Americans are now spending more money dining out in restaurants than at grocery stores, reports the USDA. With the restaurant business beginning to boom, you would think that your bottom line would be following that same upturn. If you’ve been battling increased competition, feel your labor costs rising, and are struggling with higher operating expenses, we hear you. Your expenses might feel like they’re eating into your already thin profit margin, and you’re looking for the right solutions.
Increasing your profit margin can happen in many ways, but the overall takeaway is that you need to decrease costs and increase your sales. In this guide, you’ll learn 12 innovative ways to accomplish both of these things—and generally increase your profits margins as you do so.
Before you try new tactics to boost your profit margin, you should take a look at your books to get a good grasp of your profit and loss statements and your restaurant’s current financial position. Then you will be able to see where you’re overspending or being inefficient—or maybe where there is an opportunity to expand sales. Your passion is most likely running a restaurant and not accounting, but you or someone on your staff should take on the responsibility of tracking your revenue and all operating expenses (food, labor, rent, utilities, equipment, maintenance, taxes, insurance, advertising/marketing, technology, décor, comp meals, etc.). You may know your gross profit margin after subtracting cost of goods sold, but the net profit margin deducts all costs to give you a better idea of your true profit. This simple formula will determine your net profit margin:
Now that you know your number, how does your net profit margin compare to others in the industry? Full-service restaurants have an average net profit margin of 6.1%, according to a Sageworks’ financial statement analysis. If your current net profit margin is below this industry average or even if it’s there and you still want it to be in a better place, it’s time to try some small changes that can have a big effect on your bottom line.
One quick way to raise your profit margin is to zero in on inefficiencies and waste that could save you money when they’re fixed. Take a full inventory on a weekly basis and run a product-mix report from your point of sales (POS) system to analyze shrink. For example, your chef counts 38 steaks in the walk-in on Monday morning and then runs a report that tells him he sold 28 filets in the previous week. His beginning inventory from the previous week, minus sales and comps, should equal the most recent inventory count. If it doesn’t, then 10 steaks may have grown legs. To reduce food from walking out the back door, consider installing a security system or even a fake camera to deter theft.
Did you know that one restaurant can produce 25,000 to 75,000 pounds of food waste annually, according to the Green Restaurant Association? Cut food costs and increase profits by tracking and analyzing what’s being discarded with the help of an automated food-waste-monitoring system like LeanPath. Restaurants report that this practice decreases waste by half and cuts food cost purchases by up to 6 percent. Start taking steps to reduce your food waste (and your wasted cash) with these strategies:
Extend the short shelf life of fresh produce by purchasing local fruits and vegetables. You’ll cut out the time it takes to ship the produce from California or Mexico and
The majority of millennials say spending money on an experience like dining at a restaurant is more important to them than purchasing an item from a store, finds The National Restaurant Association's 2017 State of the Industry report. To tap into this coveted consumer’s $200 billion buying power, you need to serve healthy, environmentally conscious food. The NRA State of the Industry report found that:
Serve up sustainable, local and healthy options by ordering through FoodMaven, where you’ll discover a wide variety of local, organic, non-GMO and allergen-free foods that were responsibly sourced and also make a positive economic, environmental and social impact in your community. Be sure to share your restaurant’s sustainability story on social media, your website, Yelp, your online and in-person menu, and table-top marketing materials.
Replace old, less energy-efficient, electricity-guzzling equipment with newer models that are Energy Star rated and meet energy efficiency requirements that will save you money and have less impact on the environment. Here are a few more no-cost or low-cost tweaks that will add up to big savings and less energy consumption:
Upselling high-margin items is a simple, successful tactic to lift sales. By increasing the total spend per guest, you can increase gross profit without increasing operating expenses because your server is just working harder, not longer. The key to upselling or cross-selling (think Amazon’s “Customers who bought this item also bought this”) is to ensure your waitstaff treat it like a casual suggestion and don’t pressure patrons. Another part of this strategy is to know your most profitable menu items that guests love and will return to order again. Also, make certain it’s easy for the kitchen to prepare those items quickly to guarantee a good all-around experience for your guests.
If you haven’t negotiated your distributor contracts in a while, it might be time to evaluate your current contracts. If you start to notice gaps in profitability on certain items, consider adding another supplier that can help you cut down on food costs. Or maybe you’re just not satisfied with the level of customer service you’re receiving, delivery times aren't consistent, or hitting minimum orders has become a hassle?
Close to 60% of restaurateurs say hiring, training and retaining staff is their biggest challenge, finds the 2018 Restaurant Success Report. With recent low unemployment, it’s become even more challenging to keep good restaurant staff. Treat your rock-star employees right, and you’ll minimize turnover:
It’s important to figure out what tech conveniences are going untapped in your restaurant and use those systems to their full potential to optimize efficiency, save money and help you make smarter decisions. Are you utilizing your POS system’s features that allow you to track inventory and forecast demand as well as calculate recipe costs to find the highest-margin menu items and dishes you should rethink? Are you using your POS system to communicate orders to the kitchen, so you can increase table turnover rates? Is your POS system helping you reduce food waste from overordering? Are you doing all your ordering online to save time?
The 2017 Bond Brand Loyalty Report finds that 81% of consumers say that loyalty programs make them more likely to continue patronizing a business. It’s as simple as a punch card for frequent visits (your 10th meal is free) or leverage technology to create a mobile version since 57% of consumers would interact with a loyalty program on their device. You can also learn from these loyal customers by surveying them on their dining experience and incenting them with a giveaway for their feedback. You might also try rewarding loyal customers for sharing foodie photos of your dishes on Facebook and Instagram.
Keep in mind that cutting costs that alter the customer experience in a negative way may briefly bring higher profits, but you’ll come up short in the long term. Make sure you hire the right front- and back-of-house staff who will support your mission to both decrease expenses and still provide the exceptional service and excellent food that will keep your guests coming back.
Not sure which profit-margin-boosting tip to try first to see an immediate impact? Why not get a $50 credit right now by trying out FoodMaven? That will help you tackle tips 3, 4, 5 and 8 with one change.