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One of the crucial ingredients to restaurant success is raking in some serious dough - and that means maximising your profits. But with the rising costs of ingredients, wages, energy use, and premises to pay for, increasing your profit margin is easier said than done.
Fortunately, we've got the secret sauce to help you beef up your bottom line! From trimming your overhead costs to mastering your inventory management game, we're serving up some juicy tips to help you boost your profits and decrease your costs.
But first, let’s clarify what a restaurant’s profit margin actually is.
Your restaurant profit margin is the percentage of revenue that’s left over after deducting all your other expenses. These expenses include:
Profit margins are a critical metric for success. They indicate the financial health of your hospitality business and its ability to generate profits. If your profit margins are decreasing, you can put measures in place to turn things around.
You can find your restaurant’s profit margin by subtracting the total costs and expenses of running the restaurant from the total revenue.
For example, if your restaurant's total revenue is £100,000, and its total expenses are £25,000, the profit margin would be calculated as follows:
In this example, your profit margin is 25%, which means that for every £1 of revenue, you make 25p in profit.
With an automated point-of-sale (POS) system, these figures should be easy to find. If you don’t have an automated POS system, you’ll have to track this information manually to calculate your margins.
The typical profit margin for restaurants in the UK can vary depending on various factors, such as the type of restaurant, location, size, and competition. Not to mention, many hospitality businesses experienced reduced sales and increased costs due to health and safety measures from the pandemic.
A 2022 study from Barclays found that most leisure and hospitality sectors have average profit margins of 41%, compared with 39% pre-covid. Here’s a breakdown by some of the different types of food operators:
Source: Barclays
Other studies from various sources report that average restaurant profit margins lie between 3-5%. This is quite a big difference from the 41% average in the study above.
So what exactly does this mean?
It means there’s no typical profit margin for hospitality businesses in the UK.
A large chain restaurant will likely have a considerably higher profit margin than a small, independent cafe. There’s no way to determine a ‘typical profit margin’ that applies to both of these businesses as they’re simply not comparable!
Restaurant profit margins tend to be lower than other businesses for the high cost of operating a restaurant.
Restaurants require upfront investments in equipment, facilities, and staff - all of which can be expensive to maintain. Add overheads into the mix, and it’s a lot to fork out over time.
This is where running a virtual brand can be helpful for boosting margins without sacrificing large sums of money.
With a virtual brand, you create food for online delivery, meaning you don’t have to worry about the overheads associated with a dine-in restaurant. It operates from your existing kitchen, with your current staff, and you can use the equipment you already have
It can also incorporate your existing ingredients, meaning you have less food waste and can buy more bulk ingredients at a lower price!
Find out more about the benefits of launching a virtual food brand.
Because there are so many types of hospitality businesses, there’s no single formula for the ideal profit margin. It’s unique to each business and varies on a case-by-case basis.
However, here’s how a typical restaurant might split their costs to get a 10% profit margin:
Ultimately, the higher the profit margin, the better the restaurant's financial performance!
There’s no single food that generates the highest profit. It varies depending on the type of cuisine, the location of the kitchen operator, and competition in the local area.
However, some of the highest profit margin takeaway foods include the following:
While these foods can have high profit margins, they’re also popular food types. This means there’s often lots of competition, making it harder to attract customers.
The good news is, there’s a way to use these foods to boost income and attract the attention of local customers.
The answer? Launching a virtual food brand.
Working with a franchise partner (like us at Peckwater - hi 👋), you can provide local customers with food they actually want to eat. We review your location, customer preferences, and market demand to help you launch a brand that appeals to local customers.
Take a look at some of our virtual restaurant brands to see what we have available!
Are you wondering how to increase profits in your restaurant? You’re in luck. Let’s take a look at some of the ways you can increase your restaurant revenue to boost your profit margin.
Boosting sales is the first step to increasing your food profit margin. With more orders coming through the door, you’ll be making more money and therefore increasing your margins.
But how exactly can you increase your sales volume?
If it was a simple process, everyone would be succeeding! To get started on the right foot, here are three important aspects to consider:
Every hospitality business has set costs to pay every month. Your rent, for example, is probably not negotiable (as awesome as that would be). However, there are some areas where you can minimise costs to improve your restaurant profit margin on food.
Let’s take a look at what they are:
Launching a virtual food brand generates an additional avenue of income. As a result, you can boost your revenue and increase your profit margins.
Let’s look at some of the benefits in more detail.
A virtual brand is a great move for any commercial kitchen that wants to increase restaurant profitability. You can use your existing premises and equipment to serve more food to customers in your local area.
Contact our team today to get the ball rolling and watch your income soar!
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