The restaurant industry is highly competitive. Increasing your restaurant’s profit margins is essential to staying open and growing your business.
We have compiled a detailed list of strategies you can use to increase your restaurant’s profits. This article covers:
- How to measure a restaurant’s profit margin
- restaurant inventory management
- Manage staff efficiently to maximize profits
- Incorporating technology into restaurant operations
- How to manage costs to make a profit
Let’s get into it.
How is a restaurant’s profit measured?
One important way to measure a restaurant’s profitability is by looking at gross margins.
Gross profit margin is a financial metric that measures how much a restaurant makes after taking into account cost of goods sold (COGS). It is displayed as a percentage. The higher the number, the more profitable the restaurant.
As a restaurant owner, you want to keep a close watch on your gross margins. Check back regularly to make sure your restaurant business is growing and profitable.
How to Calculate a Restaurant’s Gross Margin
Calculate your restaurant’s gross profit margin by subtracting cost of goods sold (COGS) from total revenue and dividing that number by total revenue.
Converting this into a formula gives the following:
Gross Margin = (Total Revenue – COGS) / Total Revenue x 100
Let’s say your burger joint makes $50,000 in revenue and spends $20,000 on COGS. Gross margin is 60%, which is pretty good.
Make more informed decisions about how to price food, optimize menus, and control costs to maximize profitability by calculating restaurant gross margins on a regular basis I can.
Now let’s dive into how to increase your restaurant’s profits.
5 ways to make your restaurant profitable
1. Optimize your menu
Menu optimization is the process of analyzing and adjusting menus to increase restaurant profitability. This is an ongoing process, and the menu should be reviewed regularly to ensure that the restaurant is consistently profitable.
To optimize your menu, you first need to know which items are the most profitable. Menu item profitability can be calculated in two steps. First, calculate the manufacturing cost of each item considering materials, preparation and labor time. Food costing software can be used to calculate profit margins for each item you sell.
Then use sales data from your restaurant management software to find the most popular items. If the restaurant is set up with his Doordash or an online ordering platform such as UberEats, sales data can also be collected from there.
Comparing the number of items sold and the cost of preparing the items can help you better understand which ones perform best. if you know any item most profitable and Sell best, adjust and advertise your menu these are While removing or deprioritizing unprofitable and unpopular items items for your menu.
Price your menu strategically
Menu pricing is also important. Menu prices should be high enough to generate healthy profit margins for the restaurant, but not so high as to alienate customers.
A popular strategy is to price the item at a price below $1, such as $10.99 instead of $11.00. Please also have a conversation with the customer. Getting feedback on the items they like the most will help us adjust our prices accordingly.
Another great way to optimize your menu is to offer items that share the same ingredients. This way, you have to source less material and manage less inventory (more on that later). Another strategy is to offer select menus only during the holiday season. These menus can be more profitable than a la carte.
Keeping your menu fresh and up-to-date is also key to increasing profits. Update your menu with new items regularly. Include seasonal products and rotating specials. This keeps your customers excited to come back and try new things, increasing your chances of growing your revenue.
2. Inventory management
Inventory management involves ordering the right amount of materials and supplies and organizing storage to minimize waste and maximize efficiency.
Tracking inventory levels lets you know what inventory you have on hand and how many you need to order. Use inventory management software to regularly assess inventory levels to understand what and how much you need to reorder. This reduces waste and prevents you from losing money on defective or expired items.
Use a first-in-first-out (FIFO) method
First in, first out (FIFO) is a common inventory management strategy used by restaurant owners. The oldest stock should be used first before use so that the material does not deteriorate.
To use the FIFO system, label and organize your inventory based on expiration dates. Try to place the oldest ingredients near the front of the first available food storage area. Train employees on how to use FIFO systems to reduce food waste and ensure restaurant inventory is used efficiently.
Keeping food and supplies storage areas clean and organized is another important part of inventory management. We want to make it easier for staff to find what they need for work. Organize your food storage area in a way that minimizes the risk of theft and food spoilage.
Ordering the right amount of inventory is essential to reduce waste and keep costs down.. Ordering too little risks having excess product that spoils or expires before you can use it. Ordering too little risks running out of inventory and not meeting customer demand. To achieve this balance, it is essential to anticipate inventory needs by anticipating things like seasonal holidays and restaurant crowds.
Predict inventory needs by looking at historical and current sales data to see what’s selling best. Consider seasonal trends such as holidays and events that can cause spikes in traffic, and consider the lead times it takes to order certain consumables. Make sure you do this regularly as the menu and seasons change.
This allows you to optimize ingredients and serve orders to minimize waste and ultimately increase your restaurant’s profits.
3. Effectively manage and train staff
A well-managed workforce can work more efficiently, provide a better customer experience, increase sales, and ultimately increase profit margins.
Improper scheduling can lead to overlapping shifts, no-shows, excessive overtime and employee fatigue, all of which can negatively impact a restaurant’s profit margins. , using built-in schedule templates or auto-scheduling features to help prevent these common scheduling problems.
Homebase lets you create schedules from templates or by dragging and dropping shifts onto your timetable.
When it comes to business, lost time is lost money. No one wants to waste their time. Creating a schedule manually can take hours. Homebase’s auto-scheduling feature saves you hours of manual scheduling so you can focus on more profitable tasks.
Proper management of employees also requires control of labor costs. Optimize the amount you spend on staff to avoid wasting unnecessary overtime and increase profit margins.
Homebase provides detailed, real-time insight into restaurant labor costs. Break down labor costs by time, department, and role, and use Homebase’s labor cost forecasts to create the most cost-effective schedules, saving hundreds of people every month.
Effective communication is an essential component of effective team management. Effective team communication helps employees work together to solve problems faster, creates a culture of transparency in the business, increases employee satisfaction, and drives team success. Retaining engaged, supportive and happy employees increases team productivity and restaurant profits.
Homebase offers a team chat app that helps streamline communication with your team. Features like free instant messaging, alerts, reminders, and shift notes help you maintain an open and effective line of communication with your staff.
Finally, training staff on how to upsell menu items is an effective way to increase sales and profit margins. Upselling encourages customers to spend more money at your restaurant by adding items to their order.
When your staff suggests complementary items or makes personalized recommendations, your customers’ dining experience can be enhanced, potentially leading to repeat business. Effective upselling also reduces waste by encouraging customers to order more of items that are already prepared. Overall, staff trained in upselling can positively impact revenue and increase customer loyalty.
4. Embed technology into operations
With the right technology, you can streamline your restaurant operations, improve the customer experience, and increase your profit margins.
Installing effective point-of-sale (POS) software simplifies the order and payment process and increases the efficiency of your restaurant’s operations. By improving restaurant ordering and payment systems, Your customers will be satisfied with your service and more likely to come back.
(POS) software features an easy-to-use interface, provides detailed sales reports, offers inventory management features, supports multiple payment options, integrates with other restaurant software, and provides reliable customer support is needed. It should also be customizable to a restaurant’s specific needs, so it can streamline restaurant operations and increase profits.
Additionally, integrating restaurant analytics software can provide useful insights into sales trends and menu performance. You can make decisions. With the help of restaurant analytics software, you can track sales, monitor inventory levels, and analyze customer behavior to identify buying trends and opportunities to grow your profits.
Use analytics software to identify the most popular menu items and make informed decisions about menu changes, specials, and pricing strategies. The software also helps reduce food waste and improve inventory management by providing real-time data on inventory levels and predicting customer demand.
5. Keep costs down
Effective cost management helps keep expenses low and profit margins high. Here are some strategies you can use to keep costs down:
- Negotiate better prices with suppliers
- Reduce energy consumption and food waste
- Preparation and regular review of operating budget
- Automate food preparation and customer communication
At the core of good business are strong relationships. By cultivating good relationships with suppliers, you can negotiate the price of ingredients and keep food costs down.
Energy costs are also rising. Reduce your restaurant’s energy costs by using energy efficient methods. Here’s what you can do:
- Install LED bulb
- Choose an energy efficient refrigerator
- Turn off idle equipment
- Install a smart thermostat to reduce heat/air conditioning usage
Food waste can also cost restaurants a lot of money. Minimize food waste by using inventory management software and his FIFO system to keep track of what is on hand and what is ready to use.
Finally, create an operating cost budget to track where your money is going. Keeping track of your spending helps you see where you are overspending and where you can cut costs.
