Updated: Mar 12
What Effects Your Restaurant Profitability? High food costs cost restaurants business profitability than any other factors. Profit margin compasses the degree to which your business activity makes money. Profit margin matters because generally important because it is the starting point toward achieving a healthy net profit. Restaurant Profitability can come down to having a good leadership in charge.
Your Leadership Plays a Huge Part of Your Profitability and Here's Why.
Cost of Food
Restaurant success always comes down to how well do you understand your food cost. High food costs can cost restaurants business. Food costs usually make up around a third of menu prices. If we had to boil down how to reduce restaurant food costs into one phrase, it would be this: paying more attention.
As a business owner or manager, collectively, you must give yourself the time to think critically about how your restaurant is operating. If not, then you will be governed by your restaurant and not the other way around. By putting your operational analysis, a priority as part of your daily activities is the best way to adopt this mindset as a start.
Identify the top 5-10 products you buy and make a daily count of those key items
Educate your employees on when food should and shouldn’t be thrown away
Monitor your purchase orders over time
Set a food budget and track your purchases
Simplify your menu
Profit margin compasses the degree to which your business activity makes money, essentially by dividing income by revenues. In a sense, the higher the number, the more profitable the business. Profit margin is the ratio of profit remaining from sales after all expenses have been paid. Business owner can calculate profit margin ratio by subtracting total expenses from total revenue, and then dividing this number by total expenses.
Profit margin at 10% is considered a healthy margin, and 20% is considered a high margin as a rule of thumb. Profit margin is important because, simply put, it shows how much of every revenue dollar is flowing to the bottom line. Profit margin matters because generally important because it is the starting point toward achieving a healthy net profit.
“As a Leader, Not Only You’re in Charging of Your Ship, You’re Also Responsible for Encouraging employees to think like the owner they inspire to be.” Chez Boodparset
Margins has a direct link to your business Cash Flow. Your gross profit margin also impacts your cash flow. Selling Price is one of the factors that effects your restaurant profitability. Setting selling price is essentially part of your Margin-Based Pricing Strategies in operating your business. Setting pricing defines the value that your product is worth for you to make and for your customers to use. In addition, your product pricing is important because it defines the value that makes it worth it for you to make and for your customers to use your product.
Strong company cultures have been linked to higher rates of productivity. As a manager, you ought to realize that the absolute goal for most employees is about making sales that ultimately calculates into their tips. This is because employees tend to be more motivated and dedicated to employers who invest in their common goal.
For me, I regularly have an open conversation with my staff individually about different ways they can do to improve their sales performance, efficient ways to work smarter not harder, ways to boost our overall restaurant revenue, problematic areas, specific solutions and ways to improve it. This way they know their voices are heard and input to the success of the organization.
The Bottom Line
To improve your restaurant profitability, it requires all hands-on deck from the owners, manager in charge, down to your staff. If you notice a third of your food being thrown away plate after plate, then it’s time to reevaluate your portion sizes. Take the time to educate your employees if it’s necessary. Explain to your staff how their decisions directly impact your bottom line and empower them to make smarter decisions around portion sizing.
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