Restaurant profit margins are something that every restaurant owner should pay close attention to, as they are one of the most important factors in deciding the success or failure of your restaurant.

With the restaurant industry struggling to remain profitable, you need to take all measures necessary to ensure your business does not end up in the red every month.

While there are many ways to improve your margins, these steps will provide you with the most impactful benefits to your profit margin and the overall financial health of your restaurant.

Let this guide help you navigate the best course of action. 

Understand What Profit Margin Is

There are two key elements in your restaurant's profit margin: food costs and labor costs. Food costs can be further broken down into ingredients and beverages. Labor costs include wages, taxes, insurance, and benefits. 

The bottom line is that all of these factors affect your profit margin, which is how much money you keep versus how much you spend. Small changes in food and labor can lead to big swings in profit margin; for example, increasing labor by $2 an hour results in a 25 percent drop in profit margin.

Review Your Cost Of Goods Sold (COGS)

If you are running a restaurant, it can be easy to get carried away with all of your costs. But you must review your COGS regularly, which includes examining your inventory management and purchasing processes and procedures. 

There may be times when certain food items are on sale for a particularly good price, you want to make sure that those savings match up with savings in sales; otherwise if you are not careful, you could end up increasing your total costs without increasing your overall profits. If too much inventory is going bad at one time, consider stocking fewer products to avoid wasting money on unnecessary food or supplies.

Find Ways To Decrease COGS

Every restaurant manager should know their key numbers and how they can affect profit. The top ways to increase profit are to decrease the Cost of Goods Sold (COGS). There are several ways you can do that in your restaurant:

• Ensure all ingredients used in your dishes match exactly what is listed on your menu. Seasoning mix or broth can add up over time, and the same is with mislabeled condiments or portions. 
• Hold taste tests with staff for new recipes, for you to know you are using appropriate portion sizes. 

Pro Tip: Keep an eye on ingredients that come from national suppliers, as sometimes these companies change their packaging without informing. Always read labels carefully!

Charge Higher Prices And Add Value

When it comes to restaurant pricing, there is one simple rule of thumb: Customers are willing to pay more for higher quality. It does not matter if your product or service is high quality; what matters is that customers perceive it as such. 

The next time you consider raising prices, take a look at your existing menu items and see which ones could be improved or made more appealing. For example, if people tend not to order your chicken dish because they can not tell what type of meat it is, buy better chicken and call it something else on the menu (Smoking hot cutlets?). By upgrading an item that no one orders anyway, you get added value without raising prices—an easy way for restaurants with thin profit margins to increase profits.

Train Staff And Check Inventory Levels

The first two places you should look to increase your restaurant’s profit margin are directly under your control.

If a guest is not served quickly enough, they will get up and leave. To maintain an acceptable level of service and increase sales, restaurant staff must be trained well enough for them to make prompt decisions based on what you want them to do. 

Keep a constant check on your food inventory levels because if you run out of popular items then your profits go down. This results in unhappy customers who may never return. 

You do not want those kinds of reviews on Yelp! , do you? Train your employees and check inventory constantly, to keep in check that there would not be any unexpected shortages or running out of popular menu items during peak hours.

Use Technology Tools

Analyzing your restaurant data regularly will provide you with actionable insights into how you can improve your bottom line. 

When you are looking at your overall profit margin, focus on two key areas: price and cost. Take some time to analyze both of these numbers to understand where problems may be occurring. 

• Are customers over-ordering? 
• Are prices too high for their value? 
• Is there another factor that is impacting profits? 

Once you identify what needs fixing, it is important to use technology tools like StockTake’s pricing & menu analysis functionality as it can help you optimize profitability at every step in your restaurant business process.

Stocktake online can be intimidating at first, but it makes running a business far easier than trying to crunch numbers in an Excel spreadsheet or piece together spreadsheets from various accounting systems.