Can You Make Money in the Restaurant Industry, or is it Too Risky?
Like all businesses, restaurants make money by selling more products than they spend. This requires keeping prices high enough to cover the cost of goods sold and labor costs. Together, they make up a restaurant's premium cost, giving you a figure to target when optimizing profit.
The key to running a profitable restaurant lies in proper inventory management. Calculating inventory variance helps eliminate waste, track new ingredients, and maximize profit.
Are Restaurants Profitable?
Restaurants are indeed lucrative, but their profit margins are quite modest. The size and style of the restaurant and the local economy all have a role in profitability. A new restaurant's first two years of operation are usually spent trying to break even. Unfortunately, restaurants fail at an alarmingly high rate. A lack of money or preparation for the initial few years of growth is to blame here. As part of your company strategy, you should include these considerations.
Labor and food expenditures are two of the most important aspects in determining a restaurant's profitability.
Most Profitable Restaurants
Some types of restaurants are more profitable than others. This list of the top five most lucrative restaurant concepts explains how they do it.
Bars: They have the highest profit margins of any part of a restaurant. This is due to the substantially larger markup on alcoholic beverages than on food items. A 60-70 percent profit margin is typical for the beverage industry.
Diners: While millennials may boycott other restaurants, diners appear to be unaffected by this trend. Even better, the ingredient cost for morning meals is quite low, allowing for bigger profit margins.
Food Trucks: Food trucks have cheap overhead as they don't pay rent. They also offer restricted menus, which assist keep food costs down.
Delivery-only: These virtual eateries keep expenses very low with no dine-in or takeaway choices. More restaurants than ever are choosing this method, particularly in major cities where real space is premium.
Pizzerias: There's a reason most cities have a pizza shop on every block. Demand for pizza has always been high in the U.S. because the ingredients for pizza are generally basic and low-cost.
Risk in Running a Restaurant Business?
Entrepreneurs who want to create a restaurant confront extra hurdles particular to the business, such as the chance of failure. Here are a few dangers to be on the lookout for.
- The lack of appropriate capital is a common problem for new restaurant operators, even if they have a well-thought-out business strategy. Opening a restaurant and keeping it functioning for the first several months and years may be quite expensive, and many people make this mistake.
- A restaurant's location may be a critical factor in its success, but this is not always the case. As vital as the location is to success, it can also work against it.
- Workload: You'll be working long hours from the beginning of the business plan to the end of establishing and running the restaurant. There is no way to avoid the amount of effort to start a company, but having business partners and family members to assist may go a long way.
Knowing more about restaurant profit margins and the associated risks will allow you to make more informed decisions about improving your own.