Running a restaurant is the black diamond of storefronts when spearheading an increase in profit margin.
Why? Because when we think of restaurant profit margin and profitability, we have to consider a myriad of factors and equations.
In this guide, we will lock onto the levers that need pulling to increase restaurant profits so that you can keep more money in your pocket at the end of the day. (Yay!)
Before we jump into how to increase your restaurant's profit margin, we have to define our terms. So how do we calculate these numbers?
Calculations To Find Your Restaurant's Profit Margin(s)
= Gross Revenue - The Cost of Goods Sold
Gross Profit Margin:
= [Gross Profit ÷ Gross Revenue] x 100
= Gross Revenue - The Cost of Goods Sold - All Other Expenses (aka Total Expenses)
Net Profit Margin:
= [Net Profit ÷ Revenue] x 100
After a quick look at these calculations, you will soon see that the best way to increase your restaurant's profit margin is to lower operating expenses while simultaneously increasing gross revenue!
"The best way to increase your restaurant's profit margin is to lower operating costs and raise revenue."
Restaurant operating costs can typically be broken down into three distinct buckets. Labor and people management in the first bucket, food costs in the second, and rent and other costs in the third. What goes into those buckets may vary depending on the type of restaurant you run or the kind of support you need to run a successful operation, but for the most part, those buckets will look like this:
Now that we understand most of what makes up restaurant operating costs, we can start to plan how to lower them bucket by bucket. These are our top tips for reducing restaurant operating costs.
During different times of the year or economic events, food costs for specific items will vary. Consider engineering your menu to offer cyclical dishes that reflect these shifts.
Did you know that your team can develop an exact feel for how to measure units with practice and muscle memory? It's true. Consider investing in portion control practice with your team to help them serve the right amount every time, using muscle memory. In addition to this, be sure to train kitchen staff on how to properly portion and prepare food to reduce wastage — speaking of…
The average restaurant wastes up to 75,000 pounds of food annually, with food being one of the highest variable costs in running a restaurant. Making the best use of it can maximize your margins. Do this by being mindful of the ordering, storing, and quality of the food you purchase.
Properly portioning dishes has a massive impact on the bottom line because mistakes add up quickly. Use best practices by portioning food during pre-shift before service commences, using measuring cups, ladles and color-coded tools to help your team stay on track.
Restaurants are built on community, food, and togetherness. Food is cyclical, and if your restaurant changes its menu frequently, it pays to build relationships with those on the front line when it comes to keeping things fresh and delicious.
This point should arguably be number one, as your inventory management system is the epicenter of food tracking and inventory. Finding a great inventory management system that works for you will be the key to optimizing your food costs.
Labor costs are one of the most significant expenses for managing restaurant costs — typically hitting around 30% of gross revenue. This can be reduced by using scheduling software to help you schedule smart. Such software can help reduce labor costs by 3% by using overtime alerts and providing labor forecasts.
In a recent study, a local juice bar discovered they were losing $91,200 per year paying employees for unworked hours. An easy solution to combat time theft is by using time tracking software. This tool alerts business owners when staff members punch into their shifts outside their allotted scheduled shift times.
According to multiple sources, the average cost of hiring a new position is around $4,000, so using smart technology, tools, and tips to streamline these operations can save you big money. If you haven’t already, consider using an applicant tracking system to make hiring easy. You might also want to consider a platform that allows employees to self-onboard, and other tools like interview templates and SOPs.
Can you automate it? Then do! We live in the glorious age of technology, meaning many epic tools can help us run our business without having to lift a finger.
If you manage a restaurant, consider using a software solution that offers automated tools such as streamlining worked hours to payroll, automating payroll calculations, or creating schedules for you based on forecasts for the week.
Less time spent on admin tasks like payroll calculations, employee recruiting, employee hiring, or onboarding adds up. A recent study found that they saved up to 10 hours per week using workforce management software to navigate their administrative and people management tasks.
The most shocking thing about data is that the results are not what you expect most of the time. As a business owner who manages sales vs labor metrics, understanding and learning from the data could help you avoid losing money from being over or understaffed regularly. Lean into tools that offer integrations between your labor and sales so you can make choices that will make your business money.
There are many ways to keep great people. Still, some high-level takeaways include hiring smart, having a great onboarding process, offering flexible working hours, listening to and appreciating your staff, and tracking employee performance. This can be done manually or with the help of HR software.
Did you know that utility costs average between 2.5-4.5% of overall sales?
We live in a time of smart houses and smart kitchens and, since every little bit counts, why not take advantage of it. Other ways going green could help you save money include:
Rent is up there when it comes to operations costs, but there are always ways to cut costs if you are open to getting creative. For example, one option could be renegotiating your lease with your landlord. Alternatively, you could rent out your space for events or partner with another food service provider to offer their goods. There is also the option to downsize or purchase a space and renovate it using used or unique goods. Where there's a will, there's a way!
As we discussed earlier, the two most important levers to adjust when working to increase a restaurant's profit margin are those that lower operating costs and raise revenue. This section will dig into some ideas on how to raise restaurant revenue without spending a dime.
Working front of house in a restaurant is a sales job — that's why encouraging your FOH staff to improve their selling techniques will play a massive role in increasing restaurant revenue. This could include training around cross-selling, upselling, food and wine pairing, and more.
The best way to sell authentically and naturally is to really like and understand the product you are selling. So menu training and tasting should be prioritized whenever a new item is rolled out. Building this deep knowledge could be baked into the onboarding process.
We are social creatures, and the foodservice industry is a social place. Learning customers' names, preferences, and patterns is a great way to build trust and recurring business! A customer is more likely to become a regular if they feel wanted and noticed, so learn their names and faves.
Different dishes have different margins of profit based on their cost to acquire, produce, and sell. Customers can easily be overwhelmed by extensive menus, so a win-win could be to select a low-cost (yet delicious) item with a high-profit margin for staff to feature all night long.
Working in the restaurant industry should be fun. It's social, fast-paced, and involves connection. Lean into the vibe and promote morale with staff by introducing selling contests like BINGO or offering prizes or free meals to top sellers of the night.
We hope you found these tips on understanding and reducing restaurant operations costs while raising revenue to be helpful and productive.
If you are looking for a great way to simplify your people operations and save up to 10 hours a week, consider Push Operations.
Push is the all-in-one platform for restaurants making people management easy. Push offers integrated payroll, HR, and workforce management tools that connect with most restaurant POS systems to help streamline operations and increase efficiency.
“In the labor numbers, we were reporting about a $300 to $400 difference than what we were getting through Push!”
-Tara Hardie, ZZA Hospitality Group, 16 locations
We've just signed up with Push and are excited to streamline our scheduling and payroll into one platform. Our account executive Kelvin has been excellent to work with. Thanks!
I did payroll myself for many years and I was skeptical to change that, but I am glad I did! The use of the tablet is easy for staff to sign in and out and the payroll is done perfect! I like the direct deposit, it saves lots of time, and I don't have to be at the business to do payroll. Great product and service!