- Food

The relatively slim profit margins of owning a restaurant

Being a restaurant owner is a particularly brutal business. With average profits running as low as 3 to 5 percent according to https://www.synergysuite.com/blog/average-restaurant-profit-margin/, that doesn’t leave much of a margin for error.

Restaurants are more competitive

According to Lightspeed.com two decades ago, the average profit margin for restaurants was as high as 15 to 20 percent on average for most restaurants, at least in Philadelphia, and there is no reason to suspect the figures are different in any major city in the country.

And a big part of that trend toward lower profits is due to increased competition. Compared to 1990, due to the popularity of the internet, there is so much more competition in the restaurant business due to the rise of social media.

In the past, you had to prove yourself, often for years, and become a public fixture in the neighborhood before you made substantial profits, but once you did, you were in.

Now however, if you are extremely good at marketing through social media, you can, at least in the short-term, make a huge splash in the restaurant industry.

It’s sort of like in the music industry. It seems just about anyone can become a one-hit wonder and be the talk of the radio airwaves or on Spotify, but if they want to have a career that last decades, they need to work at it.

Have a plan

In order to succeed in the restaurant industry and have profit margins of at least 10 percent, then you need to have a comprehensive plan.

Yes, a great website and an active presence on social media is very important, but you need to operate in a lean manner.

One of the principle concepts to consider is to minimize foot waste. According to Notchordering.com at https://www.notchordering.com/blog/restaurant-food-waste-profit-margin, for every dollar a restaurant consciously works to save food wastage, they actually save up to $7 in actual costs.

Creating that use less food wastage, and yet are still appealing to customers is critical if you want to succeed in the restaurant business.

Another is finding a way to make your restaurant a social destination. If you offer happy hours, offer free WiFi, regularly host game day Football parties and UFC Fights, you are on your way from expanding beyond merely selling food to offering food as part of an entire entertainment package.

Another important element is training your staff thoroughly in the art of upselling.

Of course, this has to be fairly subtle. What you do not want your staff to do is keep suggesting upsell items to the point where customers feel they are bombarded with upsell ideas, but if the staff realizes that their income and livelihood (not to mention bigger tips) depends in part on their upselling, and that customers actually appreciate reasonable upsell suggestions, then the staff will get into the act.

The bottom line

We have just scratched the surface here, but there is no reason you cannot experience profit margins of 10 to 15 or more through intelligent application of great restaurant operating principles. 


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