Using Markups to reach Profits

It's True! Restaurants operate on 'Razor Thin Margins'

Independently owned, private and mom and pop restaurants operate on very thin profit margins.  As reported by National Restaurant Association it’s believed to be in the range of 2 to 6%.  This is a very accurate number based on our own calculations and many restaurants are not able to reach this level.  It seems  so small, but it’s true, many independent restaurants never reach a profit level. These numbers should be a goal, the closer you can reach to 6% the greater advantage you gain over competition.

This number is not based on a single profit from an item, it is the overall business after total revenue minus all expenses.  Mark-Ups is what helps push a restaurant into this profit level.  I was just reading an article on the mark-ups restaurants charge on certain items.  For example Paying $2.00 for topping of mushrooms on a pie which costs about .25 to the business is an 800% Mark-Up but the convenience a customer is willing to pay is well worth it.  Other examples included paying $2.00 for side of guacamole at Chipotle, paying $1 for a cheese slice with a cost of .10 - well worth it, but at a large mark up.

The restaurant is a business and the same foundation rules apply to nearly all shops, malls and retailers.  The same way malls attract visitors by using anchor brands, the same way discount retailers use pricing promotions to promote their non-profitable items is the same way restaurants attract customers.  

And the same way malls rely on the little shops inside for the most revenue, discount retailers rely on those little high marked up items to make a  profit, restaurants rely on the mark-upped items to push them into the profit level.

“Marked-up-Upsales” should be one of the most important thoughts when building your menu along with order handling by your staff and order handling of your online order system.  We have seen restaurants using our own system introduce a few items which increased average order size by 25% instantly and these new items were sold at 500% or more markups. Think Desserts, Bubble Teas, Shakes, Appetizers.  Don’t just have it on the menu - have it prominent on the menu.  These are items people don’t know they want - but they want them and appreciate you making them available.

The restaurant business is still a business, the goal is to squeeze in those little revenue otherwise it will never reach the 2 to 6% profit goal we are searching for.

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