How do you make a restaurant profitable? All our top tips

Is a restaurant profitable?

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

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

On the menu in this article: advice on how to monitor your performance under the microscope, 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?

The break-even point

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

To best assess this, we advise you to measure your break-even point. This indicator corresponds to the level of sales needed 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 the break-even point, the good news 🥳 is that you are profitable. Each additional sale then contributes directly to the company's net profit.

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

Calculating a restaurant's profitability

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

👉 The formula :

Note that it is also possible to apply the following formula, which is a little more complex:

The latter requires the calculation of other indicators, to which we will 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 a profit!

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

Other indicators to monitor in the restaurant business

Other key indicators help you to monitor your restaurant's profitability or, as we have seen, to calculate the break-even point in a different way.

Turnover

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 whether your turnover is in line with market reality?

According to Combo, the average turnover for a restaurant is €16,000. 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 restaurant with 50 covers will inevitably be higher than the turnover of a restaurant with 30 covers.

☝️ 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 required for production (foodstuffs in particular).

👉 The formula :

Once the result is obtained, the contribution margin can be determined...

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

Gross margin

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

👉 The formula :

This is an important figure, and one that is closely watched in the profession. But what is the margin for a successful restaurant ? According to the experts, it should 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 expenditure, 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, the net margin for restaurateurs is between 3% and 9%.

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

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

Other interesting restaurant indicators

• Average bill: represents the average spend per customer, to understand consumer trends and optimise the menu.
  
  
• Table occupancy rate: indicates the percentage of time that tables are occupied, to maximise 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: analyses the individual profitability of each dish on the menu in order to identify those that generate profit... and those that require adjustments.

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

One example comes to mind is L'Addition, a cash register software specifically developed for restaurant owners. More specifically, it's a complete management solution that includes analytical tools in its interface. These allow you to see at a glance the key figures linked to your till operations: turnover, 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 so increase your margin!

How can you improve a restaurant's profitability? 10 best practices to follow

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

But you also need to take action to boost your performance. There are two main objectives:

• increase sales;
• reduce costs.

#1 Identifying your target customer

At first glance, you may not see the connection 🤔.

However, understanding your target customer will lead to many of the components of your profitability set out 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 main 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 cuisine! As long as you remain consistent, you'll be working towards 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 show a clear gastronomic trend, but the flavour of the dishes doesn't live up to it... you'll generate 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 labour costs as well as rapid customer turnover.

Other experts talk about the profitability of gourmet restaurants, which generate high gross margins given the higher prices of their dishes. 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 stand out from the competition. Provided you make sure you have a potential customer base attracted by your innovative concept beforehand.

#3 Choose the right location

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

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

In addition, certain "little extras" will work in your favour, such as the presence of a car park, 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 people eat in your restaurant 🍔.

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

So to start with, avoid menus that are as long as your arm: 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 profitable popular ones: you absolutely must maintain them, or even promote them more!
• Popular dishes that are not very profitable: try to optimise 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.

💡 To know: what are the most profitable dishes in the restaurant business? These are usually considered to be those that require a low production cost, and therefore generate high margins, such as burgers, crepes, salads, pizzas, etc.

#5 Apply the right prices

Menu pricing has a direct impact on the revenue generated by sales. Not to mention the brand image you want to project.

To determine the right prices for your dishes, take the following factors into account

• the cost of the raw materials needed to make them ;
• other costs to be borne, particularly labour costs;
• the prices charged by the competition, 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 that you regularly monitor your sales and margins to adjust your pricing if necessary.

#6 Manage your staff effectively

As we mentioned earlier, ensuring your profitability also means reducing your costs, whether fixed or variable. And optimising your staff management is one of the best ways of doing this.

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

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

#7 Optimise 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 given that 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 analyse 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.

You should also keep an eye on stock levels 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 stock management also involves eliminating food waste, by identifying the causes (unsuitable portions, for example) and then rectifying the situation.

👉 Find out more clever tips in our article on 6 tips for optimal stock management.

#8 Negotiate with your suppliers

Choosing your suppliers well helps to lower your costs, by getting 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 or service reliability. Then you need excellent negotiating skills. Who knows, you might manage to lower the rates even further?

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

#9 Increase your visibility

By increasing your visibility, you attract more customers... and subsequently boost your sales! Hence the importance of putting in place a solid marketing and communications strategy.

👉 Here are a few tips to inspire you:

• set up a website that reflects your image ;
• make sure you have a presence on social networks. Instagram, for example, allows you to post photos that show off your dishes... and make your mouth water! ;
• Complete your Google My Business listing, which comes in very handy for providing precise information about your establishment to potential customers searching online;
• take part in local events, inviting consumers to tastings and demonstrations;
• carry out street marketing operations, such as handing out flyers.

💡 Tip: why not bank on influencer marketing? Working 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 speak well of you to those around them.

So it's possible to build up a real strategy along these lines, with :

• loyalty programmes;
• 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 of building consumer loyalty is, and will remain, to offer them a positive customer experience, where the flavour of the food, the excellence of the service and the balanced value for money all come together!

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Restaurant profitability at a glance

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

In short, you need to be a good manager, so that you can control your teams, your stocks, your accounts, your supplier relations, etc. with a master's hand.

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