Average restaurant profit margin and revenue: What they mean for your business

This figure differs from your average restaurant profit margin, which is a reflection of total sales minus total expenses–such as wages, rent, inventory, and utilities. This number provides a more accurate view of the health of your business as a whole, which can be instrumental when making major decisions in regard to your restaurant’s future.

Join us as we take a closer look at how to calculate your own revenue and profit margin, as well as why they are both important to your growth.

How to calculate restaurant revenue

There are several ways to calculate the average revenue of a restaurant. The easiest involves doing some back-of-the-envelope math in which you multiply the number of tables times your turnover rate times the average price of each table’s bill. If the ten tables in your restaurant are re-seated ten times per day, with each party paying $100, then your daily average revenue for restaurant would be $10,000. To get a monthly average, you would multiply that figure by 30.

Although this method can be used as a restaurant revenue calculator to determine a ballpark estimate, it ignores seasonal fluctuations, such as holiday parties or summer tourism. It also lacks precision, since you’re not segmenting dinner from lunch and breakfast–all of which normally use different pricing. Additionally, this method may not be useful for newly established restaurants that don’t have a lot of historical data to reference.

How to calculate restaurant profit margins

If you’ve already been in business for a year or more, calculating your average restaurant profit margin is relatively straightforward. Simply add all of your expenses and sales over the past 12 months and plug them into the formula below:

(Total Sales – Total Expenses) / (Total Sales)

Although you can technically run this calculation for the past month, using a year’s worth of data provides a more accurate picture of your restaurant’s financial health. For example, 12 months is long enough to capture seasonal fluctuations that might arise during the holidays or other busy seasons.

If your business is new or has yet to open, you won’t have any usable data to plug into a restaurant profit margin calculator. Thus, you’ll need to survey equally-sized restaurants in your area that offer similar fare at comparable prices. The more establishments you survey, the more accurate your projected restaurant profit margin becomes.

What is a reasonable average profit margin?

Typical restaurant margins vary considerably due to a range of variables, including determining your average restaurant sales per day. When discussing profit margins, expenses always come into the picture and can vary drastically, including:

• Minimum wage / labor costs – How much it costs to hire and retain employees
• Inventory needs and prices – How inventory expenses impact your bottom line
• The size of your floor space – How many tables you can accommodate
• Your table turnover rate – How quickly customers finish their meals and pay
• Your hours of operation – How long your restaurant is open every day, week, or month
• The average price of a bill – What dishes you sell and where you sell them

Because of variables such as these, there is no one-size-fits-all average restaurant profit margin that applies in all situations. However, here are a few benchmarks:

• Quick-service restaurants tend to hover around 17%, due to high order turnover, automation, and relatively inexpensive ingredients.
• Full-service restaurants often have more expensive inputs, higher labor costs, and slower table turnover – placing their average restaurant profit margins closer to the 5% to 10% range.

Why do you need to know your average restaurant profit margin?

As a restaurant owner, calculating your average profit margin is vital for numerous reasons. These reasons can include:

• Exploring whether or not it makes sense to move forward with a launch or expansion.
• Knowing your profit margin allows you to create menus, set prices, and design seating arrangements more strategically.
• Investors and lenders will want to know your average restaurant profit margin before agreeing to finance your restaurant or help you buy essential equipment.

How to improve your restaurant profit margin

As with all businesses, the secret to increased profits involves boosting sales, reducing costs, or a combination of both.

1. How to increase sales volume

Many restaurant owners use some of the strategies below to help grow sales:

• Building a stronger web presence, complete with online ordering capabilities
• Evaluating your menu items and reworking your pitch, pricing, or design
• Using loyalty programs, gift cards, and discounts to help keep customers returning
• Implementing an omnichannel marketing strategy across multiple platforms
• Improving your restaurant’s operational efficiency (ex. serving food faster)

2. How to decrease costs

Learning how to reduce overhead costs helps you to keep more of every sale. Common strategies to help achieve this goal include:

• Reducing food waste and converting to a paperless business
• Investing in incentives to retain staff and reduce turnover
• Reducing the cost of goods sold (CoGS) by changing suppliers or simplifying the menu
• Using technology and creating systems that foster efficiency
• Offering more self-service options – such as adding online ordering to your site or implementing self-ordering kiosks

Using technology to calculate average restaurant margins

Historically, owners or managers have had to track digital and paper receipts across all of the restaurant revenue streams they manage. This included not only receipts from tableside sales–but also from any online and takeout orders. The same is true when keeping tabs on expenses–from utility bills to pay slips to employee training costs.

With the right POS system, it’s now possible to automate this record keeping–regardless of the channels through which money enters or leaves your restaurant. The dashboard on your restaurant POS system can help give you a more accurate snapshot of your business’s financial health at a glance. With this information, you can make better-informed decisions about how to boost revenues or cut costs in an effort to improve overall margins.

For example, your average restaurant profit margin might indicate that diversifying your menu doesn’t make sense. If that’s the case, you may be able to increase sales by introducing curbside pickup and delivery–both of which can be managed directly through your POS system.

To learn about other ways in which using the right POS solution can help make your restaurant more efficient, streamlined, and profitable, connect with a Clover Business Consultant today.

Editorial Team

Full Service Restaurants (FSR), Money management, Quick Service Restaurants (QSR)

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