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How to Increase Your Restaurant's Profit Margin

By Amy Nichol Smith, writer
Mar 20, 2017
> Business Basics

Following flavor trends is how restaurants stay ahead of the curve

Following flavor trends year to year is how many restaurants try to stay ahead of the curve with their menu offerings. As carefully as you study fluctuations in your customers' ever-changing tastes and expectations, you must do the same with market prices and costs. Knowing where you stand month to month, or even week to week, in sales and costs can help you adjust here and there to increase your profit margin.

Check Your Food Costs – Then Check Again

The industry standard percentage for food costs is 30%. The lower you can get it, the better. You shouldn't sacrifice quality, though. If the true cost of a burger and fries at your restaurant is $1.50, you have some room to play with the menu price. Just make sure you're calculating those food costs accurately and regularly, as the market price for meat, produce and baked goods fluctuates. Of course, you can't change your menu prices weekly, so shoot a little higher with your prices so you create a buffer of profit versus cost.

It's important to keep customer satisfaction high, though, so remember to price items for minimum negative psychological impact. If you increase a menu item from $8.49 to $10.99, customers may balk at the double digits. Instead, bump it up to $9.99; customers will feel like they're getting value and you will still increase your profits.

Daily Specials

A great way to increase profits is to offer a chef's special that's creative, tempting and priced slightly higher than your regular menu items. Exclusivity along with a limited time offer can be big selling points to many consumers. You can keep costs low by using seasonal ingredients, and you can push the special with seasonality as a selling point, too.

Make sure your customers know what your specials are by snapping a photo of a completed plate at the beginning of the day and promote it online through Snapchat, Instagram, Facebook and Twitter.

Loyalty Programs

Too many discounts can affect your bottom line negatively, but the more often your customers visit your restaurant, the higher your profit margin over a long-term period will be. Whether you choose a digital rewards mobile app, receipt discounts or punch cards, discounts can bring loyal customers back regularly so they earn that free appetizer or two-for-one meals.

Reevaluate Labor Costs

Mass layoffs would be counterproductive to your goal here. You want to maintain or increase revenue and give a big bump to profit. One area in which you can save on costs is labor, but you need to look closely at your daypart sales.

Compare tickets during a business day in both sales ticket volume and check totals. You may be making the same amount of revenue with dinner tickets as lunch, but fewer tickets overall in the evening. You can cut staff a bit in the evening and still bring in the same sales but costs will go down.

Old-Fashioned Upselling

If your staff is well trained, they're already pushing appetizers, drinks and desserts on your customers. It's these items that help drive up the check total and, ultimately, your bottom line. Get your staff excited about the items you want to sell more of and the customer will be just as excited to try them, too. Your servers need to know the menu forward and backward, so be sure they've tried everything – including daily specials. A server who has tasted the bacon-wrapped Brussels sprouts with a lemon-dill dipping sauce is better equipped to sell it.

The bottom line is that your profit margin won't increase unless you are effectively selling high-quality, fairly priced menu items to your customers. That means finding the balance between your costs and revenue.

Image from Kaprik/Shutterstock

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Amy Nichol Smith
Amy Nichol Smith
See Amy Nichol Smith's Profile
Amy Nichol Smith is a freelance writer who covers business, technology, food, sports, pop culture, and much more. She's a former features reporter and editor for The Monitor newspaper and has a love of football and video games.
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