Average Restaurant Profit Margin

Have you ever wondered what the
average profit margins are in restaurants? Like where or how much you’re
supposed to spend in certain categories? It’s hard to find that information.
I’m going to break it down for you right now. Hey, everybody. Ryan Gromfin – author,
speaker, chef, restaurateur, and founder of the
Restaurant boss.com, and as well as
Clickbacon.com And I’m
really excited to talk to you about kind of the
averages and restaurants, right? Profit,how much you
should spend on rent, all that stuff we’re going
to cover it right now. However, before
I do that, I want to share with you this really cool
thing that’s called Guardian Drain Lock. I’ve never promoted a product
on my channel before this product. People send me
stuff all the time. I absolutely love
this product. 1) I want to let
you know that we’re going to be giving away
some of these for your restaurants. So if you want to
win some of these, first thing you got to do is you
got to subscribe to our channel. You have to be a subscriber
on our channel to win. We’re going to check once we
randomly pick a winner to make sure you’re a subscriber. So, if you
haven’t yet subscribed, but then below this video
either in the comment section or if you’re
watching it on our website, there’s going to be a link
to take you to a page where you can register to win
if you want some of these. We think we’re giving
away five of them, but whatever shape,
whatever size you need. But here’s what I love
about this product. Whether you win or not,
you should buy some on Amazon. Again, the link is going
to be below here, but it’s called Guardian
Drain Lock, it’s super well-built. The guy sent me
a bunch of them. His name’s Jon Ham.
Super cool product, and what it does is
it replaces that flimsy little drain cover
that you have right now on all the drains
in your restaurant, whether it be in a floor
sink or on the floor, so that way people can’t like shove
stuff down the drain, right? Sometimes we lift that dome off,
we shove things down. You get expensive repair bills,
your drain stinks, you get fruit flies, etc., etc. Once you put these on here,
your employees can’t remove them. You can remove them with a
special key or a special screwdriver bit, but only when
you need to. So, Guardian Drain Lock,
they’re awesome. He’s got some great videos,
check it out on the on his website, or to buy these products,
you go to Amazon, but you’re better off just clicking
on the link that we provide for you. Alright, so let’s talk about
the profits in your restaurant, right? So, I’ve got some notes
just so I don’t screw this up, even though I talk about
this like every day. I just want to make sure
I get it right for you this time, but the average profit
margin in a restaurant is a lot lower
than people think. You know, it’s hard to say.
Everyone publishes different statistics. In general though, what I see from
the people that I work with, it ranges anywhere from
about 15% to obviously nothing, but on average, I’d say
that most restaurants are profiting about 5-6%
of total sales, which is pretty bad,
but again, it’s really hard to tell because some
people pay themselves a salary, some people don’t,
so that’s going to throw off profits, but let’s just look at kind of where the
makeup of your restaurant should be. First thing, all these numbers
are based on top-line sales, so total sales. So, let’s assume
you’re doing a million dollars a year, your prime cost should
be less than 60%. I’m recommending 55%, but
it should be less than 60%. Now, remember,
if you don’t know, we’ll put a link in here for
you somewhere below, but prime cost is the total
cost of goods sold plus labor. So, this is all of your cost
of goods sold purchases and all of your labor together
should represent less than 60%, but let’s just use 60% for right now,
then direct operating expenses. This is all the other
things that you buy, but you don’t really sell
them back to a customer, so it’s not a cost
of goods sold. Things like toilet paper and
napkins and gloves and foil, to-go containers,
chemicals. There are things that you
buy and you need, but they don’t get sold
to a customer, so technically it doesn’t go in the recipe,
it’s not a cost of goods sold, but anyways, that’s called
direct operating expenses. Those are usually about 6-8%.
Let’s just go with the 6% number. So then, if you take prime cost
and DOE (direct operating expenses) that’s something that I call
restaurant controllable cost. My goal is to always keep restaurant
controllable cost at about 65% total. In this example, let’s just say 66%
because that’s what I said earlier, 6%. So about 66% goes
to your controllables, then rent
and marketing. Now, why am I including rent and marketing together?
Well, it’s pretty simple. The better piece of
property you have, the better location
you have, the less money you’re going to spend on
marketing generally speaking. If you’re in a really poor location,
you don’t have a lot of foot traffic, there’s not a lot
of customers, you’re probably going to need to
spend more money on marketing. So, I want you to set aside
10% for rent and marketing. 6% rent, 4% marketing.
8% rent, 2% marketing. % rent, 1% marketing.
Whatever you want, but about 10% for rent and marketing,
then 20% for other expenses. . Attorneys, accountants,
banks, utilities, linens, just stuff, right?
Repairs, maintenance, electricity, telephones,
all that other stuff, credit card processing,
blah, blah, blah, blah, blah, right? 20%. So now, if you
add all this stuff up, we had 60%, plus 6%,
plus 10%, plus 20%, that’s 96%. That only
leaves 4% for profit, and that’s assuming
you’re doing all that well. Let me tell you, it’s hard to
get to a 6% prime cost. When I look at the average number
of all the users that are using bacon, which is our software.
You can learn more about it at Clickbacon.com. When I look at that, most people that get
started with bacon are averaging about
72% prime cost, over 80% restaurant
controllable cost, there’s no room
for profit there. You have got to get your
prime cost below 60%. It’s hard to do and I have other
videos that will link to you with giving you tips and all the
videos that I put out are going to give you tips on
how to lower food cost, how to lower labor costs, etc.,
but the point is, it doesn’t leave a lot
of money for profit. So you got to be on
top of your finances. If you’re struggling, actually go
ahead and put a question below. If you’re struggling with
any of these areas on maintaining
your profits, if you’re just struggling with profit,
put a question below and I’d be
happy to answer it. Also, don’t forget
to register for that contest you could win yourself
five of those Guardian Drain Locks. One more favor to ask, I know
I’ve already asked a lot of you, but one more favor to ask –
in order for me to keep putting out these
awesome free videos, I need you to like the channel and
share and comment, so please, we’re trying to get to a
100,000 likes this year. So, go ahead and smash that subscribe…
I am sorry, not like, subscriptions. We’re trying to get to a
100,000 subscribers this year. So, go ahead and smash
that subscribe button so we can keep bringing you more
great content just like this. Hope you have enjoyed the video.
Have a wonderful day. I want to thank you for
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have an absolutely wonderful day. Thank you so much.

26 Replies to “Average Restaurant Profit Margin”

  1. misterjosephfloyd says:

    Great video, great information

  2. Donnie McClanahan says:

    Could you break down how much or what percentage should go towards management labor?

  3. Giovanni Soluri says:

    Your videos are awesome. Stop asking people to subscribe so much just say it once or twice. Get rid of the 2 minute speech at the end begging for subscribers. You will reach your goals. Your gonna have to get more creative with your video titles. Add a little click-bate/interest. For example: How to deal with difficult customers.. this video is for restaurant owners only… customer from hell ruins my day… start to peak interest and begin to see that not only restaurant owners and managers will benefit from your channel. These are questions customers always ask and would appreciate the answers to also. It will be more interesting in many ways to people not in the industry or not yet in the industry. Wait until they find out restaurants don’t profit 99% they won’t be able to resist commenting and sharing the video in disbelief.

  4. Shandel Mclaughlin says:

    Very good vedio

  5. gene978 says:

    I am always inspired by your videos. I have operated a diner here in small city with a poor demographic for the past 35 years. I started at age 22. It’s no surprise that the total cost to operate compared to 25 years ago makes me wonder why so many people think it’s a walk in the park to operate an eatery. They open up a new place 4 times a year under cut all others prices and close in a year or less. But meanwhile my guest flock to these places ad then run to FB and tell everyone to try it or not. Most of these people work for the eatery trying to get guests to come in. My biggest Expense is Labor and I do the cooking everyday with my partner as we split the day but have a cooks assistant to help with overflow and clean up. Our weekly gross is $6500 – $7500 and my weekly labor not including me is $2200. That’s 1 part time cook, 1 weekend dishwasher 2 weekday servers and 3 weekend servers. My partner takes over $900 a week for himself. My COG are $1500 – $2000 a week my rent is $2100 a month and utilities are $1000 a month. Cable $200 Insurance $150, CPA $150 a month. $500 for Misc a month. Lately many repair bills and I do spend $300 a month advertising. Does this seem good, bad, average?

  6. Janier Larcheveaux says:

    I learn more about what my financials should look like from you than I have from any accountant I've worked with to date.

  7. Jason Antill says:

    Love this channel!! Just opened a pizza take out 2 months ago..this channel provides valuable content!!

  8. CruisinKev1 says:

    I've finally got my wife to the point of being open to researching the use of your Bacon Software. She watched this video and visited your website by my side & liked what she saw. She is now willing to give it a try (which is another Bill for me… lol) BUT I have some questions, as follows: 1. Her ultra small cafe/restaurant isn't profitable "at all," (though it is slowly growing in the right direction) as I provide her building, utilities, equipment and cover some other cost using my social security. Thus, she does not have any POS software. I do, have a computer in my office but all she has is a cellphone and/or access to an Android I-pad. Her sales are recorded "old school" via customer sales ticket. Soooo… it's a "no-brainer" that your program needs data to analyze… so can I input data for her (somewhere/somehow) that your Bacon Software can digest/analyze ?? Perhaps said data is input via your cloud based program… I dunno. 2. If we subscribe to your Bacon program… "can we cancel at any time without penalty" ??… or are we locked in somehow/someway ?? 3. Does your Bacon program provide and/or include its own POS service ??… so we don't have to buy some other expensive program ?? 4. Is there a way to change the background color of Bacon "to Dark Mode" as my eyes are shot & white light is very hard on same. Note: My "Dark Reader Program" won't even work on your website in Firefox (don't know about Chrome), which is brutal… for me. Jus' sayin'… and All this said… are you open to a Skype conversation ?? We are located in the Philippines (though I use a VPN for security reasons) and we are 12 to 14 hours ahead of you "time wise" depending on where you are located. That said… I understand the value of Good Tools, as I was a businessman for many years in California until the business climate in same went to hell and I bugged out to retire. I want to leave my wife (a Philippine Citizen) in a strong position financially when I graduate, and I believe a Tool like Bacon… just might help get the job done. Cheers… Kev out…

  9. PartyBass says:

    One of the best FB knowledge channel

  10. The Restaurant Boss says:

    Do you know your prime cost?

  11. Ameer A says:

    Thank you Ryan for all the knowledge you share. I have tried your Bacon App and it is great it helped me a lot in my business.

  12. Ivan Torres says:

    Thanks for sharing 😀

  13. Jason May says:

    How do these numbers compare to a cafe or coffeehouse? Still about the same?

  14. Francisco Jaimes says:

    So my restaurants profiting 33% is not bad. You usually make really good videos. I must say this was useless.

  15. Shibli Ziadeh says:

    Can you do something similar on food trucks.

  16. Jannet Gonzalez says:

    Really grateful for your videos. You most definitely provide golden knowledge. We just had to buy a new grease trap and will need those drain locks. I don't want to deal with that type of issue for a while.
    Much appreciated 🙏

  17. Kevin Pereira says:

    When figuring your labor cost, do you figure quarterly taxes into that number to? Benefits?

  18. wael MAHFOUZ says:

    How to calculate the sales for the start up?

  19. Ramona Santillano says:

    Very helpful Video. Thank you!!!!
    [email protected]

  20. ramzi jalill says:

    Dear sir can you tell me more details About p&l I would like learn about it from A to Z

  21. John_ Carter says:

    4% – you're welcome 5:00

  22. Shelby Thompson. says:

    What does one do when they grew up working for their parents restaurant and they’re parents are worried about the transition. Whether it’s passed down to their children or whether it’s best to sell and move on.

  23. Jan Höppner says:

    I am in the fast casual- with a very broad set of products. Would you rather suggest setting a fixen budget for a day. Like buy every day goods for 500, for example. And when it’s Sold it’s sold out. Or would you try to match it really close every day.
    Great Stuff btw

  24. jalal uddin says:

    Thanks you sir..

  25. Tim Vakakes says:

    Hey buddy
    Quick q
    In the beginning after open, is it normal for labor to be high for a time until sales start to hammer labor down. It’s been my experience, that this is true. What I need from you is, that time frame, what should it be…or is there a rule of thumb accepted norm.
    Tough question, and most answers would start, it depends.
    Well, my depend is money put back to survive until sales move up. Just want to make sure I’m in the ballpark. I’ve been around 35 plus years and should know, but in a perfect world…..
    In Alabama.

  26. Jake Griffin says:

    In my restaurant chain I shoot for 25% Profit. My chain is a lot like a Blaze or Mod Pizza so cost are a lot lower.

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