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Seven Essential Tips to Increase Restaurant Profitability

The Restaurant365 TeamAuthor

If there’s one thing that keeps restaurant managers up at night it’s their operation’s financial health. 

The first step to analyzing your restaurant’s financial health is to calculate your break-even point (BEP). How much money do you need to pull in to cover your total costs? You’ve probably heard that most restaurants don’t turn a profit for three to five years. But even if you’ve been in operation for 50 years, knowing your break-even point is crucial. 

Simply put, there are two ways to surpass your break-even point: reduce costs and increase profits. Here are seven tips to ensure your company exceeds its break-even point in 2023.

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Restaurant Cost Control Guide

Use this guide to learn more about your restaurant costs, how to track them, and steps you can take to help maximize your profitability.

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1. Investigate Actual vs Theoretical Food Costs 

Theoretical food costs assume that for each dish sold, ingredients were purchased for the budgeted price, there were perfect portions, no waste, no theft, no errors, and no shrinkage of ingredients. The actual food cost is the real cost of all the food that a restaurant actually spent for the same period of time. 

The best place to start addressing actual and theoretical food cost variance is to use technology to look at individual ingredients, and track which ingredient has the largest variance. This is where you can look to find waste or local price changes. By instituting technology tools and training programs to ensure proper usage, portioning, invoicing, and inventory tracking, you can uncover any hidden waste. Other fixes, like altering inventory practices, instituting compliance checks, or more frequent tracking may also reduce your food cost variance. 

2. Labor Costs Variance

Your restaurant’s labor costs are more than just employee wages. They include the total dollar amount spent on labor across your operation. Here are all the components involved in calculating labor costs:


Similar to food costs, labor costs can have variances. There are different ways to calculate labor costs, but simply put, your labor cost percentage is the percent of your total sales that is spent on labor.

Once you’ve calculated your labor cost, you can look to optimize it through new solutions that replace old ones.

One example is scheduling. Managers often build weekly schedules with unreliable information from previous paper schedules, which leads to over or understaffing – and in turn, wasted labor costs or poor guest experience. To try and reduce labor costs and boost margins, restaurant operators must move from an analog guessing game to a restaurant-specific platform that pulls punch data from their POS system.

With technology, operators can first ensure their labor spend is within the bounds of their budgets and forecasts. Second, they can audit clock-ins and clock-outs to be sure no one is siphoning off extra time that may seem minute but can add up over the weeks and months. Finally, empower your managers with real-time data to get a live look at their sales and staffing levels to ensure they generate the largest margins possible.

Workforce management is one of the most challenging and time-consuming areas of any restaurant business. It can also take several weeks to see any changes in your labor cost percentage. But investing the time and implementing the right workforce management strategies can have as big of an impact as reducing your Cost of Goods Sold and therefore Prime Cost. If you make the effort, you’ll see the payoff as your margins start to rise.

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Restaurant Invoice Automation Guide

Use this guide to learn more about your restaurant invoices, the value within, and how to consistently and accurately tap into it to make smarter decisions.

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3. Menu Engineering

Every customer who orders from your restaurant looks at your menu. Do you know what they’re looking at first or what immediately draws their eyes? Is that where your most profitable are located? Restaurant menu engineering provides a huge opportunity to boost your profits and ensure a memorable customer experience. 

 Menu engineering leverages continuous data about the profitability versus popularity of individual restaurant menu items, enabling adjustments that promote your most profitable menu items and boost your restaurant’s overall profitability. 

Menu engineering depends first on understanding each menu item’s popularity and profitability based on your recipe costing. Once you know the quantities of items sold and every item’s contribution margin, you can group them into the following four categories: 

  1. Stars: popular and profitable 
  2. Opportunities: popular, but unprofitable 
  3. Puzzles: profitable, but unpopular 
  4. Dogs: unpopular and unprofitable

Menu engineering can not only grow your restaurant's profits, but it can also improve guest satisfaction. While there are many moving pieces necessary to analyze your restaurant menu performance, menu engineering can help protect your bottom line, ensure healthy contribution margins, and increase sales growth in the future. 

4. Payroll Solutions 

Payroll involves more than just paying employees and allocating tips, and the disconnect between POS and accounting systems can make payroll tasks take much longer than need be. Because of this, payroll has traditionally been both time-consuming and cumbersome, as they touch many areas of your business. These tasks can be increasingly difficult for multi-location restaurant groups, which face specific challenges in managing payroll from other types of businesses. 

Luckily, some solutions connect your POS and automate your payroll processes. This removes the need for manual journal entries and manually uploading files. 

5. Forecasting & Budgeting

It's impossible to know exactly what the restaurant industry and greater economy will look like in 2023, but some ongoing trends will surely impact your business. 

Restaurant sales forecasting is a way to estimate your KPIs and sales on a weekly and monthly basis. It helps you determine what customer traffic trends look like and what menu items and product mixes look like. Those are going to change and evolve over the course of a year based on trends and the pricing/availability of products. Forecasting looks at the current trend and historical sales data to help you make smart scheduling and purchasing decisions that can boost your bottom line.

6. Employee Onboarding & Satisfaction  

Everyone knows employee satisfaction is key, especially in the restaurant industry where your frontline staff is the face of your business, but what are you doing to ensure your restaurant’s employees are happy? Salary and benefits are obviously a primary component, but there’s more.  

Your hiring, onboarding, and training process is your chance to make a positive first impression on your employees. It’s an opportunity to state and communicate your culture, and what working in your restaurant looks like. If you haven’t taken a look at your hiring and onboarding process in a while, it may be time to give it a look. Digitalizing your onboarding through software can streamline everything from employee benefits to training and other administrative tasks. 

You’ve probably heard that acquiring new customers is much more expensive than retaining new ones, and the same concept applies to your staff. Research shows it costs six to nine months' salary to replace an existing employee with a new one. If you can remove the stressors of your employee's day-to-day work, they’ll be more likely to stick around, which can reduce your labor cost significantly.  

 7. Investigating Trends for 2023 

As we said, it's impossible to know exactly what 2023 will look like, let alone the 2022 holiday rush, but there are some existing trends that you may expect to continue: 

Although supply chain issues continue, restaurants have adapted with selective menu engineering and consumers have also adapted to higher prices. This may help boost profit margins back to pre-pandemic levels. 

There’s also been a trend in the last several years of an increased customer connection with their favorite restaurants – from loyalty to reservations.  This includes dining as an experience, not just food. 

For the past several years, there’s been a growing investment made by restaurants in software and tech. These tools don’t just automate previously manual tasks but make your employees’ day-to-day less stressful, improve your customer experience, and ultimately work to increase profit margins.

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The last few years have been tough on the restaurant industry, and simply keeping locations profitable to remain open can be seen as a success. But as you look to 2023, and we continue the slow return to normalcy, restaurants need to adapt many parts of their business to be successful.  

Investigate your food and labor costs regularly. Make some menu engineering changes, even if they’re on a small scale to test. Research and invest in a new tool for your team. 

These tips and strategies can help set you up for a successful 2023 and beyond.

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Restaurant Invoice Automation Guide

Use this guide to learn more about your restaurant invoices, the value within, and how to consistently and accurately tap into it to make smarter decisions.

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DISCLAIMER: This information is provided for general informational purposes only, and publication does not constitute an endorsement. Toast does not warrant the accuracy or completeness of any information, text, graphics, links, or other items contained within this content. Toast does not guarantee you will achieve any specific results if you follow any advice herein. It may be advisable for you to consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.