What is the restaurant profit margin?
Just as a restaurant’s success is not wholly determined by the food or drinks it serves, the average profit margin for restaurants is impacted by a host of factors, like average cost per customer (especially if you’ve managed to upsell), the type of restaurant operation it is, and so on.
The range for restaurant profit margins typically spans anywhere from 0 – 15 percent, but the average restaurant profit margin usually falls between 3 – 5 percent.
Any textbook on statistics will cover how outliers, or data points at the extremes of a spectrum, affect averages. A QSR’s gross revenue and expenses differ dramatically from those of a Michelin-starred restaurant. When evaluating how much profit you should make in a restaurant, it’s useful looking into profit margins particular to your niche.
The most important message here is to set an annual target to maintain “average-or-better” restaurant margins.
How can I increase the profit margin of my restaurant?
There are two approaches to this:
A. growing sales volume in comparison to costs, or
B. lowering costs concerning sales volume
It’s crucial to remember that when it comes to normal restaurant margins, as with practically everything else in the industry, what works for one person might not work for another.
Many QSRs and FSRs, for example, believe that a simple reduction in hourly labor or supplies will result in a “quick win” in terms of cost reduction and profit rise. However, this is a strategy that should be used with caution, as failing to plan for the effects of these changes could jeopardize your customer experience, employee morale, and bottom line.
When it comes to restaurant bills, the “Big Three” are frequently mentioned:
- Cost of Sold Goods
As a general guideline, one-third of revenue should be allocated to the cost of goods sold (COGS), another third to labor, and the remaining third should be used to account for any additional overhead expenses.
It is critical to plan. It’s something that’s at the heart of any successful business effort and is critical for all types of restaurants, whether fine dining full-service, fast food quick-service, or food trucks. Setting cautious restaurant goals will help you weather the storms of life, such as bad weather and economic downturns.
Restaurant Profit Margin Averages by Type
1. Profit Margin of a Full-Service Restaurant
Kitchen workers, managers, waiters, bartenders, and a host are all included in the 3-5 percent profit margin listed above for full-service restaurants (FSRs). These figures, however, can vary dramatically based on factors such as restaurant size, pricing range, turnover rates, and location.
Profit Margin of a Fast Food Restaurant
The average profit margin for a fast food restaurant (QSR) is roughly 6-9 percent, depending on factors including whether the business is chain-owned, franchised, or independent. Because they employ fewer people, use less expensive ingredients (more frozen and pre-prepared products), and have a higher turnover rate than full-service restaurants, fast food quick service businesses have a better profit margin than full-service restaurants.
2. Profit Margin of Food Truck
Food trucks have comparable food expenses to brick-and-mortar restaurants, but they have cheaper overhead expenditures such as rent, insurance, staff, and utilities. While bad weather can reduce sales on a given day, leasing fees for events can compensate for this. Food truck profit margins are around 6-9 percent, similar to those of fast food and QSRs.
3. Profit Margins in Catering
When compared to a fast-food restaurant, catering enterprises have low overhead costs but similar food costs. While a high-end catering firm can make 15% or more profit, a food truck’s overall profit margin is about 7-8%.