Gross profit is the amount of money that was earned in total before any expenses. The average gross profits for restaurants are about 70%. This means, when a guest spends $100 at your restaurant, you will make around $70 from it!
Kitchen Gross Profit Margin and Food Cost
Restaurant owners often have a tough time determining whether they are making enough in their restaurant business to keep their business afloat. One way of calculating this, and other ongoing expenses, is by looking at the profit margin, which can determine if your restaurant will thrive or struggles in obscurity. Unfortunately for many entrepreneurs who find themselves in this situation in the food industry, there is no easy answer when it comes to improving margins; you need to try different things and see what works best for you to get a good return on investment.
Knowing the profit margin of each menu item is vital to total restaurant profitability when it comes to food costs. However, maintaining menu-mix information up to date can be difficult, especially in multi-unit, multi-region restaurant chains with constantly changing expenses, menu items, and selling prices.
True Food Costs Gross Profit Margin
Gross profit is what you have left after deducting all costs of goods sold (CoGS). This number is useful when you want to measure your restaurant’s efficiency, but since it does not consider all the costs of running your business, it is only one piece of the puzzle.
- (Selling price – cost of goods) / selling price = gross profit
- Gross Profit x 100 = Gross Profit Margin
For example, an item that sells for $10, and costs $3, would generate gross profits of $7 (selling price – cost of goods) and a gross profit margin of 70% ($7/$10).
What Is The Average Profit Margin For Each Type Of Restaurant?
The restaurant industry must compete on low margins, and this can be a struggle for owners and their kitchen team. Some averages across restaurants are:
- Catering and Events: 7-8 %
- Food Trucks: 6-9%
- Fast food and takeout: 6-9%
- Full service: 3-5%
How To Improve Your Kitchen’s Profit Margin
The two main ways to widen your profit margins are increasing sales and decreasing costs:
Increasing sales volume
Use an online ordering system
It is time to start using online ordering for take-out and delivery orders if you have not already. Since 2014, online orders have expanded faster than in-person orders, with 60% of diners ordering at least once a week. And the percentage will only increase due to COVID. This will help you respond to customer demand as well as facilitate a great customer experience.
While employing a third-party online buying service can help you get new consumers, it is also an innovative idea to include a native online ordering system inside your website–making it the perfect restaurant space. Not only will you save up to 30% on commission fees, but it will also make the process simpler by integrating with your POS (Point of Sale).
Engage in a loyalty program
When done right, engaging your loyal customer base–the regular customer base–can keep guests coming back more often, have them spending more money overall, and makes them more likely to recommend your restaurant to friends, thereby resulting adding to your volume of customers. This will lead to an increase in sales levels and increase profit levels. Just make sure your program is easy to use and does not frustrate guests by being overly complicated to use, even during the busiest business hours.
Evaluate your menu design
This is where the construction of restaurant menus comes in. Do you have a high-profit dish on your menu that you get great feedback on, but is not ordered often as an individual dish? Selling more units of that food dish could be as simple as changing the placement on the menu or the wording in the description, to make it one of the profitable dishes. By using data pulled from your POS, you can adjust your menu based on what is or is not selling, and which items are profit-boosters or cost-killer.
Reduce Cost of Goods Sold
Lowering your CoGS can become a balance between wanting to serve your guests high-quality food while keeping costs low. The cost of food sold and food cost per meal is very essential. Therefore, to engage in eco-friendly business practices, you must give thought to food cost calculations, especially food cost percentage. However, there are a few ways to achieve this, like comparing vendors, taking more accurate inventory, getting ahead of food waste, and more.
Reduce waste and theft
Food waste and internal theft are unfortunate but very real problems in the restaurant industry. While it may not be 100% preventable, it can be better tracked by using an inventory management system that increases accuracy. This will save you from making a disturbing loss statement.
Control labor costs
This is another fine balance between maintaining a monthly cost and keeping your staff happy and able to live on their wages for a period. It can be done if you are using employee schedule software to monitor shifts, create more efficient scheduling, and prevent early clock-ins. There is also something to be said for adding benefits to keep staff happy and loyal. Even if you cannot afford to pay for an increase in labor cost (or labor expenses), things like days off, tenure rewards, and continuous acknowledgment of their efforts go a long way.
Watch Your Utility Bills
Like all businesses, your restaurant needs to keep the lights on. Utilities are necessary, but you can take steps to decrease expenses how much you spend each month, boosting your average restaurant profit margin.
Consider the following:
- Look over your lighting: For many places, increasing natural light helps add to the ambience and reduces energy costs. You can also use up to 80% less energy if you replace your current lighting with halogen bulbs, compact fluorescent lamps, and light-emitting diodes
- Review your best practices: Educate your employees on the importance of conservation. Make sure all kitchen staff know to close the refrigerator and freezer doors, and review how to wash dishes without wasting water
- Invest in new appliances: Heating and cooling systems, water heaters, and freezers can drain massive amounts of energy. Make sure you periodically update your appliances to maintain a low energy bill.
As shown above, today’s restaurant systems aid with faster sales, more correct ordering, improved customer service, and a deeper understanding of sales and profits to boost your profit further. BNG POS offers the latest software and hardware designed specifically for profitable and efficient service in the restaurant industry. To learn how we can boost sales and profits of your specific restaurant, contact us here.