How to Calculate Hotel Food and Beverage Sector Profit Margins? Discover the essential steps and strategies for optimizing profitability in this area.
Understanding Restaurants Profit Margins
If we take the restaurant business, we find that the average profit margin is between 3.5 and 5%, with a large variation between zero and 15%. The restaurant sector is notoriously subjective, and the question of what constitutes a “normal” restaurant profit margin is no exception.
Even though the figures that various analysts come up with might vary substantially, there is a consensus that the restaurant sector has very low margins of profit in comparison to other industries. How can you determine how much of a profit margin you need to run your business successfully? Let’s find out.
What are hotel Food & Beverage Profit Margins?
The net profit margin of an eatery is the proportion by which operating expenses are subtracted from sales revenue. Taxes, inventory, labor, and other similar expenditures are all included in the “cost of doing business.”
The gross profit margin is something else you should consider. The gross profit margin is the percentage of sales that remain after deducting the direct expenses of products sold, such as food and labour.
The net profit margin is a more reliable indicator of financial health than the gross profit margin. This happens because your whole restaurant operating costs are included in your net profit margin, not simply those directly related to food preparation and service.
Global Average Performance of Restaurants Profit Margins
A restaurant’s profit margin may be anywhere from 0% to 15%, on average, but it is often between 6% and 12%.
Since quick food businesses and Michelin-starred restaurants, for example, might have such drastically different income and expenditure structures, a universal solution is not possible.
Rent, utilities, and other daily operating expenses, as well as your skill as a company manager with money, will all play a role.
The Current State of Restaurants Profit Margins
The Corporate Finance Institute classifies a profit margin of 10% as fair, 20% as excellent, and 5% as dismal. Naturally, there is a large range in these numbers depending on the sector. Where do you see the restaurant business going from here?
According to TouchBistro’s 2019 assessment of the state of full-service restaurants (FSRs), the average profit margin for American FSRs is roughly 11%. This is a huge increase over 2008 when restaurants only made a profit of 0.5%. “Since then,” Chron contributor Patrick Gleeson, PhD said, “[restaurant] profit margins have climbed consistently.”
A little decline in net profit margin may significantly affect FSRs because of their leaner operations compared to bigger corporations. It’s uncommon to determine whether a company will survive another year or go out of business permanently.
Why is Diving Into Profit Margins Important?
The adage goes that knowledge is strength. To run a successful restaurant, you need to know the financials, particularly the profit margins.
Before we get into the nitty-gritty of increasing your restaurant’s net profit margin, it’s worth noting the importance of maintaining transparent and consistent accounting procedures.
Most business owners in the restaurant industry spend between two and four hours on accounting each week, according to the State of Restaurants Reports. A portion of your time should be dedicated to figuring out your net profit margin.
You’re doing yourself no favours by avoiding this analysis, so spend some time with the statistics. Taking a close look at the data, such as your net profit margin, may give you a good idea of where your business stands and is among the most important things you can do to guarantee its success.
If your results are below expectations, you may investigate the causes (hint: look at your sales and expenses more closely) and take corrective measures.
How Much do Restaurants Make Exactly?
We’ve gone through how the number of variables that might affect your restaurant’s annual turnover makes it difficult to nail down an exact figure, particularly when you’re just starting in the business.
in the US, restaurant proprietors may expect to earn anything from $33,000 to $145,000 per year on their businesses, on average. Indeed, it covers a very broad spectrum.
Restaurant business in the UK has seen good growth in 2022: 2,010 businesses had revenues between £1 million and £2 million, and 60 firms had more than £50 million.
How to Calculate a restaurant Profit Margin?
Restaurant profit margins may be broken down into two categories: gross profit and net profit. Many publications fail to differentiate between the two or define which one they are speaking about.
This might also contribute to misunderstandings and conflicts over an appropriate typical profit margin for the food business. Learn more about restaurant profit margins to understand the context better.
Gross Restaurant Profit Margin
The gross margin calculation formula is:
[Selling Price – CoGS] ÷ Selling Price = Gross Profit
Gross Profit x 100 = Gross Profit Margin
Your gross profit margin might appear like this if you sold a product for $15 and it cost you $7 to produce it:
15 – 7 = 8
8 ÷ 15 = 0.53
0.53 x 100 = 53
⇒ 53% Gross Profit Margin
Net Restaurant Profit Margin
The formula for the net profit margin is:
Total Revenue – Total Expenses = Net Profit
[Net Profit ÷ Revenue] x 100 = Net Profit Margin
A method like this might be used to determine the net profit margin of an eatery that had $100,000 in sales and $70,000 in costs last month:
$100,000 – $70,000 = $30,000
$30,000 ÷ $100,000 = 0.3
0.3 x 100 = 30
⇒ 30% Net Profit Margin
Here, discover the best restaurant software solutions to become more efficient.
Average Profit Margins of Food & Beverages by Restaurants Types
Catering Profit Margins
Catering companies, like food trucks, have comparable food expenses as FSRs but lower overhead. The typical profit margin for a food truck is about 8%. However, it’s possible to make 15% or more with a high-end catering firm.
Food truck Profit Margins
While the cost of food served from a food truck is comparable to that benefited from a traditional restaurant, the truck’s operating expenses, such as rent, insurance, employees, and utilities, are far cheaper.
The income generated by event rentals might offset the loss of revenue from a poor weather day. Like fast food and quick service restaurants, food trucks often have profit margins in the 6-9% range.
Fast food Restaurant Profit Margins
The typical profit margin for a fast-food or quick-service restaurant (QSR) is around 6-9%. However, this may vary widely depending on variables such as whether the business is chain-owned, franchised, or independently.
Fast food and quick-service eateries have a better profit margin than full-service eateries since they employ fewer workers, buy cheaper materials (greater refrigerated and pre-prepared dishes), and serve more customers daily.
Full-service Restaurant Profit Margins
Full-service restaurants (FSRs), which often employ chefs, managers, waitpersons, bartenders, and hosts, typically have a profit margin between 2% and 6%.
There may be large variations in these figures based on various variables, including the kind of restaurant, the prices it charges, the frequency with which it is occupied, the area in which it is situated, and more.
3 Tips to Improve Your Restaurant Revenue
Get Social
Are you using social media to its full potential to grow your company? If you want to attract clients, your ads need to be seen. In addition, almost all your potential customers are probably already a part of your target demographic on social media sites like Instagram, Facebook, and TikTok.
Make an appearance on the social media sites used by your target audience and use it to spread the word about your eatery with mouthwatering photographs of your food and smiling employees.
Rethink your Floor Plan
Use your imagination to make the most of the space you have. Maximizing your area and the number of people you can handle daily is important since this will directly affect your bottom line.
Re-evaluate your Menu
Take a quality-over-quantity tack with the food you’re preparing for your guests. Providing variety and accommodating special diets is great, but an overly long menu may be frustrating for both customers and servers.
3 Tips to Minimize Costs to Improve Profit Margins
Decrease staff leftovers
Reducing employee turnover is important to save money and resources spent on recruitment and training. In such a cutthroat business environment, having a popular chef or waiter on staff may make or break your chances of gaining new customers.
Spend money on your employees regularly to keep them up to date on their abilities and encourage them to keep learning more.
Reduce waste
Managing your stock levels is simply one facet of the buffet that is your company. Be sure that each dish is served at the appropriate size.
Some clients could be appreciative if you give them many of their favorite meals, but in most cases, you’ll only waste extra food.
Read: 5 actions towards Zero Waste in hotels and Restaurants to discover many actionable tips.
Reduce the cost of goods sold
If you want to serve your customers well without draining your bank account, factor in the cost of goods sold while creating your menu.
Selecting cheaper ingredients is not required. To ensure you obtain the greatest price, it is recommended that you get bids from many providers before making any final decisions.
Take Control of Your Restaurant Profit Margins
If you want to keep your restaurant’s profit margins high, choosing the right point-of-sale system is essential. Along with accepting payments and processing orders, you can now keep tabs on stock, sync with accounting programs, and even helps you organize your restaurant’s seating chart. Finally, gathering feedback from diners after a meal is another great way to increase exposure on social media.
Tools like PMS (Property Management System) and CM (Channel Manager) only assist lodging establishments in operating more simply, saving time, and being more efficient compared to not using them. However, that is not the root of growth or the challenges faced in the accommodation business. If you want to effectively manage OTA channels and create stable growth, you should have a clear understanding of how OTA platforms operate, such as their nature, operational models, and how they display, calculate displayed prices, and collect prices (after deducting commissions). Of course, larger hotels that want to approach it systematically will do it synchronously from the beginning, but smaller lodging establishments wanting to reduce operational costs should overlook it and focus on optimizing display and providing outstanding customer care.
Synthesized by: OTA Lyst
