What is the profit margin? Profit margin, also known as net profit margin, is the proportion of revenue that becomes profit after accounting for all costs. It’s a valuable metric because it lets you compare the profitability of your restaurant to any other business in a way you can easily understand.
As a restaurant owner, you can probably tell that your profit margin is one of the most important metrics to keep an eye on, and it impacts a lot of other aspects of your business in significant ways. Just how much, though?
In this post, we explain all about getting the best restaurant profit margin — what should be taken into account and how you can improve your profitability by taking these considerations into account. This information will prove invaluable whether you’re just starting or have been in business for years. Here are tips on how to get the highest restaurant profit margin:
1. High gross profit is key to a high net profit margin
Your gross profits must be as high as possible to get the highest profit margin. Gross profit is the difference between the revenue you make and all costs involved in making a sale, excluding interest and taxes. Your gross profits measure the house’s contribution to revenue in the equation of sales price – cost = gross profits.
2. Handle your costs a lot better than others
Having good cost control is vital in obtaining a high profit margin. This is because you have to spread your expenses out over a large number of sales, meaning that your expenses will have less impact on the profit margin than they would if they were spread out over a smaller number of sales.
3. Maintain or increase customer loyalty
To increase profitability, make it easy for customers to come back and keep coming back again and again. In most cases, this involves maintaining or improving customer loyalty. You can do this by offering valued services and benefits to your customers and encouraging them to come back for more.
4. Be open to change
You’ll never grow or develop if you’re not willing to change. And if you don’t grow and develop, your business will stagnate, which isn’t suitable for any business owner. Getting stuck in the same habits will lead to the same problems year after year; try something new and see if it improves your profit margin!
5. Understand how your restaurant measures up
Keep an eye on your competitors, take advantage of bench marking software, and measure your performance against other restaurants. This will allow you to understand where you should focus your time and money to improve your profit margin.
6. Hire the right team
The quality of your team is directly linked to the quality of your restaurant — at least in most cases — so you must hire (and keep) the best employees possible. If you’re having problems with employee turnover, you might want to look at why this is and what can be done to change things.
In conclusion, running a restaurant is all about knowing how to drive sales volume. This is the best way to make a profit, but it’s easier said than done. If you want to open and run a successful restaurant, you first have to learn how to get the highest restaurant profit margin.