- by eigital content team |
- February 22, 2021
- Restaurant Management | 7 min read
Is Profit Margin Helping or Hindering Your Restaurant?
Owning a restaurant is hard work. From staff management to customer satisfaction to expense optimization that makes the most of your investments, there’s a lot to consider before making even the smallest operational change. How can you guarantee that your business is gaining traction? By watching and managing your profit margin, you’ll learn the best metrics for achieving financial success.
What is Profit Margin?
Simply put, the profit margin is the gross revenue left over after you pay all of your operating expenses for that particular period. It’s what remains from annual sales after paying rent, labor, restock inventory, payroll, marketing, technological investments, and other costs that inevitably crop up when you’re running a food service business.
In any case, but particularly when you’re just starting, many expenses are unavoidable, and it takes a long time to break even on your initial investments. When creating your budget, build in a large cushion to fall back on so you’re prepared for the worst-case scenario—best case, you come out the other side with extra pocket change.
Remember, profit margins are extremely susceptible to fluctuation with the market and depending on your own choices. A profit margin in the range of 0-15% is normal, but most restaurants average a 3-5% profit margin. As much as possible, aim high.
Improve the Statistic
Once you calculate your profit margin, you’ll know how far in the red you truly are and what changes would best support your business’s long-term health. Broadly put, either generate more sales or lower some expenses.
Here, many management teams fall into get-rich-quick schemes. They cut everyone’s hours or outright fire their worst performers or get a nonorganic alternative of an ingredient when they usually stock the best of the best. This will negatively impact staff morale and can worsen the customer experience, which is a risk you don’t want to take. Instead, focus on controlling your labor expenses, cost of goods sold, and overhead by tracking them on a smart Point of Sale. The best systems come with automatic reporting and analysis features which you can monitor to guarantee that the changes you’re making actually work.
Sometimes it’s true that you have to spend money to make money. For example, self-service devices reduce labor costs and reveal where you’re overspending. For your consideration, here are some other cost-saving suggestions and benefits gained with cutting-edge restaurant technology:
- Reduce employee turnover with better job postings and training systems.
- Smart scheduling features that let employees quickly check their calendars and swap shifts with coworkers without managerial approval. That’s one more thing off your plate.
- Auto-generate payroll with integrated accounting software that makes workforce management easy.
- Inventory management features with real-time analysis give you a heads-up about when and how much to restock, thus preventing costly food waste. It’s more sanitary, eco-friendly, and financially sound.
- Establish yourself online. Join the social media platforms frequented by your best, most loyal customers and develop a brand voice that matches the dine-in experience tone. Market directly to your audience and engage with user-generated content to deepen customer relationships further.
- Set up an online ordering platform on your website and invest in Google My Business to appear in relevant nearby searches. Make sure your contact information is up to date across all platforms as well.
- Use sales data to create targeted deals and promotions, generating more sales on slow nights.
Consider all the various sales channels that bring in revenue. It’s not limited to food and drink; also consider catering services, full-room rentals, branded merchandise, and any other money you pull in. All of this affects profit margin. It would be best if you had the full scope of available information to make smarter budgeting decisions, which also serves as justification for your investors when they ask to see proof that you’ve got a long-term plan.
Wherever your priorities lie, you can almost certainly find a Point of Sale system that fits your particular needs. Do the research and talk to different vendors to find the right fit. For something as important as technological investments, take time asking around and never settle.
Profit margin is an essential metric for tracking the success of your business over time. Software that reports, analyzes, and provides an overview of gross revenue and expenses are invaluable toward getting closer to that 15%. Take control of your sales and costs to streamline profit margin and optimize, then maintain your restaurant’s financial success.
Answers, advice and everything about the restaurant business.