how do restaurants owners achieve a higher profit?
The NRA defines profit margins as, “the percentage of annual sales revenue a business has left over after subtracting all expenses from gross revenue, or total sales.” In order to determine and calculate your restaurant’s profit margin, best practice is to subtract your operational expenses from your restaurant’s total revenue to determine your profit. Then, divide your profit by your total revenue and multiply by 100 to find your profit margin:
Gross revenue – expenses / gross revenue x 100 = profit margin
The average restaurant profit margin is anywhere from 3%- 6%.
If you’ve calculated your restaurant’s profit margins, and you’re less than thrilled with the results, or you’ve fallen below the average profit margin, there are a few simple ways to boost sales, improve your bottom line, and increase profit margins for your restaurant.
Analyze your Food Costs: One of the largest culprits leading to minimal revenue and profit is food and inventory waste. Proper inventory management is one of the easiest ways to begin to solve this issue. Take a closer look at your process for taking inventory and forecasting your food, product needs and operating expenses- is this process accurate? How much inventory are you losing due to food waste? Meet with your kitchen and serving staff to ensure that each employee is aware of the proper amount of ingredients to use in dishes, menu items, and cocktails. A simple way to reduce excess food cost is to guarantee that all ingredients are being properly used, and are being used correctly.
Your point of sale system can also assist in the proper evaluation of inventory and overall restaurant operations. Many POS systems are able to track some of your restaurant’s success. As orders are entered into the POS software, inventory will automatically update. This is a theoretical usage: that is, how much inventory you should’ve used based on how much you sold. Your forecasted inventory should match your sales volume.
Talk to your employees about whatever discrepancies there may be. Simply letting your kitchen staff know that your restaurant POS software can track over proportioning, mistakes, and theft will encourage them to be more honest and hardworking as well.
Based on the cost of items in your inventory, determine whether or not your menu items are priced accordingly, and focus on auditing your menu. Has the cost of lettuce or goat cheese risen from your food supplier? If so, you might need to raise the menu prices of some of your dishes to accommodate that spike. You may also want to consider negotiating with your vendors and food suppliers- ask about discounts or specials if you order certain items in bulk. Then use these bulk items in daily specials to guarantee their usage.
Improve Customer Loyalty: Acquiring new customers is always a goal of restaurant owners, but the real value is getting your recurring guests to continue walking through your doors. It can cost up to SEVEN times more to find new customers compared to keeping the ones you have. Turn your repeat guests into raving fans, and ambassadors of your brand by incorporating a loyalty program into your restaurant. Customer satisfaction and the overall customer experience should be a top priority, and successful loyalty programs can assist in achieving that.
Loyalty solutions are a popular way for restaurants to keep customers engaged by offering rewards like discounts, coupons, and free meals based on their purchase history, frequency of visits, and more. Restaurant owners are creating programs like these to maintain their customer base, and keep up with consumer demands, to ensure that revenue streams keep flowing into their business, and profit margins keep increasing.
Upsell to Each Customer: Every single customer who enters your restaurant is an upselling opportunity. Focus onupselling your guests on high profit items- like cocktails for example. You won’t necessarily increase profit margins by trying to upsell each customer a prime rib, or filet mignon, but asking a customer, “How was your vodka tonic, would you like another” is a great way to increase those margins! Upselling appetizers, desserts, or sides like French fries, side salads, or soups are an easy way to bring up the check average, and boost sales as well.
Daily Specials: This allows your kitchen staff to be creative, AND is a fantastic way to use up any excess ingredients in the kitchen. Price your daily specials slightly higher than the average price of your regular menu items. This is a fantastic way to utilize your entire inventory, ensuring that your food costs are appropriately expended. Leverage social media platforms to highlight and broadcast your daily specials. Social media is free, and is one of the top ways to market your menu, restaurant, and brand as a whole.
Create Events for Slow Days: Utilize and analyze your consumer buying behavior and the data associated with your operation to determine when your restaurant it typically the quietest. One approach is to cut labor costs by downsizing your staff- scheduling one less server or going without a hostess for example.
If you established that Tuesday nights, or Thursday afternoons barely bring in any business, create a new and exciting reason for consumers to come. Perhaps you hire a local band and offer live music with “buy one get one 50% off” appetizers or rent karaoke equipment and offer karaoke during the slower evening shifts. You could choose to host a Trivia Night and promote bar specials. Serving brunch, or a specialty promotions, such as BOGO Burgers, strictly on a Thursday afternoon could be a great way to generate and boost sales.
All of these tips are easy to implement, and can be beneficial to achieving an overall increase restaurant sales, and in your restaurant’s profit margins. Good luck!