Starting a restaurant is a dream for many entrepreneurs: one that takes more than just hard work and dedication. It also requires money.
Owning and operating a food service business requires careful financial planning. Beyond the excitement of finally opening your doors to customers, your restaurant will need to be profitable in the long term. In today’s economic landscape, that’s easier said than done.
Rising costs, labour shortages, and other factors have made margins slimmer for restaurants all across Canada. As a result, owners must take every chance they can to optimize profitability.
In this blog post, we’ll look at the average profit margins for independent restaurants in Canada, setting financial benchmarks as a business owner, and strategies for limiting overhead costs.
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Surviving as a Small Business
The restaurant industry is famously cutthroat. In a city like Toronto where commercial real estate costs are among the highest in North America, launching and nurturing a successful small business can be tough (though not impossible).
On top of buying or renting a restaurant space, owners must account for a laundry list of operating expenses, from utilities and supplies to labour, marketing, delivery app costs, and everything in between.
You’ll need to practice diligent accounting as a restaurant owner, monitoring your costs, income, and final profits on a regular basis.
Thinking about opening a restaurant? Check out these other blog posts for helpful tips!
- How to Finance a Franchise Purchase
- Buying a Restaurant? Here Are 5 Questions to Ask
- What to Look For When Choosing a Restaurant Space
Just How Profitable Are Restaurants?
Here’s the good news: plenty of restaurants earn healthy profits, and yours can too. Like any business, creating a financially stable restaurant won’t happen overnight. But with a proper business plan, the right support in launching your venture, and a loyal customer base, you can enjoy strong profits.
Average Profit Margins For a Canadian Restaurant
Let’s get down to brass tax. In terms of numbers, the average (net) profit margin for Canadian restaurants is generally somewhere between 3% and 6%. However, these numbers can fluctuate based on all kinds of external factors.
So, what does this mean for you? All restaurants should have certain financial targets, including an ideal profit margin. That said, it’s important to keep in mind that every restaurant is different. What may be a fit for your business won’t necessarily be a fit for other restaurants.
While they don’t follow the traditional restaurant model, catering businesses boast some of the highest margins (on average) in the Canadian food service industry. If you’re interested in starting a catering service, we’ve got helpful resources to guide your venture.
Do Franchise Restaurants Have Better Profit Margins?
As a business, franchise restaurants come with a lot of benefits. Not only are many important aspects of owning and operating the restaurant handled by the franchisor, but you also have the opportunity to leverage built in brand recognition and an already established customer base.
Many of Canada’s top restaurant franchises specialize in cost efficiency, employing experts at the corporate level to ensure their franchisees have every opportunity to be as profitable as possible. And the numbers show that.
In Canada, the average profit margins for a franchise restaurant range between 5% and 15%.
At a glance, this is much higher than independent eateries, but there’s a caveat.
Franchise owners must pay out a portion of their profits (known as royalties) to the franchisor. These fees can eat into your returns and personal income as a restaurant owner. If you plan on going the franchise route, always do your research and choose your franchisor carefully.
Looking for more tips on running a restaurant? Check out these related readings.
- How to Pay Employees: A Guide for Restaurant Owners
- How to Plan a Soft Opening For Your Restaurant
- Menu Engineering: How it Works
How to Improve Your Restaurant’s Profit Margins
Highly profitable restaurants are never static. Beyond a strong plan, you need to be adaptable. This includes searching for new ways to improve your cost efficiency.
Here are a few basic tips and ideas for boosting your restaurant’s profit margins:
- Standardize recipes and preparation procedures
- Invest in energy-efficient appliances to reduce utility use
- Use cost- and labour-saving technologies
- Be mindful of costly delivery app commissions
- Reduce turnover among team members
- Have a strong organic social media marketing strategy
Work With Restaurant Experts
When it comes to buying or starting a restaurant, there’s no substitute for professional support from an industry expert. That’s where we come in.
As restaurant real estate agents, we know the unique ins and outs of restaurant real estate. Not only can we help you find the perfect spot to bring your dreams to fruition, but we’ll also serve as your long-term advisor on all things restaurant-related.
Have more questions about restaurant ownership? We can help! Send us an email or give us a ring at 416-618-0054 to get started.
