When it comes to owning a restaurant, at the end of the day it is just simply a business like any other industry, and you must be able to make money. A restaurant is a challenging industry to go into because only the best can survive due to the oversaturation of restaurant competition, and the high operating expenses that come with owning one. A measure of success for a restaurant really boils down to the profit margin, as in how much money the restaurant makes after considering all its expenses. So, the question is what is a healthy average restaurant profit margin for a restaurant?
To understand this better, we should look at how a restaurant makes money as well as the costs it takes to operate it. On the income side, it is straightforward as merely all revenue comes down to what customers pay. It is a restaurant’s job to figure out an appropriate balance on markups that enable them to bring in enough revenue, but not too much to price customers out of a restaurant experience. It can be expected that depending on the quality of dining experience that you would have to raise your menu prices, particularly if it’s higher quality food that costs more, or restaurants that do more elaborate forms of culinary.
With a restaurant, it’s always the expense side that is more complicated to explain, even though the expense side may tend to be more fixed. For starters, you will need to set aside money for the lease as well as utilities and insurance to keep the place running. You will also need to factor in what salary you pay your staff and always be willing to monitor the volume of customers to ensure you have an adequate number of staff throughout dining hours. Finally, you will have to consider the cost of food, in which a good restaurant may prioritize fresh food that is more expensive and comes in more frequently. A restaurant should also set aside about one to two percent of its profits for miscellaneous expenses, like toiletries and funding of bathroom or decor updates in the restaurant.
Identifying a profit margin for your restaurant involves establishing a budget of expenses first, and then pricing out the menu to ensure the prices you charge customers to enable you to reach that healthy profit margin. It is important for restaurants not to take shortcuts on the quality side because customers will notice and will either not return or more importantly not recommend the restaurant to other people.
Once you establish your budget, your goal should be to capture revenue where it can be estimated you make a three to five percent profit margin after all your expenses. If things are really clicking in your restaurant, you may sometimes see profit margins as high as 15 percent, but these are rare occasions that require you to have a long-standing restaurant and culture or have national or global recognition.
While three to five percent may not seem like a high margin, it’s important to consider that if you want to bring in more money over time, you scale up your business. Opening multiple locations can preserve your profit margin, but also increase your revenues as well so as an owner you would take home a lot more. At the end of the day, it is important to ensure the restaurant functions well, the food is of great quality, and your expenses are in order, and the profits will take care of themselves.