Everyone has been seated in a nice restaurant and wondered exactly how much money is being made, especially when the place is filled with diners. You’ve got a pretty good idea how much your bill is going to be while you scan the room and mentally add up what the owner is getting. You gasp at the totals, and that is understandable, but there is much more to the profit and loss equations.
Here are the financial facts common throughout the food service industry:
30% of all restaurants operate at a loss. They are regarded as risky ventures.
30% of all restaurants make less than 5% net profit per year.
30% of all restaurants make between 5% and 10% net profit per year.
10% of all restaurants make 20% or more net profit per year.
So, how does a restaurant make or lose money? There is a standard set of operational parameters we all must follow. Expenses are the critical factors in making the operation profitable. Failure to follow them results in failure — sooner or later. The following percentages apply to every dollar brought in:
35% – Payroll
30% – Food Costs
15% – Operating costs
5% – Rent
15% – Net Profit
There are a few exceptions to these rules but they generally occur within private clubs and other membership organizations that do not require food-related profits to continue operations (Costco is a good retail example: That $1.25 hot dog and refillable drink does NOT create a profit for the corporation. Those reduced prices are supported by your annual membership fees–and most of the final products are supplied from in-store stocks including buns, dogs, condiments; all purchased at huge quantity discounts).
Now that you see the actual percentages necessary to make your favorite establishment profitable, it quickly becomes clear that cooking and serving food in a sit-down situation is anything but a quick road to wealth and carefree retirement. To expound on that negative comment, what you don’t see is what goes on when you aren’t sitting there enjoying your meal
Long before and long after your brief visit, there are cooks and servers on duty. Depending upon the restaurant seating capacity and complexity of the menu, there could be dozens of staff — or just two or three. Every one of them is getting paid, even during slack times when the place is empty between traditional meal hours.
One last stumbling block to any operation is reputation: Just one dissatisfied customer will share the lousy meal or service with at least ten other people, yet may mention a memorable dining experience to only one or two associates or friends. It’s a deadly ratio for a substandard eatery.
The arithmetic for success (or failure) is pretty simple: If the bill for you and your guests comes to say, $100, how does the owner make enough money to pay for his house, his car, clothes for his kids and other purely personal expenses? After all (at best) there’s only $15 bucks profit. The trick to making a living is to “turn over the tables” when the place is open for business. That can only happen when someone sat where you’re sitting and someone else sits there after you leave. Without that turnover, there is little hope for success.
In addition to all the above, the food must not only be a reasonable value for the money, it must be superior to the competition, otherwise you (and lots of others) will dine elsewhere. My motto (Cozy Cafe) was, “Expect Excellence,” even though it was casual dining in a comfortable, relaxed atmosphere with a “comfort food” menu graced with unexpected “gourmet” desserts and daily specials (Creme Brulee was often featured, as were flaming Blintzes and Crepes Suzette for breakfast).
Cozy Cafe received the best food review the Bellingham Herald had ever given a restaurant. A renowned food critic commented, “It was the first time in my dining experience where everything was perfect.”
In addition to an unusual motto, I had two other “mantras” that contributed to the success of Cozy Cafe: First and foremost was to gain the trust of my customers before introducing a new or “exotic” dish. Without that trust, a menu must be short and tailored to fit the tastes of the majority of your regular customers — few people are willing to experiment with their hard-earned money. The second was to avoid industry-common pre-portioned products in favor of scratch cooking whenever possible.
And now you know how your local restaurant works. My guess is, your meal will taste a little bit better the next time you shell out that $100 to dine out. OR, your disappointment may drive you to seek out a better place.