5 Reasons Your Restaurant Is Losing Money (And How to Fix It)

Key Takeaways

• Employee Turnover is Costly: High turnover rates, with costs averaging nearly $6,000 per lost employee, severely impact profits; focus on fair pay, growth opportunities, and strong management to improve retention.

• Optimize Wait Times: Long wait times can limit profit; utilize technology like online waitlists and ordering to streamline service, and ensure proper staffing to balance customer service and efficiency.

• Establish a Strong Online Presence: A robust online presence is essential for attracting customers; create a user-friendly website and leverage online reviews and ordering to stay competitive.

• Improve Inventory Management: Poor inventory management leads to significant waste; implement daily checks and utilize POS systems to track inventory and reduce costs.

• Focus on Customer Retention: Loyal customers spend more and return more frequently; prioritize loyalty programs to increase retention, as a small increase in retention can significantly boost profits.

The restaurant industry has always been unpredictable.

As an owner or manager, you’re used to dealing with volatile sales because of factors outside of your control. You may be asking, “why do restaurants fail” and “how do we stop losing money.”

In 2025, restaurant owners are facing rising labor costs, supply chain disruptions, and shifting consumer preferences. With inflation affecting both ingredient prices and customer spending habits, many are exploring new ways to increase profitability, from automating operations to optimizing menu pricing and diversifying revenue streams. 

For many restaurants, it’s easy to start spending money on restaurant promotions and special events with the hope of increasing new business. While these restaurant marketing strategies can be effective, it’s important to evaluate your current strategy and identify opportunities that may be costing you money.

Restaurant profit and loss statements will show you your ordinary expenses, but if you rely only on these, you may be missing out on common factors that take away from your profit growth. Luckily, these hidden problems can be easily solved once you’ve identified them within your company.

Here are some common reasons  your restaurant might be losing money and what you can do to fix it.

1. You Have High Employee Turnover

The restaurant industry's high turnover rate remains a significant challenge. As of 2024, the average turnover rate in the industry is 110 days.

While staffing shortages are not a new problem, the rising cost of employee turnover is hitting restaurants harder than ever, with the average cost per lost worker reaching $5,864. These expenses, including recruitment, training, and lost productivity, can add up to over $146,000 annually for restaurants with high turnover rates. 

Luckily, there are simple steps you can take to increase employee retention. While fair pay is a good start, many employees are not focused solely on monetary benefits. As millennials become a bigger part of the workforce, there is a greater focus on advancement opportunities and personal growth.

Although providing advancement opportunities for all your employees may be difficult, investing in leadership training for your restaurant management team is a good place to start. After all, quality managers retain quality employees, which results in higher retention overall.

2. Your Wait Times Are Too Long

While long wait times are usually a sign of a successful shift, it’s easy for bottlenecks and slow service to create a profit cap during peak hours at your restaurant location. As carry out and delivery orders become increasingly popular, your staff is no longer focused solely on the in-house customer experience. That off-premise order requires more multitasking among your staff if you want to maintain a high level of customer service.

Maximizing your profit on busy nights with lots of foot traffic requires a combination of successful scheduling and strong communication. Scheduling too many or too few staff members can lead to slower table service and frustrated customers. The right balance of staff will keep employees busy while still providing customers with excellent care.

New technology and self-service opportunities can help automate customer service during busy times. Solutions such as Toast Tables allow customers to join your waitlist remotely and  keep them updated on wait time via text message. This simple integration puts your diners back in control and frees up your staff to focus on other things.

Online ordering can help reduce long wait time for off-premise orders. Customers can get smarter wait estimates and skip long pickup lines when ordering digitally. These solutions help your staff process more orders in a shorter amount of time and can often increase a customer's order size. Nowadays, 79% of diners expect the option to use technology to order from their favorite restaurants. This self-service solution not only decreases wait time but can increase your overall sale.

3. You Have No Online Presence

With the help of technology, consumers have more access to dining options than ever before. Food bloggers and online influencers are introducing diners to new restaurants and social media marketing efforts are here to stay.

According to RevolvingKitchen.com, 90% of adults check menu items and online reviews before visiting a new restaurant. Without an online presence, you’re likely to be losing customers to competitors who have a positive online brand. Consumers want to read reviews and get a preview of what your restaurant offers before making the commitment to dine.

Many restaurateurs are turning to website building sites like WordPress and Squarespace to create websites without hiring expensive developers. These website templates make it easy for customers to find you, research your menu, and even see pictures online. Tech-savvy restaurants also allow customers to order online, which simplifies takeout and delivery services.

4. Your Kitchen Practices Poor Inventory Management

As a restaurant owner, you understand the importance of keeping your prime costs under control. Inventory is one of the most expensive factors in running a restaurant business, but food waste drives costs even higher. With $2 billion lost annually in the restaurant industry and $162 billion nationwide. Managing inventory, and operating costs in general efficiently, is key to protecting your bottom line. 

While high inventory costs are common, setting up an effective inventory tracking system can help save you a lot of money. Daily inventory checks before or after operating hours can help prevent waste and theft. By tracking your inventory more frequently, you will be able to identify the small factors that lead to big losses.

Unfortunately, poor management of inventory is usually due to poor kitchen management. It’s up to your chef to take control of the kitchen, monitor portion control, maintain high food quality and reduce the cost of waste. Most of your kitchen staff aren’t thinking about high food cost and therefore, aren’t worried about making costly mistakes on the job.

Managing your inventory online can save you money by reducing staff hours spent updating a manual database. All-in-one POS solutions can be an easy way to monitor inventory and will help you eliminate unnecessary extra expenses.

5. You're Only Focused on New Customers

One of the most common mistakes made in restaurants is focusing too heavily on new customers and taking returning customers for granted. If your target market doesn't  feel valued, they aren’t likely to return. While the balance between new and regular customers is key, loyalty programs can stop you from losing money and give your customers more incentive to return to your dining experience.

Loyal customers have been found to:

• Spend 67% more than new or potential customers.

• Be 64% more likely to purchase more frequently as repeat customers.

• Be 31% more likely to spend more per purchase. 

While loyalty programs may have been around for years, advances in technology make it easy for small business restaurant owners to customize programs for their business.

Points systems, tiered programs, and gamification incentives are becoming increasingly popular at restaurants. While bringing in new customers will also be important to growing your business, focusing on increasing your customer retention by just 2% will have the same effect on profit margins as cutting costs by 10%. By taking an automated approach to loyalty, you can decrease the number of loyal customers you lose while increasing your profit overall.

Stop Losing Money at Your Restaurant

Which of these is the biggest challenge at your restaurant? Losing too many customers or staff members? Struggling with inventory and wait times? No online presence? Whatever the problem is, keep in mind a solution is out there that can plug the drain to your restaurant's bottom line and streamline your business' efficiency. So you can continue to serve great food while expanding your customer base. Both are key to your restaurant’s success.