How Much Profit Should You Make in a Restaurant?

Jul 24, 2024

Learn all about:

What Is a Good Restaurant Profit Margin?
What Factors Determine Restaurant Profitability?
Top Takeaways for How Much Profit You Should Make in a Restaurant

Restaurant profit margins are one of the key metrics for determining the success of the business. When looking at how much profit you should make in a restaurant, you can compare your own profit margins to the national average or to those of competitors in the local area. How much profit you make will depend on multiple factors, which we’ll cover below.

What Is a Good Restaurant Profit Margin?

The profit margin for any restaurant can vary a lot, depending on numerous factors. So, how much profit should you make in a restaurant? A good rule of thumb for the average restaurant profit margin is between 2% and 6%.¹ In its first year, the average full-service restaurant in the US can expect to make approximately $112,000 per month in total revenue.² This means costs need to be around $106,000 per month to make a decent profit. Costs higher than $110,000 per month would represent a lower-than-average profit margin.

What Factors Determine Restaurant Profitability?

The profitability of a restaurant may vary depending on the season. It can also be affected by start-up costs, overheads, restaurant size, location, concept, waste and a whole host of other factors. Reviewing each of these aspects in turn can help restaurant owners to determine which areas need better management and which will help drive increased revenue over time.

Cost of labor

Labor costs are typically the biggest ongoing outlay for any business. The average restaurant labor costs will be between 20% and 40% of revenue.³ While cutting salaries is not a good way to attract the best employees, you can get more creative with your use of labor by training staff to perform multiple roles. For example, it is often cheaper to have your front of house staff clean the restaurant at the end of the night than it is to hire external cleaners.

Location

Where your business is located will affect your profitability in two key ways. The cost of leasing property in your chosen area will affect your outgoings, while the volume of foot traffic in the area has the potential to increase your revenue.

Food waste

Food costs are usually the second-highest cost for most businesses after labor. Reducing food waste can help you keep those expenses manageable. This includes both pre-consumer and post-consumer waste. Portion control, measuring or weighing ingredients and maintaining accurate inventory all help reduce food waste.

Employee turnover

Training new staff costs more than working with employees who already know what they are doing. A high employee turnover equates to more time and money spent on training new members of the team. All restaurants will experience some staff turnover but offering incentives and perks and creating a good team ethic can help reduce overheads by keeping staff happy and motivated.

Customer retention

Studies have shown that it’s cheaper to get existing customers to return than it is to attract new customers, yet many restaurateurs focus their marketing spend on attracting new custom. Restaurants that offer rewards to make existing customers feel valued and want to come back again may see their marketing spend reduced.

Supplier costs

With food taking up such a large chunk of regular outgoings, it makes sense to shop around for the best prices for the quality of ingredients you need. Taking some time to compare vendor prices can reduce your food bill drastically.

Wait times

A busy restaurant is more likely to make a profit than a quiet venue. However, when the restaurant is full, you could be losing money if customers are having to wait longer than necessary. This is particularly true when they first arrive before they have ordered anything, as this is dead time when no profit is being made. When food takes too long to come out of the kitchen, tables don’t get turned over as many times in a night, reducing the total number of potential customers.

Upselling the right dishes

In any restaurant there will be dishes that are more profitable and dishes that, while popular, make less money overall. Training staff to upsell the dishes that generate more profit by making recommendations can help.

Competition

The degree of competition in the local area will also affect restaurant profitability. It stands to reason that many restaurants that are located in busy, highly populated areas where customers have more choice will see less foot traffic per restaurant.

Advertising and marketing

Advertising and marketing can help to attract new customers but can also add ongoing running costs to the business. Simple steps to attract more business include updating the website, encouraging customer reviews and using market research to collect data that can be used to email customers with special offers.

Top Takeaways for How Much Profit You Should Make in a Restaurant

The amount of profit you should make in a restaurant is around 2% to 6%.
This will vary depending on your costs and other factors.
There are two ways to increase your profit margins – lowering your overheads and increasing your revenue.
In the first year, the average restaurant makes around $112,000 per month.
This means your costs should be between around $106,000 and $110,000 if you are to reach the average profit margin.

Next steps

The more you understand about restaurant profit margins, the better your chances of increasing yours are. The Ultimate Guide to Restaurant Profitability has lots of ideas and advice on how to reduce your overheads, increase your revenue and generate more profit for your business. When thinking about how much profit you should make in a restaurant, you should also be thinking about ways to improve that profit margin.

Become a Groupon Merchant today and gain access to a network of experienced merchants, as well as a host of useful resources to help you make a success of your restaurant business.