In the ever-evolving UK restaurant industry, understanding and optimizing profit margins is crucial for survival and growth. This guide, refreshed for 2024, builds on our experience of working with hindreds of UK businesses and turning them into thriving local venues that generate orders.

Understanding Restaurant Profit Margins

1. The Reality of Shrinking Margins:

Historically, restaurants enjoyed healthier margins, but recent years have seen a significant decrease. For example, margins in the UK of 50% were the norm, but whilst still possible, acheiving that level of profit is much much harder.

The average profit margins for restaurants range between 7% and 50%, with full-service restaurants on the lower end and quick-service ones on the higher end​.

2. Gross Profit vs. Net Profit:

Gross Profit: Calculated as the selling price minus the cost of goods sold (COGS), it's typically around 70% for successful restaurants​​.

Net Profit: This is what remains after deducting operating expenses from the gross profit, including payroll, rent, utility bills, and more​​​​.

Factors Affecting Profit Margins

The Big Three Expenses:

COGS, labor, and overhead expenses are the primary factors impacting profit margins​​.

Variation by Restaurant Type:

Full-service restaurants generally have lower margins (2-6%), while cafes, fast food, and food trucks can see margins between 10-50%​​.

Cost of selling online.

The cost of selling online can be one of the largest costs. 3rd Party food portals can charge upwards of 30% placing a huge strain on profits.

Alternatives such as Order Digital's system can achieve the same or better results but at a fraction of the cost

Strategies to Improve Profit Margins

Increasing Sales Volume and Reducing Overhead:

These are two primary ways to tackle profit margin challenges​​.

Online Ordering

Look at moving away from 3rd Party Food Portals and transfer your customers to low cost own brand ordering systems. Platforms such as Order Digital's system not onlye let customers order for a fraction of the price, but are excellent at migrating customers from portals, so you carry on getting orders, and can drive new orders from millions of online searchs for food that happen each day.

Optimizing Menu Pricing:

Keep food cost percentages between 28-35% and adjust prices to cover overhead expenses​​.

Menu Engineering:

Utilize menu psychology to increase profitability, potentially boosting profits by up to 20%​​.

Sales Training for Servers:

Train servers to upsell effectively, enhancing customer spending per visit​​.

Marketing and Customer Engagement:

Implement loyalty programs and use social media marketing to attract and retain customers​​.

Q&A Section

Q: How can restaurants improve their profit margins? A: By looking at lowering their costs of online ordeirng e.g moving to Order Digital's system, optimizing menu pricing, using menu engineering, training staff in sales techniques, and implementing effective marketing strategies.

Q: What are the major expenses affecting restaurant profit margins? A: The three main expenses are cost of goods sold (COGS), labor, commissions to third party food portals and overhead costs.

Q: Is menu engineering effective for increasing profits? A: Yes, it can boost profits significantly, with some sources citing increases of up to 20%.

Q: How important is staff training in improving profit margins? A: Very important. Effective sales training for servers can significantly increase the average spending per customer.

Q. Do loyatly systems work: Yes they do, loyalty systems are a powerfull way of making sure there is a strong enough reason for your customers to re-order, rather than try a new restaurant for the first time.

Conclusion

Navigating the UK restaurant industry in 2024 demands a keen understanding of profit margins and the implementation of strategic measures to enhance them. By addressing key areas like menu pricing, staff training, and effective marketing, restaurants can significantly improve their financial health.

Next Steps

For personalised strategies to boost your restaurant's profit margins in today's competitive market, contact us at Order Digital. We offer customized solutions to help your restaurant achieve financial success.