Business

What Are The Typical Profit Margins At Restaurants?

Is owning a restaurant feasible for the long term? What are the typical profit margins at restaurants?

Many inspiring entrepreneurs around the world dream of owning and operating their own restaurants. Unfortunately, the unknowns can put a stop to these goals. 

Is owning a restaurant feasible for the long term? What are the typical profit margins at restaurants?

These questions are totally viable, and crucial to the development of your plan. Additionally, they can all be addressed and accounted for to make your dream a reality. Here’s what you need to know about the profit margins at a typical restaurant. 

What To Expect

Across the board, restaurants typically have a 10% profit margin. This amount is not stable throughout the life of the restaurant, however. Instead, this percentage is dependent on many circumstances, both internal and external.

We’ll spell this out in more detail below. 

Internal

When running a restaurant, there are several components involved in the internal operation of your business. Internal factors to profit margins are items that an owner can control to a certain extent. These include:

  • Employees
  • Overhead Costs
  • Menu Item Cost

Depending on what area of the world you live in, these costs will fluctuate substantially. Factors such as rent and employee salary will be higher in locations like New York City but significantly lower in Tulsa, Oklahoma. 

These categories comprise items such as dishes, utilities, cleaning supplies, certifications, ingredients, insurance, maintenance, among others. 

External

Some factors are external that can’t always be planned or accounted for long-term. External components are events or situations that pop up unexpectedly and can significantly impact your restaurant profit margins. These situations can include:

  • Illness
  • Natural Disaster
  • Political Unrest
  • Local Construction

If you or your staff become ill, your business’s profit margins stand the risk of being lower. This circumstance can happen due to limited turnaround time from lack of staff. 

Additionally, situations can arise like tornadoes, hurricanes, riots, and pandemics that are out of your control but which affect your restaurant profit margins. 

Many things can cause your profit margins to decline, another instance including local construction. If the road or buildings surrounding your restaurant are being worked on, it may dissuade customers from visiting your establishment. 

Between the loud noises and chaotic navigation to enter your building, they may choose to forego the experience entirely and choose a different location for their meal. Unfortunately, like a natural disaster or riot, this isn’t anything that you can control.

Increasing Typical Profit Margins At Restaurants

To get the most profit you can out of your restaurant, you can incorporate a few things.

  1. Add more seating

When you add in more tables and chairs, it encourages customers to come in and enjoy their meal. Additionally, it decreases wait times and alleviates frustration for visiting guests.

  1. Analyze dish cost

Without sacrificing quality, it is possible to do detailed research into the cost of each meal offered on your menu and choose lower-cost ingredients where you are able. Doing this allows you to reduce internal costs while still satisfying your guests.

  1. Take care of your staff

Each time you onboard a new waiter, cook, or host, you have the added expense and responsibility of training the new employee. Not only can this slow down your operation, but it can reduce profit margins. With lower employee turnover, you can avoid this expense. 

Conclusion

Tons of young entrepreneurs dream of opening a restaurant. The uncertainty surrounding typical profit margins at restaurants can cause the plan to be put on hold. 

However, there is no reason to delay your goals. Running a successful restaurant can be stressful at times, but you can implement a few factors to raise your profit margins and achieve your dreams. 

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