How to make a restaurant profitable? All our top tips

Is a restaurant profitable?

Well, yes, it's a lucrative business... provided you keep a close eye on your figures and take action to improve them.

Whether you're just starting out or already own a restaurant, it's important to carefully analyze your business' profitability, to avoid a nightmare in the kitchen and being one of the 50% who close their doors within 3 years (source: my-business-plan.fr).

On the menu in this article: tips for scrutinizing your performance, with examples of indicators to back it up, as well as good practices to observe to prosper further.

Enjoy 😋!

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How do you calculate a restaurant's profitability?

Break-even point

A restaurant's profitability refers to its ability to generate a net profit after covering all the costs associated with its operation. This is a crucial measure for assessing its financial health, and therefore its long-term viability.

The best way to assess this is to measure your break-even point. This indicator corresponds to the level of sales required to support your various expenses without incurring a loss:

• variable costs: raw materials, table and kitchen supplies, takeaway packaging, etc. ;
• fixed costs: wages, rent, electricity, water and gas, etc.

As soon as you reach this threshold, also known as break-even point, good news 🥳: you're profitable. Every additional sale then contributes directly to the company's bottom line.

💡 Tip: if you're getting ready to launch, think about making a financial forecast to anticipate the minimum sales figure you absolutely must reach. And if you're having trouble projecting your potential sales, take a look at your competitors' statistics and position yourself in relation to them.

Calculating restaurant profitability

That said, how do you actually calculate the break-even point?

👉 The formula :

Note that it is also possible to apply the following, slightly more complex formula:

The latter then requires the calculation of other indicators, to which we'll return later.

👉 Find all this information in more detail in our article dedicated to the break-even point.

💡 Tip: of course, your aim is to exceed this threshold, in order to really generate profit!

That's why this metric needs to be analyzed upstream of the restaurant project, when drawing up the business plan, but also throughout the life of your establishment, with the aim of maintaining your performance.

Other indicators to track in the restaurant business

Other key indicators can help you monitor your restaurant's profitability or, as we've seen, calculate your break-even point differently.

Sales figures

How much does a restaurant earn per month?

To get the answer, we need to calculate its turnover, i.e. the total amount of money generated by its sales.

👉 The formula :

Calculations are all very well... but how do you know if your sales are in line with market reality?

According to Combo, the average restaurant generates sales of 16,000 euros. But this figure varies considerably depending on a number of factors, such as location, type of cuisine, size of establishment, target clientele, etc. For example, the turnover of a 50-seat restaurant will inevitably be higher than that of a 30-seat restaurant.

☝️ It's up to you to position yourself, taking into account all the components of the market and the characteristics of your business.

Margin on variable costs

The margin on variable costs represents the difference between total sales and variable costs, such as the purchases necessary for production (foodstuffs in particular).

👉 The formula :

Once the result has been obtained, the contribution margin can be determined...

... then the break-even point (there it is again!).

Gross margin

Gross margin differs from contribution margin in that it represents the difference between total sales and cost of goods sold. In other words, it provides an indication of profitability before other expenses are deducted.

👉 The formula :

We're dealing here with an important piece of data that's closely watched in the profession. But what is the margin for a well-run restaurant ? According to the experts, it's supposed to be between 60% and 70%.

The net margin

And here's another margin: the net margin.

This is the difference between total sales and total expenses, including both variable and fixed costs.

It can therefore be used to determine a restaurant's profit after all its costs have been taken into account.

👉 The formula :

To help you position yourself, you should know that, on average, restaurateurs' net margins are between 3% and 9%.

💡 Good to know: there are still many margins that allow you to calculate your profitability more finely, or to focus on specific elements:

• margin on solids ;
• margin on liquids ;
• operating margin ;
• direct cost margin, etc.

Other interesting food service indicators

• Average bill: represents the average spend per customer, to understand consumer trends and optimize the menu.
  
  
• Table occupancy rate: indicates the percentage of time tables are occupied, to maximize the use of space and resources.
  
  
• Stock rotation: measures the frequency with which products are sold and replaced, helping to avoid waste while maintaining the freshness of ingredients.
  
  
• Customer acquisition cost: estimates the average expenditure required to attract a new customer to the restaurant (marketing, advertising, etc.).
  
  
• Profitability per dish: analyzes the individual profitability of each dish on the menu to identify those that generate profit... and those that require adjustments.

💡 Tip: simplify the monitoring of your indicators by using digital tools that harvest and make your data reliable for you!

One example is L'Addition, a cash register software specifically developed for restaurateurs. More precisely, it's a complete management solution that includes analytical tools in its interface. These enable you to see at a glance the key figures linked to cash register operations: sales, best sales, average basket, etc. And thanks to the L'Addition Achats by Ouilink feature, the software puts you in touch with suppliers to find the best prices, and thus increase your margin!

How to improve restaurant profitability? 10 best practices to follow

One of the best ways to increase your restaurant's profitability is to measure it.

However, it's also a good idea to follow up with actions designed to boost your performance. There are two main objectives:

• increase sales;
• reduce costs.

#1 Identifying your target clientele

Perhaps at first glance, you don't see the connection 🤔.

Yet understanding your target clientele will drive many of the components of your profitability outlined in the following points:

• the concept of the establishment ;
• location ;
• pricing ;
• the marketing and communications strategy to adopt.

👉 For example, the website modelesdebusinessplan.com identifies 4 major customer segments for a restaurant:

🕵️ It's up to you to identify the people who seem most in tune with the concept you want to develop - and, above all, with your kitchen! As long as you remain consistent, you'll be working in favor of your profitability.

#2 Develop the right restaurant concept

As with the previous tip, you need to develop a precise concept... and steer your entire project in that direction.

👉 By way of illustration, if your decorum, menu and prices display a clearly gastronomic tendency, but the flavor of the dishes doesn't measure up... you're generating disappointment 😬!

But then, which type of restaurant is the most profitable?

From one source to another, the answers vary. For example, we hear a lot about the profitability of fast food, due to relatively low labor costs as well as rapid customer turnover.

Other experts point to the profitability of gourmet restaurants, which generate high gross margins in view of their higher food prices. What's more, it attracts a clientele willing to spend more.

Still others advise betting on pizzerias, bistronomy, vegetarian, cafés... In any case, think quality and consistency!

💡 Tip: why not think outside the box? This way, you'll stand out from the competition. As long as you make sure beforehand that you have a potential clientele attracted by your innovative concept.

#3 Choose the right location

Choosing the right location plays a major role in your restaurant's profitability: the more visible and accessible you are to your customers, the more sales you'll generate.

👉 Once again, the characteristics of your target enter into the equation. For example, if you specialize in high-end kitchens, it's best not to set up shop in an area with low purchasing power. And if you're targeting young, trendy customers, set up shop in a dynamic location.

In addition, certain "little extras" will work in your favor, such as the presence of a parking lot, all the more so if you own a family-run establishment.

💡 Good to know: despite everything, there are many examples of restaurants that are successful... despite a less-than-stellar location. This reality shows that if the quality is there, word-of-mouth does its job!

#4 Build your menu intelligently

The clientele, the concept, the location... now it's time to look at what's on offer in your restaurant 🍔.

Whether it's at the opening of your establishment or when you want to evolve your menu, the menu is a major component of your profitability. It has a direct influence on the cost of raw materials, stock rotation and customers' perception of the restaurant's value.

So to start with, avoid long menus: they make your management more complex... and are often synonymous with poor quality 😬.

We then recommend that you classify your dishes according to the following 4 categories:

• the popular profitable ones: you absolutely must maintain them, or even promote them more!
• popular, unprofitable dishes: try to optimize their cost to make them more profitable;
• less popular but profitable: perhaps you should promote them more?
• the less popular and unprofitable: question whether they should remain on the menu.

💡 Worth knowing: which dishes are the most profitable in the restaurant business? These are usually considered to be those that require low production costs, and therefore generate high margins, such as burgers, crepes, salads, pizzas, etc.

#5 Apply the right prices

Menu pricing has a direct impact on sales revenue. Not to mention the brand image you wish to convey.

To determine the right prices for your dishes, consider the following factors:

• the cost of the raw materials required to produce them ;
• other costs to be borne, in particular labor costs;
• the prices charged by competitors, to remain competitive while reflecting the quality of your dishes;
• the positioning of the establishment, and therefore the target clientele.

💡 Tip: once again, we recommend regularly monitoring your sales and margins to readjust your pricing if necessary.

#6 Manage your staff effectively

As mentioned above, ensuring your profitability also requires reducing your expenses, whether fixed or variable. And optimizing your staff management is one of the best practices you can follow.

To do this, start by planning working hours correctly, so as to avoid overstaffing (without understaffing!). You can do this on the basis of attendance forecasts, among other things.

💡 Tip: always make sure you maintain good working conditions. Beyond the obvious moral issues, reducing turnover has a positive impact on cash flow, as recruiting and training staff generates significant costs!

#7 Optimize your stock management

Stock management is one of the pillars of profitability for any business, and restaurants are no exception to the rule. This is all the more true as restaurants are faced with additional constraints due to the perishable nature of their merchandise, as well as numerous regulations (maintaining the cold chain, for example).

It is therefore important to analyze demand trends in order to determine the appropriate quantities to order for each product, taking into account :

• seasonal variations ;
• special events, such as Valentine's Day or Mother's Day.

Keep an eye on stock levels too, to avoid shortages and costly overstocking. For these operations, many restaurateurs rely on software capable of triggering automatic orders when replenishment thresholds are reached.

Finally, good inventory management also means eliminating food waste, by identifying the causes (unsuitable portions, for example) and then rectifying the situation.

👉 Discover more smart tips in our article on 6 tips for optimal stock management.

#8 Negotiate with your suppliers

Choosing the right suppliers helps lower your costs, by obtaining the best quality/price ratio for your raw materials.

It all starts with good supplier sourcing, to find those who offer the most competitive prices, without compromising product quality and service reliability. Then, demonstrate excellent negotiating skills. Who knows, maybe you'll manage to lower the rates even further?

💡 Good to know: when you buy in large quantities, you can get discounted prices. It's a calculation you need to make, because beware of waste!

#9 Develop your visibility

By increasing your visibility, you attract more customers... and subsequently boost your sales! That's why you need a solid marketing and communications strategy.

👉 Here are a few tips to inspire you:

• set up a website that reflects your image ;
• ensure your presence on social networks. Instagram, for example, lets you post photos that show off your dishes... and make your mouth water! ;
• complete your Google My Business listing, a handy way of providing precise information about your establishment to potential customers conducting online searches;
• take part in local events, inviting customers to tastings and demonstrations;
• carry out street marketing operations, such as distributing flyers.

💡 Tip: why not bank on influencer marketing? Collaborating with local influencers, such as food bloggers, is sure to give your restaurant good publicity.

#10 Build customer loyalty

Regardless of the type of clientele you're targeting, the one that brings you the most revenue... is the one that's loyal to you!

Not only do they generate regular income, but they also increase your profile: they bring other diners when they dine in your restaurant, and they speak highly of you to those around them.

So it's possible to build a real strategy in this direction, with :

• loyalty programs;
• regular communication with your customers (SMS, emailing, social networks) about special offers, new products, invitations to exclusive events, etc. ;
• setting up a sponsorship system, etc.

However, the best way to build consumer loyalty is, and will remain, to offer them a positive customer experience, where the flavour of the dishes, the excellence of the service and the balanced quality/price ratio are all at the forefront!

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Restaurant profitability in a nutshell

There are many ways to maintain and increase your restaurant's profitability. But regardless of the direction your strategy takes, you'll always need to measure your performance and deploy a series of actions aimed at both increasing your sales and lowering your costs.

In short, you'll need to be a good manager, so you can masterfully control your teams, your inventory, your accounting, your supplier relations...

Above all, you need to remain passionate, galvanized by the desire to please your guests by offering them a tasty customer experience 😋.