Thank you Maxine Borcherding of ‘Taste and Compare,’ for this great blog post idea.

Restaurant #1

They have a thriving business. They are selling about $3 million a year and things appear on the outside to be great. 

However. They are not paying attention. They are not keeping an eye on their growing costs. Their food costs are out of control, their bartenders are giving drinks away like crazy to staff and to friends, and they have people standing around while on the clock, ballooning their labor costs out of the atmosphere.

Not only that, they are spending a couple of thousand each month on To-Go boxes, because 20 members of the staff bring food home in them every day. They don’t know why their linen bill is off the charts (even thought they don’t have tablecloths), because they don’t notice that their cooks and bartenders are going through about 100 hand towels, and their staff is using about 50 linen napkins a day.

The result: About a 2% profit before taxes. That comes to $60,000. Out of $3 million in sales. Not good.

The national average

The National Restaurant Association tells us that the national average for profit before taxes for a restaurant in this country is about 3.5%. And, by the way, that is pathetic. No one in their right mind should ever be satisfied with that. 10%. 12%. That is what you should be aiming for.

Restaurant #2

Restaurant #2 has an ok business. They aren’t killing it, but they are managing to get about $1 million in sales out of their small, neighborhood place.

However. They are paying attention. They have systems in place that help them control those ever rising food costs. They do regular inventory so they know if and when (in real time) their beverage costs are sneaking up. They have a savvy general manager who understands how to schedule the staff and how to control the labor costs.

In addition, they are keeping an eye on things like linen costs, utilities, paper goods, etc., just about anything they can control, they do. They also feed their staff well, and buy them a beer or a glass of wine after work.

The result: About 10% profit before taxes. That comes to $100,000. Out of $1 million in sales. Not bad.

The difference

Restaurant #1, despite selling 3 times as much in sales, is realizing about half the amount as restaurant #2, in profit.

The true bottom line

Because they are paying attention, these folks are making enough money that they are able to pay their staff a good wage, AND throw an annual Christmas party–with bonuses for employees.

They have a small business, but a thriving one. Their staff likes coming to work. They are treated well, are happy employees, and that has led to more customer returning again and again.

The lesson? Pay attention. Do the math.