The restaurant industry is competitive. Increasing your eatery’s profit margins is essential to staying open and growing your business.
We’ve created an in-depth list of strategies you can use to increase profits in your restaurant. This article will cover:
- How to measure your restaurant’s profit margins
- Managing your restaurant’s inventory
- Managing your staff efficiently to maximize profits
- Incorporating technology into your restaurant operations
- How to manage costs to increase profits
Let’s get into it.
How are a restaurant’s profits measured?
One of the key ways to measure how profitable a restaurant is is by looking at its gross profit margin.
Gross profit margin is a financial metric that measures how much money a restaurant is earning after accounting for cost of goods sold (COGS). It’s shown as a percentage. The higher the number, the more profitable your restaurant is.
As a restaurant owner, you want to keep a close eye on your gross profit margin. Check it regularly to make sure your restaurant business is growing and profitable.
How to calculate your restaurant’s gross profit margin
Calculate your restaurant’s gross profit margin by subtracting the cost of goods sold (COGS) from total revenue, then dividing that number by total revenue.
Here’s what that looks like as a formula:
Gross Profit Margin = (Total Revenue – COGS) / Total Revenue x 100
Let’s say your burger spot earned $50,000 in revenue and spent $20,000 on COGS. The gross profit margin would be 60%, which is pretty good.
Regularly calculating your restaurant’s gross profit margin will help you make more informed decisions on how to price your food, optimize your menu and manage costs to maximize profitability.
Now, let’s get into the meat and potatoes of how to increase your restaurant’s profits.
5 ways to increase profits in your restaurant
1. Optimize your menu
Menu optimization is the process of analyzing and tweaking your menu to increase your restaurant’s profitability. It’s an ongoing process that requires you to regularly look over your menu to ensure it’s constantly driving profits to your restaurant.
To optimize your menu, first you need to figure out which items are most profitable. You can calculate the profitability of your menu items in two steps. First, calculate the cost of making each item, taking into account ingredients, prep and labor time. You can use food costing software to help you calculate the profit margin of each item you sell.
Next, use sales data from a restaurant management software to find out which items are most popular. If your restaurant is set up on an online ordering platform like Doordash or UberEats, you can gather sales data from there, too.
Comparing the number of items sold to the cost of preparing the item will help you get a better idea of what’s top-performing. Once you know which items are most profitable and sell the most, adjust your menu to promote these items while removing or deprioritizing unprofitable, unpopular items on your menu.
Price your menu strategically
The pricing of your menu is also important. You need to price your menu high enough to generate a healthy profit margin for your restaurant, but not so high that it turns off your customers.
A popular strategy is pricing items just below whole dollar amounts – like $10.99 instead of $11.00. Talk to your customers, too. Getting their feedback on which items they love most will help you adjust prices accordingly.
Another great way to optimize your menu is by offering items that share the same ingredients. This way, you have to source fewer ingredients and manage less inventory (more on that later). Another strategy is by exclusively offering curated menus during holiday occasions. These menus can be more profitable than à la carte.
Keeping your menu fresh and current is also key to increasing your profits. Update your menu with new items regularly. Include seasonal offerings and rotating specials. This will keep your customers excited to come back and try new things, increasing the potential to grow your bottom line.
2. Manage inventory
Inventory management involves ordering the right amount of ingredients and supplies, minimizing waste and organizing your storage areas for maximum efficiency.
Keeping track of your inventory levels helps you know much you have on hand and how much you have to order. Regularly assess your inventory levels with an inventory management software to figure out what and how much needs to be reordered. This can reduce waste and keep you from losing money on things that have gone bad or expired.
Use the first in first out (FIFO) method
The first in first out (FIFO) method is a popular inventory management strategy used by restaurant owners. It involves using the oldest inventory first to make sure that ingredients don’t go bad before they’re used.
To use a FIFO system, label and organize your inventory based on expiration date. Make sure your oldest ingredients are placed near the front of your food storage area, where they can be used first. Train your employees on how to use the FIFO system to reduce food waste and make sure your restaurant’s inventory is being used efficiently.
Keeping your food and supply storage area clean and organized is another key part of inventory management. You want your staff to be able to easily locate the things they need to do their job. Make sure you organize your food storage area in a way that minimizes the risk of theft or food spoilage.
Ordering the right amount of inventory is also essential for reducing waste and controlling costs. If you order too much, you risk having an excess of products that spoil or expire before you can use them. If you order too little, you risk running out of supplies and being unable to meet customer demand. Forecasting your inventory needs in anticipation of things like seasonal holidays or higher restaurant traffic is essential to achieving this balance.
You can forecast your inventory needs by looking at past and present sales data to see what sells the most. Take into account seasonal trends like holidays or events that could spike traffic, and consider the lead time it takes to order certain supplies. Make sure to do this on a regular basis as your menu and seasons change.
This will help you optimize your ingredients and supply orders to minimize waste and ultimately increase your restaurant’s profits.
3. Manage and train your staff effectively
Well-managed employees work more efficiently, create a better experience for your customers, help boost sales and can ultimately increase your profit margins.
Poor scheduling can lead to overlapping shifts, no-shows, excess overtime and employee fatigue – which can all negatively impact your restaurant’s profit margins. A scheduling tool like Homebase can help you prevent these common scheduling issues with its built-in schedule templates or auto-scheduling features.
Homebase lets you create schedules from templates or by drag-and-dropping shifts into the timetable.
When it comes to business, lost time is lost money. Nobody likes to waste time and it can take hours to create a schedule by hand. Homebase’s auto scheduling feature saves you from spending time manually scheduling so you focus on more profit-generating tasks.
Managing your employees well also involves managing the cost of their labor. Optimize the amount of money you’re spending on staff to avoid overspending on unnecessary overtime and grow your profit margins.
Homebase gives you detailed and real-time insights into your restaurant’s labor expenses. You can break down labor costs by hour, department and role and use Homebase’s labor forecasts to build the most cost-effective schedules and save hundreds month over month.
Effective communication is an essential part of effective team management. Effective team communication helps employees collaborate and solve problems faster, creates a culture of transparency in your business, boosts employee satisfaction and sets your team up for success. By keeping an engaged, collaborative and happy workforce, you will increase your team’s productivity and your restaurant’s profits.
Homebase offers a team chat app that helps streamline communication with your team. Features like free instant messaging, alerts and reminders and shift notes help you keep an open and effective line of communication with your staff.
Finally, training your staff on how to upsell menu items is an effective way to increase your sales and profit margins. Upselling encourages your customers to spend more money at your restaurant by adding additional items to their order.
When staff suggests complementary items or makes personalized recommendations, it can enhance the customer’s dining experience and lead to repeat business. Effective upselling can also lead to a decrease in waste by encouraging customers to order more of the items that are already being prepared. Overall, staff trained in upselling can positively impact your bottom line and enhance customer loyalty.
4. Incorporate technology into your operations
With the right tech, you can streamline your restaurant’s operations, enhance customer experience and improve your profit margins.
Installing an effective point-of-sale (POS) software can help simplify ordering and payment processing and improve how efficiently your restaurant runs. By improving your restaurant’s ordering and payment systems, your customers will be more satisfied with their service and are more likely to return.
Your (POS) software should have a user-friendly interface, provide you with detailed sales reports, offer inventory management features, support multiple payment options, integrate with other restaurant software, and provide reliable customer support. It should also be customizable to fit the specific needs of your restaurant, so you can streamline restaurant operations and increase profits.
Additionally, integrating a restaurant analytics software can provide you with useful insights into sales trends and menu performance. Using data-driven insights can help you make more informed decisions on how to increase your restaurant’s profits. With the help of a restaurant analytics software, you can track sales, monitor your inventory levels, and analyze customer behavior to identify buying trends and opportunities to grow profits.
Use analytics software to identify the most popular menu items to make informed decisions about menu changes, specials, and pricing strategies. The software can also help you reduce food waste and improve inventory management by providing real-time data on stock levels and predicting the demands of your customers.
5. Keep costs down
Effective cost management can help keep your expenses low and your profit margins growing. Some strategies you can use to keep costs down are:
- Negotiating better prices with your suppliers
- Reducing energy consumption and food waste
- Creating an operating budget and regularly reviewing
- Automating food prep and customer communication
Strong relationships are at the core of good business. Fostering a good relationship with your suppliers can help you negotiate better prices on ingredients and keep your food costs down.
Energy costs are going up, too. Reduce your restaurant’s energy costs by using energy efficient practices. Here are a few things you can do:
- Install LED light bulbs
- Choose energy-efficient refrigerators
- Turn off idle equipment
- Decrease heat/air conditioning usage by installing a smart thermostat
Food waste can cost restaurants a significant amount of money as well. Minimize food waste by using inventory management software and the FIFO system to keep track of what you have and what’s ready to be used.
Finally, create a budget of your operating costs to keep track of where your money is going. Keeping an ongoing record of your expenses will help you see where you’re overspending and where you can cut down on costs.
Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.
