Restaurant Profit Margin

A restaurant’s profit margin is its profits as a percentage of gross sales. Healthy profit margins are critical to the success of any food service business and can be influenced by several factors. In this article, we’ll explain what profit margins are, what margins are common in the restaurant industry, factors that impact your bottom line, and how you can improve them.

What Is Restaurant Profit Margin?

Restaurant profit margin is a measure of a restaurant’s profitability. In essence, it’s the percentage of sales revenue that the restaurant retains as profit after accounting for all operating costs, including the cost of goods sold (ingredients), employee wages, rent, utilities, and marketing expenses. The equation for restaurant profit margin is below, with the resulting figure usually expressed as a percentage.

(Total Sales – Total Costs) / Total Sales

A higher profit margin indicates a restaurant pays less in expenses relative to its sales, as compared to its competitors. It’s important to note, however, that average profit margins can vary widely depending on the type of restaurant and location. For instance, a high-end restaurant in a prime urban location may have different profit margins than a fast-food outlet in a suburban area.

What Is Gross Profit?

Gross profit is the total sales revenue a restaurant generates minus its cost of goods sold (COGS). The COGS for a restaurant typically encompasses the direct costs associated with food and beverage production, including ingredients and labor involved in preparing dishes. This figure can be divided by a restaurant’s total sales and expressed as a percentage to show the gross profit margin.

However, gross profit and gross profit margin don’t account for other operational expenses like rent, utilities, marketing, or administrative costs. Although they’re less comprehensive than a restaurant’s total profit margin, gross profit margin provides good initial insight into operational efficiency before other expenses are considered.

How To Calculate Gross Profit

To calculate the gross profit of a restaurant, you first need to calculate your total sales revenue. Next, subtract the total costs of goods sold (i.e., ingredients and direct labor). The resulting figure is your gross profit.

For example, suppose a restaurant generates $10,000 in total sales in a month. Suppose the COGS for that month, which includes the cost of ingredients and direct labor, is $4,000. In that case, the restaurant’s gross profit can be calculated as follows:

Gross Profit = Total Sales – COGS

Gross Profit = $10,000 – $4,000

Gross Profit = $6,000

The gross profit for the restaurant in this example would be $6,000 for that month. This signifies the amount of money the restaurant has after accounting for the cost of producing the food and beverages sold before considering other operational expenses like rent, utilities, and marketing.

Taking the calculation further, we can calculate the restaurant’s gross profit margin by dividing its gross profit by its total sales ($6,000 / $10,000). In this example, the restaurant would have a gross profit margin of 60% for the month.

What Is Net Profit?

Net profit (also called the “bottom line”) is the final measure of a restaurant’s profitability after all expenses, both direct and indirect, are accounted for. This includes the cost of goods sold, along with operational expenses like rent, utilities, marketing, management salaries, and administrative costs.

How To Calculate Net Profit

Calculating net profit is relatively straightforward – simply subtract all of a restaurant’s expenses for a given period from its total sales revenue for the same period. The resulting figure represents the restaurant’s overall earnings for a specific time, after it covers all its costs. If the figure is positive, the restaurant made money for that period; if it’s negative, it spent more money than it made.

For example, let’s consider our restaurant from the above example. Let’s say that, in addition to its $4,000 in COGS for the month, it also incurred $2,000 in operational expenses, including rent, utilities, marketing, and salaries. The net profit can be calculated as follows:

Net Profit = Gross Profit – Total Expenses

Net Profit = $6,000 – $2,000

Net Profit = $4,000

In this scenario, the restaurant’s net profit for the month is $4,000. This is the amount of money the restaurant retains as income after all costs and expenses are covered.

How To Calculate Net Profit Margin

To calculate net profit margin, divide net profit (total sales – total expenses) by total sales revenue. The resulting figure is typically expressed as a percentage (you can multiply it by 100 to get the percentage figure). It represents the percentage of sales a restaurant retained over a period rather than paying it out in the form of costs. The formula for the net profit margin is below.

Net Profit / Total Sales

In our previous example, the restaurant’s net profit for the month was $4,000, and the total sales revenue was $10,000. The net profit margin can be calculated as follows:

Net Profit Margin = (Net Profit / Total Sales) x 100

Net Profit Margin = ($4,000 / $10,000) x 100

Net Profit Margin = 0.4 x 100, or 40%

The net profit margin for the restaurant in this example is 40%. This figure indicates that the restaurant retains 40% of its total sales as profit after accounting for all costs and expenses. The higher a restaurant’s net profit margin, the more profitable it is relative to its sales.

What Is the Average Restaurant Profit Margin?

The average profit margin for a restaurant can vary significantly depending on factors such as location, type of restaurant, and efficiency. Generally, the average profit margin for restaurants hovers between 3% to 10%. However, some highly efficient and successful restaurant models and those focusing on bar sales can achieve profit margins as high as 10% to 15%.

Why Are Restaurant Profit Margins So Low?

Restaurant profit margins tend to be low relative to some other types of businesses due to several factors. Firstly, the food industry is characterized by high operational and overhead costs. Secondly, restaurants also face the challenge of pricing their menu items competitively while still making a profit.

This is further compounded by the fact that food and beverage costs are often subject to market fluctuations, making profit predictions difficult. Additionally, wastage of perishable goods, seasonal variations in sales, and the high level of competition in the industry also contribute to the slim profit margins.

Finally, the restaurant industry faces much higher employee turnover than businesses in other industries. The costs associated with attracting, vetting, and training employees can be significant and reduce a restaurant’s profits if owners and managers can’t retain talented employees.

Average Profit Margins By Restaurant Type

Restaurant profit margins vary widely, largely due to the type of restaurant. Here are a few examples of typical profit margins for successful restaurants in several categories:

Full-service restaurant: The average profit margin of a full-service restaurant typically ranges between 3% to 10%. However, this can vary based on location, menu, quality of staff, and the overall dining experience.
Cafe: The average profit margin for a café typically falls between 3% and 8%.
Fast food restaurant: Fast-food restaurants average around 6% profit, but this can vary depending on whether the industry is a franchise and the type of food offered.
Food truck: Profit margins for food trucks can range from 10% to 20%, but this also depends on the type of cuisine offered, location, and overall operational costs.
Catering: Catering businesses can have higher profit margins, typically between 10% and 20%, due to their focus on events and parties rather than daily operations. They also often have reduced overhead, as they don’t need to maintain a restaurant facility capable of seating regular guests.

How To Improve Restaurant Profit Margins

In a competitive and dynamic industry such as food services, improving restaurant profit margins is a critical, ongoing task. Understanding where and how to increase revenue and cut costs can make the difference between a thriving establishment and a failing one. Here are some effective strategies to enhance your restaurant’s profit margins:

Manage your inventory. An optimal inventory management system minimizes waste and reduces unnecessary expenses. Regular inventory counts also help to identify any theft or other issues impacting stock levels.
Price menu items carefully. Make sure you understand the cost of each menu item and price it appropriately to achieve your desired profit margin for that item.
Train employees on upselling and cross-selling. Staff training should include strategies for upselling and cross-selling, which can increase average transaction value. This could be as simple as suggesting additional items or promoting higher-priced dishes to customers.
Regularly review profit and loss statements. Regularly reviewing income statements helps restauranteurs identify trends, monitor the effectiveness of cost control strategies, and spot potential areas of improvement.
Reduce operational costs. Review your operations regularly to identify areas where you can reduce costs without compromising service quality. This could involve renegotiating supplier contracts, investing in energy-efficient equipment, or improving scheduling to match staff levels with demand.
Work on customer retention. It’s almost always cheaper to retain existing customers than to acquire new ones. Loyalty programs, exceptional customer service, and regular engagement with customers through social media and email marketing are all effective ways to increase customer retention and profits.
Handle payments electronically. Handling payments electronically is an effective strategy for improving restaurant profit margins for several reasons. Electronic payments streamline operations, reducing the time and labor associated with manual cash handling, and are more accurate, reducing errors in cash transactions that can lead to losses.

While many payments can be handled electronically through restaurant point of sale (POS) systems and banking apps, one notable exception is distributing employee tips. Kickfin can be instrumental in facilitating electronic payments from restaurants to their tipped employees.

Kickfin provides instant, electronic tip payments, eliminating the need for cash on hand. This reduces the risk of theft or loss, saving restaurants from unnecessary financial drain. Schedule a demo with one of our experts to learn more about how Kickfin can help increase your operational efficiency and boost your profits.

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Restaurant Management

4 Ways to Save on Restaurant Labor Costs with Kickfin

In the restaurant industry, profit margins have always been tight — and these days, they’re only getting tighter.

Running a restaurant is a labor intensive business. You need a strong back of house team to push out food, front of house workers to greet and care for guests, and managers to keep everyone in check. Naturally, labor is one of the most significant expenses for restaurant operators. In order to keep costs reasonable for customers, even a slight overage on labor can break your budget — but thankfully there are levers you can pull to reduce labor costs.

If you want to secure your business’s financial future, you’re going to need to streamline scheduling practices and keep a close eye on labor costs… without frustrating employees who want more shifts.

Don’t worry: you can turn to traditional wisdom, sales forecasting, and emerging restaurant technology to make sure that you stay on budget.

Here are a few ways you can save on labor costs at your restaurant:

1. Rethink the schedule

Obviously, the most straight-forward way to cut labor costs is to reduce the number of people you schedule on a given night.

We get it — you don’t want to see hour-long ticket times and poor guest experiences. But you might not need as many folks on the line or servers on the floor as you think — at least, not all the time.

Staffing and scheduling isn’t a perfect science, but there are some tactics operators should test if they’d like to “right size” every shift — including:

Analyze your daily schedule. Don’t make assumptions about your peak times and slow periods. Analyze sales trends and let the data be your guide.
Anticipate seasonal trends. If you’re in a college town, don’t wait until your servers are twiddling their thumbs in July to implement a new summer schedule.
Let your seasoned staff shine. Your veteran employees likely thrive on those super busy nights when they’re running on pure adrenaline (and earning way more in tips). Consider giving more experienced workers more responsibility — assuming they’re willing and able — and you might be able to get away with fewer people on a shift here and there.

>> Learn about scheduling software that helps you manage labor and engage with employees

2. Assess and address productivity

Are you making the most of the team that you already have? There are a few ways you can identify your highest-producing employees and make the most of their success:

Evaluate employee performance. Most employees want to be successful; observe your team and analyzes things like sales per labor hour, table turnover rate, and tip volume to get a sense of your strongest players and those who could use more training (and bonus: this can reduce turnover and boost team morale)

Provide incentives. Create a fun bonus system that rewards strong performance and high levels of productivity. You can use data from the previous data point to set goals.
Cross-train employees. Training your staff to handle multiple roles – or hiring folks with vast service experience – offers flexibility for scheduling and can reduce your need for additional hires.

3. Don’t pay employees to wait for their tips

No, we’re not saying to cut all of your servers early (no matter how much they ask).

But, you can send your servers on their way much quicker when they don’t have to wait around for managers to count out cash tips. Once they’ve finished their sidework, servers can clock out and see their digital tips sent directly to their bank account, instead of hanging around on the clock waiting for the shift manager to do their check outs.

4. Prevent labor overages before they happen

Most restaurants simply can’t afford to pay overtime for staff. But sometimes your full-time staff creep toward 40 hours of work without anyone noticing…and suddenly you’re paying 1.5x what you expected for a single worker.

This, too, goes back to proper scheduling policies. Give yourself a bit of wiggle room for the employee who clocks in 10 minutes early or often takes a long time on sidework by never scheduling anyone for more than 38 hours each week.

5. Pay close attention to clock-outs

People make mistakes, and tired servers often leave their long double shift without clocking out for the night. Usually, they’ll realize their mistake and call the store to have someone clock them out (still adding extra time to their shift).

But sometimes, the clock keeps running all night, and no one notices until it’s time to process payroll. Two weeks later, your admin team is spending way too much time correcting clock-outs so that you don’t end up paying for 8 extra hours of work.

Try using technology that puts guardrails in place to prevent any clock-out mistakes before they happen. Kickfin doesn’t allow you to process and pay out tips until an employee is clocked out, so managers can make sure everyone is clocked out at the proper time.

(We also have some other exciting new features that can make your life easier!)

Not only can Kickfin help you reduce labor costs, but we’re ready to simplify your entire tip management process. Reach out to us to learn more about our instant tip calculations, integrations, and smarter tipping solutions.

Restaurant Management

How to Get Your Restaurant Ready for Football Season

Football is back! Whether you’re rooting for your alma mater or just hoping to see massive sales at your restaurant, it’s an exciting — but often stressful — time of year.

If your restaurant has at least one TV, you’re going to have some customers asking you to switch it to ESPN. And if you’re running a sports bar … it’s officially crunch time. Expect your tables to be full (and harder to turn) and your staff to be running on pure adrenaline as the restaurant fills up with fans hoping for a bite to eat.

You probably know the drill: hire more staff, add more servers to game day schedules, and manage your inventory with hungry fans in mind. But if you want to get the most out of football season, get game-ready for some of the busiest weekends of the year with our tips for a successful season.

Consider a game day menu

When your restaurant is at full capacity with hungry football fans, you might want to consider a limited menu for the weekends in order to keep wait times down. Shorten the food menu down to shareable apps, best sellers, and items with the simplest prep so that your kitchen isn’t lined with tickets at halftime.

At the bar, don’t limit your customers to certain cocktails — but consider the power of suggestion and list out some easy-to-batch cocktails that will keep your service bar out of the weeds.

**Make sure they can watch their game**

Is there anything worse than a group of die-hard fans walking in to see their team play — only to realize you don’t have the right subscription service to stream it? Next thing you know, some guy has commandeered the remote to sign into his YouTubeTV account.

Before that embarrassing situation arises, check your cable listings and subscription services to see if you’re missing any important channels. You’re probably going to need to upgrade in order to show games that aren’t carried in your market. Here are just a few channels you might need:

ESPN+
Hulu + Live TV
Peacock
NFL Sunday Ticket
YouTubeTV or cable
Netflix (yep — Netflix will be streaming a few NFL games this year)

If viewing options are limited, or you don’t have enough screens to air multiple games at once, make sure you’ve got a strong wifi connection (free, of course) so that your guests can watch on their phones — or more importantly, talk smack to their fantasy league.

Offer game day deals

Now that you’re logistically ready for the season, it’s time to draw in the customers. Make your restaurant the place for fans to gather by offering drink specials and deals on appetizers.

Leverage social media to get the word out about your game day deals. Consider paying to boost a post or running a giveaway for people who share a post about your game day specials.

Plan for Post-Game

You don’t want the restaurant to empty out as the clock runs down. Entice fans to stay and celebrate (or lick their wounds) once the game ends by extending deals. That could mean a discount for fans of the winning team or an extra-long happy hour.

Pay out your employees — quickly.

After a long game-day shift, your servers and managers are going to be more tired than usual. Let them head home early by using Kickfin to pay out tips instantly. We take care of all of the tip calculations and send tips directly to servers’ bank accounts in seconds, so your exhausted team members don’t have to wait to put their feet up and rest.

Want to see our instant digital tip outs in action? Get a demo of Kickfin today.

Hiring, Training and Retention, Restaurant Management

The Art of the Upsell: Teach Servers to Increase Average Check Amounts

You want to make more profit. Your servers want to make more tips. A crash course on upselling is a win-win for everyone.

Your servers might not realize it, but their words have a lot of power. Knowing how to present a higher shelf vodka or a premium side could make a world of difference for their wallets.

And beyond the increased checks, pro servers who are able to successfully upsell are also recommending your restaurant’s very best for guests. Those bigger ticket items are often your best dishes or most unique cocktails that will stand out in guests’ minds and make for an elevated dining experience.

Here are a few ways your servers can gently suggest some pricier upgrades that will boost their average check size, making everyone a few extra dollars.

1. Consider your memorable dining experiences

Before you dive into our upselling go-tos, take a minute to reflect on your last really good experience at a restaurant and how your server’s language, attitude, and knowledge affected your experience.

Did your server walk right up and ask if you want an appetizer? Or did they take the time to talk through specials, field questions about menu items, and give you the space you needed to make a decision?

Was your server’s demeanor generally excited and upbeat? Or did they actually look a bit disappointed when you said you’d just be having water?

These small, unspoken cues are what make or break a server’s night. Leading with confidence, positive energy, and genuine concern for your guests’ experience is what will build trust between server and customer, so they’ll be more open to suggested upgrades.

2. Value authenticity

Upselling just for the sake of a higher tip is not a successful strategy.

Remind your servers that while upselling can improve guest experience and your tip, it’s important to flex to the needs of your guests. Don’t continue to push higher priced items if guests are starting to look uncomfortable.

They say the most successful salespeople believe in what they are selling — and the same goes for servers. Your servers should have tasted all of the higher priced menu options and be able to explain to guests why this upgrade brings their dining experience to the next level.

3. Start with the drinks

Alcohol sales are restaurants’ bread and butter. So when a table orders the first round, servers should make it count.

Scenario #1: A customer orders a simple spirit + mixer drink

If a guest asks for a vodka soda, this is an opportunity to turn a $10 drink to $15 or even $20 — which will add up after a few rounds.

Naturally, most servers would ask what vodka the guest prefers. Teach your servers to resist that urge! Instead, servers should offer them a selection of higher-shelf options. For example, a server could respond with, “Vodka soda? Sure, would you like that with Tito’s, Ketel One, Grey Goose…?” And keep listing options until one resonates with the guest. That gives the guest the impression that they have a seasoned, well-informed server, but this framing also leads the customer to choose from the higher-shelf suggestions, rather than just asking for the house vodka.

Scenario #2: Ordering a glass of wine

We’re not suggesting you hire a sommelier, but getting more familiar with common flavor profiles and notes in wine can be a game-changer for servers’ nightly tip income.

Customers often ask for something similar to pinot grigio, cabernet sauvignon, or a pinot noir, and if their server can give a detailed description that makes a wine sound irresistible, they’re probably going to splurge for the higher-end wine. Bonus points for servers who can successfully suggest splitting a bottle (because once they taste it, they’ll want more than one glass!).

Consider hosting a weekly wine training to help your servers get more familiar with what your bar has to offer. Another pro-tip: Teach your servers about beer and wine pairings! When servers let guests know which entrees pair well with the drink they’ve ordered, guests may opt for a higher-priced entree to match their favorite beverage.

Don’t skip over the apps

Not everyone is going to order an app — but there are a few small changes servers can make to their dialogue with customers to convince those who wouldn’t normally spring for a first course.

For one, servers shouldn’t just ask if they’d like anything to start. Instead, teach your servers to approach tables with a suggestion for a specific menu item. For example, they could say, “Would you like a charcuterie board to start? We just added a really delicious local cheddar to our rotation.”

Offering patrons a specific menu item and talking up the details makes it a lot easier to add that extra course to their meal — increasing their check size and making it more likely that they’ll order a second beverage.

Taking the order

When it’s time to take the entree order, this is your servers’ time to shine. Just like the previous courses, they should know how to create opportunities to upsell guests by making entree upgrades too enticing to pass up.

From fine dining to fast casual, many American restaurants offer a burger on their menu. Rather than simply asking, “Great, are fries ok with that?” task your servers with turning a simple cheeseburger into a deluxe meal with several upsells.

First, make sure your staff knows your menu options well, so they can pass along those options to customers. Here are a few common upgrades that servers should be asking guests if they would like:

Pretzel or gluten-free bun
Added cheese
Premium toppings, like bacon, egg, avocado, etc.
A premium patty, like bison or imitation beef

Rather than asking if fries are okay, instruct servers to say, “What side would you like? We have french fries, macaroni and cheese, caesar salad…” and continue with options until one piques the guest’s interest. If they succeed in getting at least one upgrade to a customer’s burger and a premium side, the check can increase by around $4 per person, depending on the pricing at your restaurant.

Higher-end restaurants should follow the same formula, subbing in an option for steak oscar rather than a bacon cheeseburger. The goal is for servers to provide options for guests who may not realize that their favorite accoutrement is on the menu — and will gladly pay for the upgrade.

The grand finale

“Did you save room for dessert?”

Servers often bring out this line while pre-bussing tables, usually expecting guests to say that they’re far too full to even think about dessert. If you want to convince more guests to stick around for a final course, ask your staff to remove that phrase from their vocabulary.

Dessert is a rich treat for the senses that most of us crave at the end of the night, so servers shouldn’t treat it like an afterthought in front of customers. As they’re clearing away dishes, servers can tap into their senses by talking about your pastry chef’s perfect chocolate cake with buttery layers of icing, or the warm peach cobbler served with house-made vanilla ice cream on the side.

Even if guests seem like they’re truly full, your team can still offer them a slice to-go, since they’ll surely be wishing for something sweet in about an hour anyway.

Reap the rewards

After putting on their best smiles, connecting with guests, and using these upselling tricks, your servers should ring in above-average size checks — and an above-average amount of tips.

Once your servers see their huge tip out for the night, they’ll want access to those funds ASAP. At Kickfin, we provide instant digital tip payouts, so managers don’t have to waste time counting cash and servers can clock out of their shifts sooner.

Check out a demo of Kickfin today.

Product and Company News

Kickfin Ranked Fastest Growing Restaurant Tech Company | 2024 Inc. 5000

Kickfin ranked in the top 3% of Inc.’s 5000 fastest-growing companies — and we’re leading the charge for tip management software.

Every year, Inc. identifies 5,000 U.S.-based companies that have seen the highest rate of growth over the past three years based on revenue — and this year, Kickfin was at the top of the top.

A few stats we’re pretty proud of:

🏆 Kickfin ranked 189th overall.
🏆 We’re the fastest-growing restaurant tech company on the list.
🏆 We’re in the 💥 top 3%💥 of all 5000 companies.
🏆 We ranked 24th in the Software category.

Since 2020 — in spite of a pandemic, supply chain disruptions, The Great Resignation, and record-setting inflation — we’ve grown by 2,066%.

Our Keys to Success

We’ll cut right to the chase: We owe our success to our customers. (It’s not cliche if it’s true, right?)

The bottom is that we know the way you pay your staff matters, a lot. Thousands of restaurants are trusting us to handle that for them, and we don’t take that trust lightly.

And of course, we might be biased, but we think we’ve got the best team and partners in the biz. Thanks to everyone who has helped build, support and evangelize Kickfin. This has been a big year for our small but mighty company — and there’s a whole lot more to come.

This kind of growth doesn’t happen overnight. We’ve been putting in the work to make Kickfin even better for the thousands of restaurants we serve. Here are just a few ways we’ve expanded to better serve Kickfin customers.

Integrations

We’re making it easier to access and use Kickfin by integrating with dozens of leading POS systems, including Toast and SkyTab. Using our integration, managers can pull tip data directly from their POS and Kickfin will handle even the most complex tip calculations in a matter of minutes.

Thanks to our POS partnerships, we’re able to bring a further simplified version of Kickfin to new and existing customers so they can kick cash to the curb. As an early adopter of our Toast integration, Bar Louie has already saved around 15,000 hours in labor annually by cutting their tip calculation time from hours to minutes.

>> See more customer success stories

Find out if your POS integrates with Kickin, and reach out to our support team to learn how you can activate the integration.

New Features

Kickfin is no longer just an alternative to cash tip-outs — we’re a holistic solution to your entire tip management system.

In case you missed it, 2024 has been a big year for our product. In addition to our new integrations, we’ve rolled out some exciting new tip management features, including:

Splitting large party tips
Increased security
Reallocating manager tips
Preventing labor cost mistakes

>> Learn more about Kickfin’s newest features

Each of these new updates is inspired by requests from operators, managers and restaurant employees who use our product daily — and that’s something that will never change. As we continue to innovate our best-in-class tip management solution, we’ll always be listening to and learning from our customers so we can ensure every need is met and every expectation is exceeded.

What’s next for Kickfin?

We’re not stopping anytime soon. Expect to see more POS integrations, more user-friendly features, and more guidance from our amazing customer support team.

Not a Kickfin user yet? Now’s the time to rise with us! Get a demo of our restaurant-revolutionizing product today.

We’ll see you next year on the Inc. 5000!