3 Key Indicators of a Profitable Restaurant

Unfortunately, there is not a simple one-size-fits-all method to running a profitable business.  This could be why roughly 60 percent of new restaurants don’t make it past the first year, and 80 percent never see their fifth anniversary.  These scary statistics don’t mean your restaurant needs to suffer the same fate.

Often, the key areas of a profitable restaurant all boil down to a few critical numbers.  Understanding these numbers, in real-time, can allow you to make the critical business decisions necessary to focus your business on profits. What are these magic areas?  We’ve outlined a few below:


Food Cost

Your menu is the main product of your restaurant, and the reason customers will walk through your door.  Your menu also has one of the largest impacts on your profitability.  As a restaurant owner, you might find yourself wanting to offer a dish to satisfy every taste.  As a result, your menu might become large and overloaded with items.

Take a hard look at which items are selling well, and which items on the menu might rarely get ordered.  Chances are, your menu has a few standard favorites which drive most of the orders and a few items which rarely see the light of day.  Document these items, and make sure you take into account items which are seasonal in interest.

Next, look at the profit margins in each dish and the cost required to keep these items available.  Items with the lowest margin should only be kept if they are best sellers, as you need volume sales to justify the expense.  For those items which cost the most to keep available, drop them from the menu if they are not selling frequently.  These are often items which have ingredients with high costs or short life spans before they spoil.


Cost of Labor

Every restaurant will have busy and slow nights for business.  Staffing for these various nights can be quite the challenge.  How can you make sure to have enough staff to satisfy large demand with quality service, while also avoiding unnecessary labor cost on slow nights?

First, to understand labor cost, you need to monitor the total food sales and labor cost on a consistent basis.  Factoring the volume of sales coming in the door, and the profit from food sales, you can understand what remains to pay for labor.

Since your back-of-the-house staff is likely to be the most expensive in your organization, explore ways to reduce the number of people needed on the line to produce orders.  Often, you can gain versatile cook staff through a quality training process which teaches the menu items from various stations on the line.  When your staff is versatile, it is easier to trim numbers on slower nights and have a staff which can respond to high demand by helping each other during peak volume.

Your front-of-the-house staff is often the cheapest labor in the building, since the majority of their wages are paid in tips.  Regardless, this portion of your staff can have a significant impact on sales and labor cost.

When it comes to scheduling your wait staff, it is always better to over schedule your serving staff. The harm done from poor service is harder to correct than high labor cost from servers.  As you monitor foot traffic, you can cut staff early and trim down to a lean, effective crew.  Similar to the cook line, as you make cuts you should leave your most versatile and effective wait staff on the clock.  These individuals can adapt and adjust if a rare rush comes in at an unexpected time.


New vs. Repeat Customers

Customers are customers, right?  Wrong.  It might not seem like a priority at first, but tracking new and returning customers can be a critical metric for the long term success of your business.  Having too many regulars, without the support of new customers places you at risk and limits your growth.  Likewise, a constant flow of new customers without repeat business can indicate a poor customer experience.

Collecting this data can be hard, but a simple step from the wait staff can help you gain a better perspective on the matter.  Instruct your wait staff to include a question to the guest at every introduction. “Is this your first time dining with us?”  Asking the simple question can help identify if the guests are new, returning, or maybe a mixture of regulars bringing a friend for the first time.  Include these options on the POS system as they input the order and monitor the numbers.

If you are noticing a high volume of regulars coming to your establishment, explore programs which can reward them for bringing a first-time friend with them next time.  Obviously, these customers enjoy your product and would welcome a reward for something they already love.

If your customers are mostly first-time guests, explore reasons why they might not come back.  As the owner, you can look to greet each table toward the end of their meal.  At this point, the table has had a chance to take in the majority of the dining experience.  Ask them how they enjoyed their food or service.  If you sense a reserved answer, let them know how important their feedback is to your success.

Lastly, if you notice a few select guests who are constantly bringing new friends with them, these are your brand champions.  These are the best of the best customers to have, and should be recognized accordingly.  Overlooking their value could give them a reason to start taking friends to a competitor instead.  Offer to buy the occasional meal, or offer free treats to make them feel special.  What you give up today in cost, will be more than gained back in future business.


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