With a net margin of between 8% and 16% of turnover, the restaurant business can be considered a rather profitable business idea. However, to ensure the success of your business project, it is important to clearly understand the concept of restaurant profitability. Whether you are already in business or want to open a restaurant, find Skello's advice to help you make your establishment profitable.
How to evaluate the profitability of a restaurant?
The break-even point of a restaurant refers to the point at which your business becomes profitable. More precisely, it is when the turnover generated by your company remains sufficient to cover all of your expenses (restaurant operating costs, telephone, staff costs, electricity, etc.).
It is therefore when you cross this profitability threshold that it is possible to say that your restaurant is making a profit.
Note that keeping good accounts for your restaurant will help you assess whether your establishment is profitable.
How to calculate the profitability of a restaurant?
The formulas for calculating the profitability of a restaurant remain fairly simple. To do this, you can proceed with a global or centralized view of the dishes.
- Profitability per dish: (price of the dish - cost of preparing the dish) / price of the dish
- Overall profitability: (total sales made - total costs) / total sales
- Since the profitability of a restaurant involves the break-even point, it is important to also specify its formula: break-even point = Restaurant fixed costs / Variable cost margin.
- To determine the variable cost margin, you simply need to reduce the variable costs from the turnover. The formulas for these two factors are as follows:
- Turnover: Turnover = Sales price x Quantity sold
- Variable expenses: Sum of expenses that vary throughout the year.
Be sure to carefully consider all of your business's expenses and accounts before making these calculations.
What type of restaurant is the most profitable?
In addition to setting you apart from the competition, the choice of restaurant type greatly influences the profitability of your business. There are five restaurant concepts that can ensure a profitable restaurant.
Quick Service Restaurants (QSR)
With an average restaurant margin of between 6 and 9%, this profitable restaurant concept makes profits more easily than any other. In fact, quick service restaurants (QSRs) refer to establishments that serve packaged food (hamburgers, fried chicken pieces, and crispy fries). Since raw materials are limited, it becomes easy for restaurateurs to cut costs to increase their profit margins.
Casual Restaurant
Known as a casual restaurant, this type of establishment has a decor, a theme, a pleasant atmosphere, and tables for dining in peace. Unlike a QSR, the choice of meals is more varied. The advantage of this profitable restaurant concept is that due to the decor, restaurateurs can raise the price of their dishes, thus making a higher margin than other establishments.
Cafes
As the name suggests, this type of restaurant only offers drinks. Services generally consist of coffees, teas, snacks, or small food menus. This is a restaurant concept that regularly succeeds because it meets many needs. The profit is explained by the fact that they limit themselves to the sale of drinks, which naturally eliminates the cost of food preparation as well as labor.
Pizzerias
Pizza remains the most popular option in terms of quick meals. But its popularity is not the reason why the pizzeria is a successful restaurant concept. In reality, it is mainly the low cost of the ingredients: water, flour, cheese, yeast, sauce, and a handful of toppings. Better still, the assembly line remains simple and can be adjusted to improve a restaurant's profitability.
Virtual Restaurants
With virtual restaurants, orders are placed by phone or online for delivery. With low prices and convenient locations, this type of restaurant is very attractive to consumers. Also, their structure consists of only a busy kitchen and a group of delivery people. As a result, their operation requires lower costs. With good management, they can easily exceed the profitability of a bar restaurant, or even the turnover of a 30-seat restaurant or the turnover of a 50-seat restaurant.
How to improve the profitability of a restaurant?
Follow these six pro tips to improve and optimize the profitability of your restaurant.
Correctly determine the selling price of dishes
In order to correctly set the selling price of your dishes, you must take into account 5 different determining factors:
- the cost required for raw materials
- the establishment's expenses
- competition prices
- the restaurant's culinary model and positioning
- the typical consumer profile and their average budget.
Apart from this parameter, menu prices can be defined by referring to the expected gross margin, the rule of Omnes's 4 principles, or the multiplier coefficient method.
Develop the menu
To find new customers and increase your market share, it is essential to develop the menu offered to your customers. Take care to evaluate the profitability of each dish before adding it to your menu. To succeed in this approach, you must identify:
- Popular dishes with high profitability;
- Popular dishes with low profitability;
- Profitable but unpopular dishes;
- Unprofitable and little-known dishes.
Be aware that a long menu will be more expensive and more difficult for customers to read. So try to design a simple and attractive menu with carefully selected dishes.
Optimize inventory management
Good inventory management is essential to reduce losses and improve the profitability of your restaurant. For long-term success, you must rigorously monitor your product and production tool inventories. This way, you'll be able to streamline raw materials, avoid stockouts, and limit resource mismanagement. In addition to optimizing your performance, this approach will help you prevent risks related to hygiene and food safety caused by the deterioration of perishable foods.
Negotiating with Suppliers
The relationships you maintain with your suppliers can influence your purchasing costs and, consequently, your restaurant's profitability. You must therefore choose your suppliers carefully to benefit from excellent value for money. Also, keep in mind to negotiate prices with your suppliers when you're considering a long-term contract or if you want to purchase large volume orders.
Develop Marketing
To improve your restaurant's profitability, you need to attract customers, which requires a good marketing strategy. With digitalization and the internet, having an online presence is an excellent solution. You'll need to design a powerful and user-friendly website for your restaurant. Consider posting high-quality photos and videos to attract users. You'll also need to create a Google My Business listing and register your restaurant on online platforms. Additionally, plan events such as cooking workshops, concerts, etc. to attract customers.
Have the right management tools and software
With digitalization, several innovative tools now allow you to optimize the management of your restaurant. For example, you have software for:
- stock management
- efficient cash register software
- hygiene management
- staff scheduling management software
- delivery management
- cash management
- reservation management
- payment by QR Code for restaurant
- digital menu accessible by QR Code.
Knowing that the profitability of your business depends on a perfect organization of orders, schedules, and regulations, Skello provides restaurateurs with the tools they need to easily optimize their business.
A true benchmark in the field of HR organization for restaurateurs, hotels, and bars, Skello provides you with a digital solution with an impeccable level of performance. Easy to use, it integrates into almost all types of restaurants. Online restaurant scheduling software, payroll variable management, performance analysis, or communication… whatever your needs, we have what you need. To successfully organize your establishment, trust Skello's automation.
