There are two ways restaurants can improve profit margins: increase sales volume and decrease overhead expenses.
While there are many ways you can help drive sales and lower costs, we’ve put together this guide to help make 2024 your most profitable year yet.
Optimize Menu Pricing
One of the first ways to increase profit margins is to optimize your menu prices. To do this, you’ll need to pinpoint the exact cost per serving of each dish and calculate your food cost percentage.
To remain financially viable, the average restaurant needs to keep the food cost percentage somewhere around the 28% to 35% area. If the food cost percentage of your menu items falls above this range, you may have been underpricing. The simple solution is to raise your menu pricing for these items until you’re in proper range.
But there’s more to it than increasing your food cost percentage. You need to make sure you’re accounting for overhead expenses including costs that aren’t associated with the meals themselves. This includes fixed and variable costs like rent, utilities, entertainment, wifi, cable, and labor.
To account for your restaurant’s overhead expenses in the price of your meals, total up how much those expenses cost you each month and then divide that number by the number of menu items you have. This number shows how much you could increase the price of each menu item to cover these overhead expenses.
Alternatively, you can increase profit margins by decreasing food costs. Look for ways to cut costs by finding better deals from your existing vendors, finding new vendors with lower prices, or reducing portion sizes.
Practice Menu Engineering
A proven practice of analyzing and strategically designing a restaurant menu to maximize profits, menu engineering uses a combination of data, design and psychology to study the profitability and popularity of a restaurant’s menu items and how these factors impact the placement of these items on a menu.
To do this right, you first need to know food costs, popularity of menu items, and profitability of these items because the whole objective of menu engineering is to feature only your most profitable and popular items. This assures that no matter what item your guests order, it’ll be good for your bottom line.
Start by examining which items are the most popular and sell the most, which sell the least, which items are most profitable and which are the least.
Use this information to weed out menu items that yield the least profit and/or are least popular with your guests. This can change with the time of year, however, so revisit your menu engineering strategy often.
For example, your specialty hot beverages may be hugely popular and profitable during the holiday season, but completely ignored in the warmer months. That’s an item you may want to drop from the menu in the spring because it might be costing you too much money keeping the ingredients on hand or the staff needed to make these drinks when they’re not selling anyway.
Menu engineering helps when you design your menu so it draws as much attention as possible to your high-profit, and big selling dishes.
With food costs, supply chain issues, and other outside influences impacting the way the food game is played these days, it’s critical to make menu engineering an ongoing and continuous business strategy. Evaluating–and re-evaluating–the performance of items on your online menu on a regular basis is a best practice for restaurants.
With the traditional method focusing on quantifiable profitability and popularity metrics, menu engineering for restaurant delivery goes one step further; deciding which of those items work best for your off-premise operations.
But while menu engineering might be a bit time-consuming, you'll soon see that it's time well spent.
Related post: Step-by-Step Menu Engineering for Restaurant Delivery with FREE Downloadable Worksheet
Update Menu Layout
Once you’ve mastered the engineering process, it’s time to start updating your menu. There are many design tricks to draw attention to high-profit dishes. A well-executed initial menu-engineering effort takes about a week to complete and can increase a restaurant’s profits by 10% to 15%.
For an in-depth look at restaurant menu design tips and tricks, check out our related post: Reimaging Your Online Menu.
Train Your Staff
Servers aren’t just there to take orders. Their ability to sell is the key to making money in your restaurant. The difference between a good server and a great server is their ability to upsell. Increasing the amount spent per guest increases your overall sales and servers can boost your restaurant’s sales by upselling to customers.
The best way to train servers is to allow them to sample menu items, especially new ones. This will get them involved and enthusiastic when presenting these items to your guests. When your server is excited about your food, it carries over to your diners.
While the most common upsell is beverages, it shouldn’t stop there. Adding a shareable appetizer, side salads or soup before the main meal or a dessert after the meal are all ways that your servers can add to a customer’s check.
Investing the time to train your waitstaff on your menu offerings, allowing them to taste the dishes, and encouraging them to upsell to customers will go a long way toward increasing your sales. Consider adding additional incentives by awarding bonuses or prizes to the server with the most upselling each shift or each week.
Related post: Turning the Tables: How to Attract, Hire, and Retain the Best Servers for Your Restaurant
Use Cost-Effective Marketing Tactics
Increased sales per customer doesn’t help if you don’t have a steady stream of guests. Increase traffic by motivating your regular customer base and enticing new ones to walk through the door.
Institute a Loyalty Program: To entice your regulars, consider a loyalty program. This could involve rewarding guests with a discount after reaching a spending threshold, awarding customers with a free item after reaching a certain dollar amount, or offering bonus gift cards with a pre-set purchase amount.
Related post: Reaping Rewards: Loyalty Programs for Restaurants
Email Marketing: With just about every restaurant offering delivery in some capacity these days, it’s critical to use all the tools in your arsenal to keep your customers interested, and email’s many benefits make it one marketing tool you shouldn’t ignore.
Sending “thank you” or “we miss you” emails or creating custom, automated email marketing campaigns to promote special offers or new menu items will give your regular customers reminders to pay your business a visit.
Related post: Email Still Delivering for Restaurant Marketing
Social Media: Rewarding regular guests builds your loyal customer base, but it’s equally important to attract new customers and turn them into regs. Social media is the most cost effective, and all around effective way to get the word out.
And in today’s overwhelmingly social world, you can reach your target audience instantaneously with “Foodstagramming'' and posts on Facebook, TikTok, Threads, and Snapchat.
Related posts: 5 Best Social Media Platforms For Restaurants
Improve Table Turnover Rates
Table turnover is the amount of time a guest is seated at a table from their arrival to departure. The more customers you serve per service, the more profits you’re positioned to make.
To maximize your revenues per service, your ultimate goal should be to reduce the time a guest occupies a table and maximize how much they spend.
Be very mindful to keep a delicate balance; if you serve a customer too slow, you’re missing out on serving a higher volume of customers, but if you serve a customer too fast, you risk making them feel rushed and reduce the opportunity to upsell.
To keep this balance working most effectively, make sure your front of house (FOH) and back of house (BOH) staff is equipped with tools that allow for the perfect turnover sweet spot.
Seat Guests Faster
Seating your guests faster is the first step to serving more guests per service. Depending on your restaurant, your hosting station, where the guest experience begins, should be well-staffed and ready to jump into action the moment a customer walks in the door.
The last thing you want is for guests to wait because there’s no one there to greet and seat them. To prevent this from happening, and being ready to start with your best foot forward, consider implementing a digital floor plan system that enables hosts to know which tables are free, allows for speedy reservation check-ins, and makes seating a quick and seamless experience for your guests.
Serve Guests Quickly
Keeping your wait and kitchen staff operating in sync is key. And technology like kitchen display systems and tableside ordering is helping to reduce the time from an order being placed to the food being served.
Rather than taking orders the old-fashioned way, with servers writing down orders manually and walking the ticket to the kitchen, electronic tableside ordering and kitchen display systems allow the wait staff to take orders directly at a table and immediately send them electronically to the appropriate station in real time.
If a guest orders a bar drink and an appetizer at the same time, for example, the cocktail order goes directly to the bartender’s display system, while at the same time, the food order goes to the kitchen’s display system.
Kitchen display systems are color-coded, and organized chronologically, making it easier for kitchen and bar staff to get orders ready faster.
Once an order is ready, the server is immediately notified. This eliminates the server’s back-and-forth time between the front and back of house, resulting in faster table turnover.
Minimize Your Menu
Offering a simplified menu, especially at busy times like the lunchtime rush, gets diners in and out faster. Consider eliminating menu items with long prep times as well during busy times of day when you want to increase your turnover rate.
Related post: How to Cook Up a Minimal Viable Menu that Delivers
Faster Payment Methods
One last step that will help improve table turnover is to implement systems that allow for faster payment processing. Again, technology can step in to eliminate the need for waitstaff to spend time dropping off checks and processing payments and free them up to spend time with guests.
Use Suggestive Selling
Superior customer service and delicious food can lead to happy customers. But even the happiest customers can be persuaded to order more. One technique is suggestive selling.
Suggestive selling is a communication technique and sales tactic that not only offers ideas to your guests and elevates their experience but can help you boost your bottom line by up to 30%. Suggestive selling helps deliver value and build brand loyalty as well—a win-win for your restaurant and your guests.
Decrease Overhead Expenses
The flip side of the coin of increasing sales is decreasing costs. There are fixed and variable costs that can be optimized to save money and decrease your restaurant’s overhead costs.
Reduce food waste: Not only is excessive food waste bad for the environment, it can also negatively impact your restaurant profit margin. About one-third of a restaurant’s revenue is allocated to the cost of goods sold. If you end up throwing that food away, you’re effectively losing money that could have been profit or used to cover other expenses. A recent study found that for every $1 a restaurant invests in reducing food waste, an average of $7 can be saved, so it stands to reason that reducing waste is one of the simplest ways to improve profit margins.
Lower utility bills: Restaurants consume an average of five to seven times more energy per square foot than other commercial buildings, and for fast-food restaurants and other high-sales volume establishments, the cost can be even higher. The obvious result of such high consumption is high utility bills. To help lower utility costs, consider iInvesting in eco-friendly kitchen appliances and lighting. While the initial cost of the investment may feel a bit steep, the long-term savings on your utility costs will more than make up for it.
Improve employee scheduling: To reduce labor costs while maximizing your revenue per service, use your restaurant’s sales and employee data when scheduling staff. Scheduling too many servers during slow business hours causes you to spend too much on labor costs. As such, scheduling too few servers risks slow turnover, a reduction in customer experience quality, and frustrated employees. When planning your employee schedule, pay close attention to demand which changes with the times of day, days of week, and seasons. Other considerations to take into account when scheduling are identifying which servers generate the most revenue, weather, holidays and your restaurant’s busiest and slowest business hours.
By Eileen Strauss
