5 Simple Tips to Boost Your Restaurant Profit Margins
Years ago I read some statistics put out by the National Restaurant Association that said a typical restaurant makes 5–8 cents on every dollar in sales. Who wants to work that hard for a nickel? My goal for the restaurant owners I work with in my group coaching program is 15–20%! To help you start your journey to that kind of profit margin, I’m going to share with you five simple tips to boost your restaurant profit margins.
#1 Reduce food waste and manage inventory. Start using a waste tracker, which is a simple printed form that includes the date, the day of the week and what time something was wasted, the item wasted, how much was wasted and what the cost was. Employees write it down, add their initials and then the manager adds their initials. The whole idea is tracking those things that you waste whether it was something that's spoiled, something that you know went past its usable date, something that maybe died on the line, mistakes in the kitchen like burned food, etc. While you’re tracking the value of the wasted food, you’re more concerned about identifying why there was waste and what you can do to fix it. Maybe you need to retrain someone, reposition them, or fire them. Maybe you need to change your par levels if you’re consistently wasting certain items.
When it comes to your inventory, you want to work on increasing your inventory turns. A turn is how many times you empty the shelves and refill them based on a dollar value. The dollar value is the measurement tool because you’re never going to empty the shelves completely, but if you have $3,000 on the shelf, every time you use and replace $3,000 in product, that's a turn. How do you get that number?
It requires you take inventory: beginning inventory plus purchases minus ending gives you use. That use is what is literally what left the shelves. Use divided by sales gives you your cost of goods sold percentage, so food cost, bottle beer, draft beer, liquor, etc.
The goal is taking that use – what left the shelves – divided by your average inventory, which is simply the beginning and ending inventory divided by two, that's going to give you your inventory turns. How many times did I replace that $3,000 use and replace that $3,000 in a calendar month? You’re trying to get that to four to six inventory turns. For a breakfast place, that could be as many as eight inventory turns per week.
That means you have enough food on the shelves that when that delivery shows up you still have probably three days worth of food on your shelves. You don’t want to ever be so down on inventory that you can’t make it, but you don’t want to have thousands upon thousands of dollars at risk to be stolen, wasted or spoiled.
#2 Streamline your operations to increase your efficiencies. There any number of ways you can do this but one of the things we can do is reduce the number of menu items that you sell. This can reduce the amount of product you have to buy and put on your shelves. This can also make it that you don't need as highly skilled cooks, so training goes a lot better and maybe you don't have to pay as much. Reducing your menu items also reduces your training needs for front of house because fewer menu items means a lot less to learn.
You also want to make sure your kitchen team’s stations have a small pivot space to minimize the time they spend completing each dish. On a busy day, like when you're crushing it, three steps in a station from one section to another can delay how your ticket times look but also require extra miles on a busy shift.
#3 Engineer your menu to maximize your profitability. Menu engineering requires that you have accurate up-to-date recipe costing cards. You have to know what each item costs you to make. A typical restaurant runs 7–9% above whatever their ideal number food cost and a rock star chef or kitchen manager will run 2% no matter what. The first time you re-engineer your menu, you can reduce your food cost by as many as 3-7%. If you ever wanted a reason why you need to start recipe costing cards, this is it.
#4 Train, train, train. Train people what their job is, how to do it, how well it should be done, and by when. The more you train, the more efficient your team becomes in a kitchen. For example, instead of being able to do one station at a time, when you’ve trained your kitchen team to run two or three stations on a slow night, you have the ability to become more efficient and not have as many cooks on the line. If you've been running your managers according to a specific labor target, you've been managing your labor incorrectly. The only way to truly know where your labor cost should be is to have a budget. I teach my members a system called the Restaurant Payroll Guardian, which based on your budget target, can tell each of your managers not only how many dollars they have to spend by position but how many hours they have next week to be on budget. Throw in fancy scheduling software with templates, you can compare what your budget says you’re supposed to do with your actual and adjust labor every day as you go.
#5 Emphasize upselling and add-ons to increase your revenue. Your customers are a captive audience. They walk in your door and they've got a wallet with money they’re ready to spend. Your goal is to give them the best experience possible and sometimes that means instead of giving them a rot gut well vodka, you offer up something better that will enhance their experience.
There is an old adage that sales cure all ills and it's true because for every dollar you bring in above your breakeven point, which is the point at which all your bills and expenses are paid, you're making money. Upselling and creating additional revenue streams allows you to get to that breakeven point faster, while also creating a better experience for your customers. Listen to this episode of my podcast, The Restaurant Prosperity Formula, for a plan to increase restaurant sales $250 000 in one year. I walk you through step by step by step from upselling to features to catering to put yourself on a path to increase your sales by a minimum $250,000.
These tips are only the beginning of your journey to really making money in your restaurant. What would you do if you could make 15–20 cents on every dollar in sales in your restaurant? Following these five tips starts you on that path.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.