Author :Chef Ssentongo Geoffrey
Restaurant Profit Margin Guide
1. What is a Restaurant Profit Margin?
2. How to Calculate Your Restaurant Profit Margin
3. Getting Into the Details of How to Calculate Gross Profit Margins
4. How Much Profit Should a Restaurant Make?
5. Strategies to increase your Restaurant Profit Margin
..Lower Your Food Costs
. Start Selling Alcoholic Drinks
. Increase your Sales
. Streamline Your Work Schedule
Your restaurants profit margin defines whether your business is successful or not. No company can survive without earning enough money whether you’re just getting started or you have owned a restaurant for years, you should learn how to Calculate and boost your restaurant profit margin.
Is Your Restaurant Profitable?
Food Cost Formulas
For Restaurant Owners
Why is Calculating food Cost Important?
High food and operating costs and understanding restaurant metrics are among the most common challenges restaurant owners face.
52% / of restaurant owners state high food and operating costs as a challenge.
21 % / of restaurant owners struggle to understand their restaurants metrics.
How to Calculate Food costs for your Restaurant
Food Costs for a restaurant are calculated as a percentage using the formula below.
Food Cost % = ( beginning inventory + purchase – Ending inventory ) ÷ Food sales
Which is applied using the following steps:
1 . List food supplies received at the start of week.
2 . Add together the money value of each item.
3 . Track your purchases that you may have made during the week after beginning inventory.
4 . Take inventory again at the beginning of next week. Follow the same exact process.
5 . Add together total food sales per shift.
6 . Calculate actual food cost for the week using the formula above.
Check out this example to see the above formula in action.
Beginning inventory = sh 12,000
Purchased = sh 7,000
Ending Inventory = sh 16,000
Food Sales = sh 10,000
( 12,000 + 7000 – 16,000 ) ÷ 10,000 = 30%
What is the ideal food Cost percentage for a restaurant ?
The formula above calculates your actual food cost percentage. Now, you need to find your ideal food Cost percentage for each dish.
Ideal Food Cost = Recipe Cost / Recipe Sale Price.
Note: This doesn’t account for things like spillage, thaft, or inconsistent portion sizes.
Check out this example to see the above formula in action for a plate of chicken drum stick
1 . Get the Ingredients
* chicken drum Stick = sh 5,000 per drum stick
* Tomato ketchup = 5,000 per portion
2 . Determine the Recipe cost
4 Drum Stick = Sh 4000 + Tomato ketchup = sh 500 = Sh 4,500 per plate
3 Divide the recipe cost by the recipe sale price to get the ideal food Cost percentage of 21%
Your restaurant should aim for a food Cost percentage of under 30%
How to Optimize Food Cost percentage
If your restaurants actual food cost percentage is much greater than your ideal food Cost percentage, here are some things you can do to hejp bring the numbers closer together.
1. Raise menu prices by a small amount at a time.
2 . Redesign your menu to showcase items that bring in the most profit.
3 . Use more carbs in your food.carbs are less expensive to buy in bulk.
4 . Shop around at wholesale food sellers to reduce your inventory costs.
5 Reduce portion Sizes if lots of dishes are coming back only partly eaten.
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What is a Restaurant Profit Margin ?
Restaurant Profit Margin ( commonly known as net Profit Margin ) refers to how much money your restaurant makes after you pay for all of its expenses, the restaurant profit margin measures your profitability ratio, which is how much you earn compared to how much you need to spend to earn that.
How to Calculate Your Restaurant Profit Margin
At its most basic, a profit margin is the difference between how much your business spends and how much it earns. Let’s say you own a restaurant called chilies. Each week, your business spends about sh 10,000 and earns sh 12,000. The sh 10,000 represents your cost. The sh 12,000 represents your revenue.
You start your calculation by subtracting your cost from revenue. In this case, you get sh 12,000 – sh 10,000 =sh 2000,which means you have a sh 2000 gross profit. Now, divide your gross profit ( sh 2000) by your revenue ( sh 12,000). Here, you have 2,000 ÷ 12,000, which gives you a 0.17 margin.
For the last step, multiple the margin ( 0.17) by 100 to get your restaurant profit margin ( 17%). With these three steps, you can always find your restaurant profit margin.
How Much Profit Should a Restaurant Make?
If you own or manage a restaurant. It’s only natural for you to ask,. How much profit should you make in a restaurant? Since you know how to Calculate restaurant profit and loss.
The answer to how much profit should you make in a restaurant depends on things like where youre located and what type of cuisine you sell.
Strategies to Increase your Restaurant Profit Margin
The highest profit margin in the restaurant industry usually goes to Italian restaurants that serve alcohol. Most Italian dishes domt cost much to make . A good chef however, can make inexpensive ingredients taste amazing. because of this you can potentially boost your profit margin
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