It is not an easy task to get a restaurant off the ground — and keep it running — as anyone who works in the food service industry will attest. Restaurant ownership or operation is challenging in today’s competitive food service economy. One needs a system that emphasizes average revenue for a restaurant over cost to increase your chances of success.

More than a system, one also needs a robust platform to get the feet off the ground. We want to share the stress. jalebi.io understands the sweat and struggle of getting that average revenue for a restaurant! For that and many other reasons, we developed the world’s inventory-first restaurant operating system. 

Keeping reading our blog as we dig a little deeper into the ins and outs of an average revenue for a restaurant. 

What is Restaurant Revenue?

 A restaurant’s revenue is the amount of money it makes. The amount of revenue that enters your business through any of your revenue streams is revenue, not profit margin – which is what remains after you’ve paid all of your operating expenses. Sales include food, drink, merchandise, online orders, telephone orders, gift cards, consumer packaged goods, and more.

Across restaurant types, regions, sizes, and service models, average revenue varies significantly from restaurant to restaurant. A fast-food restaurant and a fine dining establishment operate on very different business models.

The best way to estimate revenue for your restaurant business plan is to conduct a market study on demographics, footfall, population, median income, and median house prices.

As a result of the brand’s reputation and trust in a community, a new location of a multi-location restaurant may generate a slightly higher revenue than a brand-new one. Still, this number is an excellent baseline — because unexpected bumps in the road could offset this benefit.

Restaurant Profit Margin

The net profit margin of a restaurant represents the percentage of profit generated for every dollar of sales after taking into account business costs. The expenses associated with running a business are taxes, inventory, labor, and other general costs.

After subtracting the direct costs of goods sold (food and labor) from total sales, your gross profit margin shows how much money you have left. 

A restaurant’s net profit margin is a more accurate estimate than its gross profit margin since it includes all expenses associated with running the restaurant, not just those related to making and serving food.

• How are these numbers calculated?

Here are the equations for net profit margin and gross profit margin that you can use to calculate your margins quickly:

• Revenue – All costs / Revenue = Net profit margin

If a restaurant takes in $20,000/month in sales and spends $18,000/month in expenses, its net profit margin is 10%.

• Revenue – Cost of goods sold / Revenue = Gross profit margin

With a gross profit margin of 40%, a restaurant taking in $20,000 per month and spending $12,000 on CoGS (only food and labor costs) has monthly sales of $20,000 and a monthly cost of goods sold of $12,000.

A restaurant’s gross profit margin can tell whether it operates efficiently. Still, the net profit margin will tell you how much money you are taking home after all the costs of running the business are taken into account.

Nevertheless, gross profit margin and net profit margin can help diagnose your restaurant’s health and identify any problems that need to be addressed.

An Overview of the UAE’s Market

Over the forecast period (2022 – 2027), the UAE food service market is expected to register a CAGR of 6.8%.

A major impact of COVID-19 on consumer food service in 2020 was seen across all consumer food service categories. Due to federal lockdown restrictions, businesses in this industry were forced to close their doors to eat-in customers for long periods to prevent crowds of people from gathering at consumer foodservice outlets. Because independent food service operators lack the robust support systems of chained players, they were more vulnerable to the COVID-19 crisis in 2020.

Foodservice operators lacking a national or global strategy had a more challenging time adapting to COVID-19 in 2020, especially those with no online presence at the start of the pandemic.

Increasing tourist arrivals, urban lifestyles, and evolving consumer preferences have propelled the country’s food service market to grow. As Emiratis increasingly visit food service channels to spend time with their families due to the lack of recreational opportunities in the country, the food service sector is a growth opportunity.

With the emergence of food trucks and street stalls, along with the availability of international cuisines, customers are also experiencing a new experience, thereby increasing their spending on food.

Effective Restaurant Revenue Management Strategies 

There’s no perfect manual to achieve the perfect average revenue of a restaurant. But with focused effort and effective management strategies, we sure can guarantee a seat in the crowd!

Here’s how:

1. Establish a performance baseline

You can start by examining the performance of your restaurant by using specific key performance indicators (KPIs) you deem most relevant. Several of these KPIs may be difficult to calculate on your own, but intuitive dashboards and reports can be generated using your POS data, making the process easy and painless. 

Understanding the performance of your hotel restaurant as it stands is important if you want to build a strategy to maximize its profitability. There are three key performance indicators (KPIs) you should consider when assessing your baseline performance:

• Total Revenue / Seat Hours = Revenue Per Available Seat Hour (RevPASH)

(Seat hours = Total number of seats x open hours)

• Total Number of Seats / Number of Seats Filled = Seat Occupancy

• Total Revenue / Number of Covers = Average Check

You can use RevPASH calculations to determine when to upsell and when not, as well as how successful your marketing efforts are. Using Seat Occupancy Analysis, you can determine if your demand exceeds your seat supply or if you need to attract more customers.

Lastly, you can ensure you don’t lose revenue by comparing table mixes to party sizes.

2. Analyze demand drivers

The next step is to conduct a demand analysis based on best practices for revenue management. All of your departments will have a better understanding of what they are responsible for in optimizing their operations and boosting revenue once actionable steps can be identified, whether it is traffic (covers), sales (average check), or service (consistency in service, reputation, and guest satisfaction).

To boost F&B profitability, you must understand what attracts people to your restaurant (and keeps them returning).

• Traffic

Identifying your restaurant’s traffic is the first step. What are your peak arrival and meal periods? What are your average and median party sizes? What are your most profitable guest segments?

You can make sure you are not losing revenue by comparing metrics like table mix with your party sizes.

• Sales

Your restaurant’s average check per cover (APC), or how much each guest spends when they visit your restaurant, will give you insights into how much revenue your restaurant receives from each guest.

An average check per cover (APC) is calculated as the following: Total number of sales / total number of customers.

3. Experience of the guest

Lastly, you can measure your restaurant’s service quality by analyzing guest experience. You can use meal duration and guest tribe indicators to gauge guest satisfaction. 

A dining duration measure can help you monitor the quality of your service, while a spending-per-hour calculation can help you optimize your servers’ sales.

To visualize your guests’ purchase behavior at a high level, tribes can be created. Which tribes drive the highest average check and ultimately the strongest profit and revenue performance for your restaurant? 

To get the results you anticipate, you need to validate your strategies or pinpoint where you need to focus. You can comprehensively understand your traffic, sales, and guest experience by measuring your demand generation every hour, every day of the week, and every month. To inform your profit strategy and targets, you can identify patterns and trends in demand for your restaurant.

4. Optimize labor costs

It has been estimated that the average labor cost percentage across all types of restaurants has increased to 31.6%, according to a recent study by BDO. By cutting labor costs, you will be able to increase profit margins. 

You don’t have to fire your staff or compromise service quality to save money. Instead, you can use technology that optimizes your labor needs. You can accurately forecast your staffing needs based on reservation and historical sales data, so you don’t overschedule shifts or incur overtime charges.

5. Leverage mobile payments

Allow guests to pay using their smartphones by scanning a QR code and making a payment with their cards. It eliminates the need to wait for the server to pick up the bill presenter, go to the POS to make a payment, and then pick it up again. 

By doing so, you’re enabling faster table turnover and maximizing the number of parties you’re capable of serving. Diners can pay when they’re ready and leave more quickly. In general, the more covers your restaurant serves, the more revenue it generates and the higher the potential for higher profits.

6. Reduce food waste

According to a Boston Consulting Group (BCG) report, restaurants will lose approximately $1.5 trillion in revenue due to food waste by 2030. 

If you throw away your food, you are effectively losing money that could have been used for profit or other expenses. Around one-third of the average revenue of a restaurant is allocated to the cost of goods sold (COGS). 

The World Resources Institute found that restaurants save an average of $7 for every $1 invested in reducing food waste. That return on investment certainly makes sense if you’re trying to improve your profitability. 

7. Lower utility bills

Restaurants consume about five to seven times as much energy per square foot as other commercial buildings. It can be as much as ten times as much for fast-food restaurants and other establishments with high sales volumes. Higher utility bills amount to most of the average revenue for a restaurant. 

Tim Powell, Managing Principal at Foodservice IP says fixed costs cover up to 33% of a restaurant’s sales. 

Investing in eco-friendly kitchen appliances and lighting will reduce your utility bills, so you’ll have more money to spend on sales.

Although the initial investment may seem steep, you will save more than enough on your utility costs in the long run.

Eco-friendly appliances offer many benefits

1. Reduce energy consumption
2. Cost savings on utilities
3. Returns on investment are high

Businesses that reduce food waste and environmental footprint generally have margins that are 3.3% higher than those that don’t.

Conclusion

Make like a detective and uncover all the data points to get a complete picture of an average revenue of a restaurant. Getting accurate costs and sales in hand is bound to increase your restaurant’s profit margin. Find ways to improve what is coming in and out of your business – and then dig even more profound!

Increasing revenue and decreasing cost might not seem glamorous, but it will become second nature once you develop the eye for this. 

Inventory management is also essential to maintaining your profit margins. Let jalebi.io take the guesswork out so you can focus on growing your business. From suppliers to transactions, everything is at your fingertips. 

Visualize your inventory consumption across the entire process from cash out to cash in! Excited to learn more? Join our waiting list!