Restaurant: what is the ideal margin for profitability?

It's part of every restaurateur's daily routine: watch your margins. Margins are a particular concern in the foodservice sector, where they are particularly thin. What are a restaurant's average margins? How can they be optimized? What's the ideal margin for profitability? Here's an overview!

What is a restaurant margin?

In reality, there are several types of margins in the foodservice industry (gross, net, commercial, operating, etc.).

When we speak of "restaurant margin" in French, we most often mean gross margin. This is the most important margin for understanding whether your restaurant is profitable.

• Gross margin is equal to sales excluding VAT - cost of goods sold (cost of raw materials): per sales x 100, whereas
• The net margin is equal to sales - all costs (salaries, charges, taxes, etc.) .

In simple terms, gross margin shows the percentage of sales your establishment retains after covering fixed costs.

Example: you spend €7 on raw materials for a dish that generates €35 in total sales.

(35 - 7) / 35 = 0,8

The gross margin for this dish is 0.8 x 100, or 80%.

The gross margin is essential in a business plan, and helps you set your prices. It is often calculated on solids (around 70%) and liquids (up to 85%). 

The net margin, on the other hand, gives a more global view of the profit you make on each sale.

According to the French Commercial Code, a gross margin cannot be negative. If it is, it's considered a loss: you're selling at a loss.

What is the ideal margin for a profitable restaurant business?

It's a question that comes up a lot in the restaurant industry! There are even forums dedicated to sharing this information!

• For gross margins, the figures most often quoted are 70% on average (70% for food and up to 85% for beverages);
• In terms of net margin, the gap is widening, from 8 to 10% for classic restaurants to 25% for fast-food outlets.

It all depends, of course, on the type of restaurant, the location, the competition...

According to a U.S. article on the Lightspeed website, average net margins are : 

• 2 to 4% for a classic "full service" restaurant;
• from 2.5 to 15% for a coffee ;
• 6 to 9% for a fast food restaurant or food truck;
• 7 to 9% for caterers.

What it means for restaurant profitability: 

• Establishments with constraints such as rents or salaries have finer margins;
• The cost of raw materials should be between 25% and 30% to maintain your restaurant's financial equilibrium.

As a general rule, catering is a sector where margins are thin, and effort must be constant to ensure an establishment's profitability. From the moment you open your restaurant to the day-to-day running of your business, you need to be constantly on the lookout for ways to increase your margins!

How to control margins and boost restaurant revenues?

In this article, we look at two techniques: 

• optimize costs;
• increase sales by attracting more customers. 

Optimize costs: review your menu (engineering menu)

By reviewing your menu, you have the power to influence orders!

• Organize your dishes according to two criteria: popularity and profitability. You should have your "star dish", the one that has the best margin and is the most popular. Showcase it as much as possible! As for popular dishes that are less profitable, try to reduce their cost and put them outside the formulas (or add a supplement).

• Identify your most profitable dishes. What do they have in common? Highlight them and try to reproduce that perfect balance between margin and satisfaction.
• Get rid of 10 to 20% of your card. Think Marie Kondo! By doing so, you'll speed up your customers' choices, reduce preparation times, but also cut inventory and reduce the risk of wastage... A short menu is a winning menu! 
• Invest in the aesthetics of the menu to make it as beautiful, readable and attractive as possible. You can use storytelling (describing dishes or products), puns... 

The most beautiful, funny or original menus will be more likely to be photographed and shared on social media by your customers!

Optimize costs: review your raw materials

• Give preference to local, seasonal products and short distribution channels. Not only are they better, they're also cheaper! And much appreciated by customers;
• Create technical data sheets or review your existing ones. Pay regular attention to raw material prices, which change over time and can swing from one moment to the next (e.g. the inflation caused by the conflict in Ukraine). Replace an expensive ingredient by a simpler one with a similar taste (e.g. walnut and arugula pesto rather than pine nuts and basil);
• Review your portions. Are you too generous overall? Or not generous enough? On profitable dishes (for example, hummus as a starter), don't hesitate to be more generous;
• Negotiate with your suppliers, or even change suppliers. If prices are non-negotiable, optimize your exchanges (delivery day, etc.).
• Keep an eye on inventory, losses, customer gifts, mistakes, team meals ;
• Nothing is wasted, everything is created! Find ideas to avoid waste and make the most of all your products (e.g. carrot tops, peelings for broths, fermented condiments, etc.).

Optimize costs: review your prices

Once you've applied all these tips, you can also review your prices to increase your margins. But be careful: it has to be justified if you want to win over your customers!

Be sure to : 

• Gradually increase ;
• Be transparent (you can communicate the increase or absence of an à la carte product to build trust with your customers).

Attract more customers: invest in digital marketing 

As long as it's profitable! At Malou, we identify the digital areas that maximize restaurantvisibility and attract the most customers. 

Digital marketing generates an average of €4,500 and 174 additional customers per month for Malou customers (Malou 2024 study).

Here are a few examples of successful techniques: 

• Arrive first in search engines, which is called SEO, especiallylocal SEO. When a customer searches for a nearby restaurant (millions of requests a day), Google displays several establishments and their ratings. Appearing in these first results is a huge opportunity;
• Improve your average rating and respond to your customer reviews to boost your SEO and e-reputation;
• Appear everywhere on social media, especially on Instagram and Facebook, to attract new customers and build a loyal community (provided you use the right formats, hashtags, post at the right times, etc.).

Having trouble attracting customers from Instagram? Discover all our best practices and tips in the Little Guide dedicated to restaurant owners below!

‍

What do you think of these tips? Now all you have to do is get started!

‍