Editorial Team
5 min read
It’s no secret that most restaurants run on thin profit margins. The average full-service restaurant’s margin lands between 3-5%, according to Restaurant365, while food trucks and counter-service spots can earn a somewhat higher percentage.
But no matter what business model you use, it’s crucial to optimize your menu and your business, so they hold plenty of value for both you and your guests—especially in a cost climate of significant inflation.
Most profitable food to sell
Certain restaurant foods are simply more profitable than others. Starches and grains, including flour, potatoes, rice, and even corn, have been used to stretch budgets and fill bellies for centuries. It’s still relatively inexpensive to buy these products and turn them into pasta, bread, and pizza dough, which partially explains the proliferation of sandwich shops and pizza places across the U.S.
Some consider burgers an easy food to sell to make money, but any burger’s margin depends on the quality (and corresponding price) of its ingredients. Fast food companies have dialed in their profit margins due to an unrelenting focus on efficiency, but not everyone wants to serve flash-frozen patties of ground beef trimmings on mass-produced buns. Upscale burgers can be made from nicer cuts like sirloin and brisket, and the meat may even be dry aged for several days or weeks.
Liquor is another traditionally reliable source of high profit margins, so if you have a liquor license, expect to make good use of it. But, at the same time, cater to more potential customers and protect your bottom line by offering appealing non-alcoholic drinks. That way, your beverage selection will be more inclusive for people who don’t drink alcohol, and your finances won’t be so exposed to the impacts of generally declining alcohol consumption and even Dry January or Sober October.
It’s worth noting that the cost of producing a particular dish is more than just its food cost—it also encompasses the cost of labor. Pasta rolled out by hand will take longer to produce than pasta made with an electric machine, and so on. Factoring in labor is all part of the price-setting balancing act.
Knowing what to charge for food that sells
As food and labor costs continue to increase, you may have to raise menu prices higher than you would’ve felt comfortable with a few years ago, just to keep the doors open. No customer likes a price increase, of course. But if they find enough value in their experience at your restaurant, they will still decide it was worth the visit. Knowing when and how much to raise your prices is all part of a solid pricing strategy, which may evolve as your restaurant matures.
Value perception: food that sells
Profit margins aren’t just about how much a dish costs to produce. They’re also about how much you can reasonably charge for the end product—that is, how much value the customer perceives in that food.
In restaurants, there are at least four broad tenets of perceived value:
- Deliciousness
- Portion sizing
- Uniqueness
- Hospitality
Deliciousness
Deliciousness comes down to your cooks’ skill and your ingredients’ quality. Nearly anyone can steam a cauliflower, but it takes serious investment to produce a craveable cauliflower dish that merits its relatively high price. You’ll want to procure good produce; develop a delicious, imaginative sauce or other treatment; and employ cooks who can cut consistently sized pieces, minimize ingredient waste, and cook the vegetable at the right temperature for the right amount of time.
Portion sizing
Portion sizes tend to be larger at restaurants than at home, which can help justify higher menu prices. It doesn’t take that much more labor to cook a pound of pasta rather than a half-pound, but it does produce double the food. Customers who receive that pound of pasta can find value in taking the leftovers home for lunch the next day.
Uniqueness
Uniqueness is when there’s only one place in town that can make what you make. For example, there may be dozens of pizza restaurants in your city, but how many can produce a Montanara crust? New Haven-style apizza? A Korean BBQ pie? Find your niche and make sure folks know what sets you apart.
Hospitality
Finally, hospitality is about the comfort of being cared for. There are many ways to provide hospitality, from offering cushy seating to developing a kids’ menu to sharing a joke with your customers. But at its core, hospitality is about sensing your customers’ needs and making them feel welcome. Feelings of warmth, comfort, and connection can be just as craveable as your flagship food item.
Profit margin tips and tricks
While restaurant labor and food costs may be unlikely to decrease, certain best practices can give you and your budget an advantage. Use Clover reporting to see what dishes are (or aren’t) selling. Shop around with multiple distributors, seeking out discounts and good deals. Minimize food waste by turning soon-to-be-expired ingredients into a staff meal, and maximize yield by training your prep and line cooks to make the right cuts and cook food correctly. Weigh your deliveries so that you know that 10-pound box of fish really is a 10-pound box of fish.
Overall, be agile, whether that means pulling a dish that isn’t selling or devising a new special that uses affordable ingredients. It takes real effort to rearrange cooks’ stations, train servers, and reprint menus, but all sorts of changes can be worthwhile if they make customers happy. While it’s incumbent upon customers to understand the reality of restaurants’ expenses, it’s incumbent upon restaurateurs to provide a solid value for any given menu price.
See how Clover is helping restaurants of all sizes manage inventory and identify the menu items that sell best and improve food sales. Reach out to a Clover Business Consultant to learn how Clover can help your restaurant improve its profitability.
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