Five Ways to Increase Your Restaurant's Profit Margin

The best restaurants are constantly innovating, whether that’s their menus, their customer experiences, or in their strategies to boost revenue.

Razor-thin profit margins are a common challenge across the hospitality sector, and it's never been more important to adopt initiatives that not only attract customers but also optimise operational efficiency.

The nuances of the restaurant business mean that managers and owners have to keep the customer front of mind while still keeping their profit margins as high as possible.

From setting the right selling prices that reflect the value and quality of your offerings, to managing your inventory to reduce waste, there are interconnected strategies that restaurants can adopt to strengthen their finances and give them the freedom to better serve their customers.

Here are five tips to help restaurant managers to make informed decisions that drive profitability and pave the way for sustained growth.

Set your selling prices

Every menu item has a price, and restaurants must strike a balance between profitability and the need to attract their target clientele.

Determine the prices of your dishes by considering not only the cost of ingredients but also the prices your competitors are charging, your restaurant's positioning, and your ideal customer profile.

When it comes to improving your margins, it's crucial to set selling prices with wholesale prices, VAT rates and customer expectations in mind. You'll also need to conduct regular monitoring to ensure you’re generating maximum sales and maximum revenue.

Manage your inventory

Effective inventory management is an example of where a small difference can have an outsized effect.

Not only can this make your restaurant more sustainable, but it can also become a profit multiplier by reducing waste and controlling production costs — which will ultimately maximise the margin on every item on your menu.

Use recipe cards for each dish and conduct precise inventory checks and tracking of stock variations to help prevent losses and improve ingredient cost management.

Optimise your menu

Regularly review your menu by analysing customer consumption patterns and identifying popular and profitable dishes as well as those with lower profitability. You can then adjust your offerings based on demand and margins on consumption. In turn, you can use these learnings to optimise your menu on your restaurant page on TheFork, helping you to attract more customers, bookings, and ultimately revenue. By pushing your most popular and profitable dishes on your restaurant page, you can further increase your margin.

Consider the impact of fixed costs as well as variable costs to maximise the impact of each menu item.

Analyse your expenditures

Regularly analyse your expenditures to identify major cost items such as raw material purchases and fixed costs. This will help you pinpoint areas of costs to act upon, which will in turn allow you to generate larger margins on menu items.

Maximise your occupancy rate

Your overheads and other fixed costs will stay the same whether you have 0 guests or 100 in a night, but a discounted cover beats an empty table every time. Maximise your occupancy rate by using special offers on TheFork to attract and retain customers.

Implementing a promotional strategy — with special offers ranging from 20% to 50% off via TheFork Manager -— is an excellent way to attract new customers and increase your occupancy during off-peak dining hours.

Special offers set during specific time slots will have a positive impact on your restaurant's revenue and margin. For example, one customer of TheFork increased its revenue on average by 2.3x and its gross margin by 2.1x by implementing a 30% promotion, while special offers of up to 50% see restaurants multiply their revenues by an average of 3.9x and its margin by 3.1x.

To help you estimate how many additional bookings and extra revenue your restaurant could generate by running a promotion, you can take advantage of TheFork’s Revenue Statistics Tool. This empowers you to make data-driven decisions on pricing to maximise your profits.

Implementing any one of these five tips can impact your restaurant's profit margins, but using them all together can create a powerful arsenal that helps any restaurant thrive in tough conditions.

Increased profitability is an ongoing pursuit that requires consistent effort and adaptability. By keeping a close eye on your metrics, listening to your customers, and being willing to make changes based on your findings, you can enhance your bottom lines while also creating a dining experience that keep customers wanting to come back.

Read more about understanding your restaurant’s profit margin.