The restaurant and casual dining sector in the APAC region is booming right now. Finally, we can put the slump of the COVID years behind us and look forward to a glowing future. Cafe market revenue potential is predicted to grow to US $107 billion for 2024 and to hit US $152 billion by the year 2027. Here in Singapore the restaurant sector generated US$53 billion in revenues for 2023. So, achieving good profit margin goals and learning how to maximise profits is essential for all business owners.
Whether you already own and operate a Singaporean restaurant business or are thinking of doing so shortly, it’s vital to understand your profit margins and achieve the best possible results. We will take a deep dive into profit margin goals for restaurants and diners here and also provide some tips for improving profit margins.
Let’s discover how you calculate a restaurant’s profit margin percentage!
Restaurant profitability is calculated in several ways, including gross margin, EBITDA, profit margin, and operating margin. The gross margin is the amount that a restaurant makes after paying out the costs of the products sold. Worldwide you can reckon on an average gross margin of 45%.
The operating profit margin refers to the remaining profit after all operating costs have been deducted. These costs include the costs of the products sold, marketing, supervisor and manager expenses, and any other costs.
EBITDA (earnings before interest, taxation, depreciation and amortization) is the most common way to calculate a restaurant’s net profit as it focuses on cash flow. EBITDA is viewed as the most useful way to evaluate a restaurant’s earning power. Worldwide, the typical restaurant EBITDA is 12%, with top performing restaurants netting 18% and above. EBITDA does not include non-cash expenses, like depreciation and interest payments.
Finally, the net profit margin for a restaurant takes account of every single expense paid out, and also items like interest income. In the United States, the average net profit margin for restaurants is 7%.
What’s the average restaurant profit margin?
The average restaurant profit margin for mature markets around the world starts at 12% EBITDA, but can be a lot higher in emerging markets. For example, the median profit margin for restaurants in the Philippines is around 17% EBITDA. Vietnam and Indonesia are other emerging markets offering mega profits potential.
In Singapore a average net profits for restaurants range from 5% to 8%, although this profit rate could be increased by following our top tips below.
As can be seen above, setting a realistic gross profit margin of 45% and an EBITDA of between 5% and 12% will be realistic goals for any restaurant or food outlet in Singapore.
What can affect restaurant profit margins?
Some of the factors that can impact profit margins for restaurants include:
> Geography and physical location.
> Size of the business – whether it’s independent or part of a chain of restaurants.
> Whether it’s a franchise.
> Category of restaurant, whether it’s a fast food outlet, quick service restaurant, or casual dining outlet.
10 tips to improve your restaurant profit margins
Now that you have all the information, are you ready to boost your restaurant’s profits? Check Out These 10 Game-Changing Tips!
1. Carry out a brand audit
Conduct a comprehensive brand audit across all functions of the restaurant business to flag up strategies to boost your revenue and streamline operations.
2. Train your staff
It may seem counterintuitive to invest cash into training staff, however, a motivated workforce can lead to more satisfied customers who will return to the restaurant again and again.
3. Simplify the menu
Study all food menu items to determine profitability. Complicated food menus can clog up the back of the house and cause unnecessary labour costs.
4. Menu engineering is a positive factor
Good menu engineering can increase restaurant profits by up to 20%. It’s important to emphasise the most profitable items on the menu to engineer it for optimum effect.
5. Streamline both front and back of house
Add self ordering and self pay solutions to your front of house to keep customers flowing smoothly through the restaurant. Push the specials that the kitchen can produce effectively and equip all staff with the tools and expertise needed to work smarter.
6. Monitor all KPI’s in real time
Regularly monitoring your key performance indicator (KPI) metrics will help ensure there are no nasty surprises at the end of any month. Aspects to monitor include restaurant and kitchen capacity and staffing levels. This real time monitoring will help you identify issues just as soon as they occur.
7. Use tools to schedule labour
Use technology to schedule shifts. This will save time and staff may even be able to swap shifts without any need for a manager to authorise.
8. Generate a strong online presence for marketing purposes
Don’t underestimate the benefits of a strong online presence. You need to ensure your opening hours, menus, and address are all updated regularly. Partnering with a food delivery platform, like foodpanda, is a great idea and can generate strong income potential. Regular updates on X, Facebook and Instagram are also recommended.
9. Stocktake regularly to cut food waste
Inventory management also plays a part in increasing overall profit margins. Food and menu ingredients can cost up to a third of your restaurant costs, effective ingredient management can cut waste and save pennies.
10. Grow turnover
And, finally increasing top line turnover income is a great way to grow profit margins. Ensuring the best possible dining experience encourages customers to return on a regular basis. Enhancing the guest experience with loyalty benefits and regular promotions is one way to benefit from return visits. Adding shareable menu items and add ons can also enhance turnover considerably.
Relax, kick back and visit the foodpanda restaurant registration page to profit from all the benefits of partnering with a professional food delivery service. Your restaurant profit margins and revenues could see an immediate boost!
