Busting 5 Most Common Restaurant Profitability Myths

In general, the profitability of a restaurant business tends to be a bit overestimeted. The fact that the restaurant is packed doesn’t mean it’s making big money.

There are a lot of myths about owning a restaurant, average restaurant profit and the percentage of restaurants that fail, but most of them can easily be debunked.

Restaurants are Cheap to Open

Prices vary. Statistics show that the average cost of opening a restaurant is $275,000. If the building is purchased as part of the ownership, the cost can be as much as $425,000. Other sources claim that the price is between $95,000 and $2 million.

In either case, it’s a major expense. Even opening up a franchise is a huge undertaking, and it’s not cheap at all to open or keep a restaurant running.

Restaurants Save a Lot of Money Buying in Bulk

Restaurant margins can be boosted by buying in bulk, but just because a restaurant buys in bulk doesn’t mean that they’ll save money. The key is purchasing in bulk when all of the goods will be used before spoiling.

If a restaurant wrongly assumes a new dish will sell quickly and it doesn’t, they’ll probably get higher spoilage levels and some extra waste.

Buying in bulk may save more money upfront, but when quantities are too high, this can lead to losing money.

Restaurants Lose Money by Paying Employees Better

The myth about higher wages causing labor costs is common for many industries, not only for the HoReCa. Surprisingly, average restaurant income is not impacted by higher wages.

This can be easily explained by retention. Employees that are paid better will stay with the company, optimize their performance and improve customer satisfaction without reducing restaurant profit margins. Employers also spend less money on:

• Hiring
• Training

Turnover is also lower when employees are paid better.

Owners Make a Lot of Money

The stats show that the average restaurant owner will make $60,000 per year, although this figure can vary widely from $29,000 — $153,000+. You might think that $60,000 is a great salary, but you also have to consider the immense number of hours these owners work and the amount of stress they have to overcome daily.

Profit Margins are High

The profitability on a dish can vary greatly from one establishment to another. It can be 3%, or it can be 20%, depending on the meal. Profit margins often range from 0–15%, with the average being 3% to 5%.

Oftentimes, there are few dishes or favorites on the menu that will offer higher profitability. These appetizers or entrees are often prominently placed on the menu.

Source: https://mcdonaldpaper.com/blog/restaurant-profitability-myths