There are different types of restaurants and each one is unique. While some of them are compact, family-owned restaurants serving authentic homestyle dishes, others have hundreds of tables to serve popular seafood to tourists or businesspeople in bustling areas. Most of them do not belong to either category, staying somewhere in the middle. So, when the question of how much a restaurant owner makes, the answer is sure to differ.
This makes it clear that the earnings of a restaurant owner are always dependent on the restaurant’s profit margin. If the business has always accumulated debts, there is no opportunity for a profit margin or even decent earning.
Factors That Affect Restaurant Owner’s Income
Type Of Restaurant
The restaurant type plays an important role in determining how much the owner can make. You might think that owners of fine dining restaurants enjoy high profit margins. But one must keep in mind their high operating costs that include staffing, décor and expensive ingredients. When you look at quick-service restaurants, they incur lower food costs and charge nominal prices. But due to higher sales volume, their profit margin is also high. Therefore, the restaurant type determines associated costs and revenue potential.
The location of a restaurant impacts the profit margin. A restaurant located in a busy area will naturally attract more customers and earn higher revenue. But operating a restaurant in a commercially lucrative space involves higher rent and operating costs that eat away the profits.
Size Of The Restaurant
While large restaurants possess a greater potential for revenue, they also must face higher operating costs like rent, staff and other utilities. Smaller restaurants may have lower costs, but their revenue is limited due to limited seating capacity and sales volume.
The ownership structure of a restaurant greatly affects the revenue earned by the owner. Restaurants with sole proprietors or small partnerships enjoy the advantage of exercising greater control over the business. At the same time, they also have limited access to funds and more personal liability than the big players in the industry. But if you are only a franchise owner, you will have sufficient funds available along with the benefits of an established brand but only a limited control over business decisions and a high franchise amount to pay.
How Does A Restaurant Generate Revenue?
A restaurant’s revenue is generated from various sources. The following are the most significant ways a restaurant earns revenue.
Pricing is an important factor in restaurant revenue generation as it determines the number of customers that the business can attract. It, therefore, affects the profit margin as well. The menu items must be priced in a competitive manner so that it covers costs and also earns a profit. Factors like food and labor costs, competition and customer demand must be considered while pricing the menu.
The second most important factor that helps a restaurant generate revenue is sales volume. A greater sales volume increases the revenue while lower sales volume leads to losses. Sales volume can be increased by attracting a greater number of customers, increasing the number of orders per table and bringing in repeated customers. This can be done by providing excellent customer service, offering unique menu items and creating a conducive ambiance for the guests.
Other Revenue Streams
Additional revenue streams in the restaurant industry include offering catering services, door delivery or takeout services. Catering is an excellent source of revenue for restaurants. Serving many guests at weddings, corporate events or private parties is a great opportunity to earn a large sum in a single day. With the rise in the popularity of online ordering platforms, delivery and takeout services are not only contributing greatly to a restaurant’s revenue but also towards expanding the customer base. Additional revenue streams also include loyalty programs, promotions and events. Diversification of revenue streams and taking efforts to attract and retain customers will help a restaurant achieve long-term success.
Common Expenses Incurred In Restaurants
No business can generate revenue without incurring expenses. The restaurant industry is no exception. Some of the significant expenses are:
Food And Beverage Costs
F&B costs form a significant part of restaurant expenses. The type of cuisine and the quality of ingredients used will determine these costs. It is the responsibility of the restaurant owners to price their menu items based on these costs and still be able to earn a profit.
The restaurant industry is a labor-intensive industry. So, labor costs form a significant form of the expenses. These include payroll expenses like salaries, wages and other benefits. Restaurateurs must maintain proper staffing levels to ensure smooth running of the restaurant, and keep the staff trained and motivated. This enthusiasm is sure to be reflected in the service that they provide to customers.
Rent And Utilities
This is a fixed expense that restaurant owners must include while drafting the budget. This will vary based on the location of the restaurant, its size and the real estate agency. The restaurant owner must work out a delicate balance between a lucrative location and rent and utility costs that are within the budget.
Marketing And Advertising Expenses
Such expenses are necessary to attract new customers, retain existing ones and promote the restaurant’s brand as well. Advertising costs include the money spent on social media ads, local ads and miscellaneous marketing expenses. Restaurants that wish to promote their brands can take part in community events or even be a sponsor of local events.
Maintenance And Repairs
Spending on maintenance and repairs is essential to keep the restaurant operations safe and efficient. Such expenses include repairs to the kitchen equipment, plumbing or other areas that are used quite often and seek attention. With continuous maintenance, the need for expensive and time-consuming repair processes can be avoided.
How Should Restaurant Owner Salary Be Calculated?
It involves various factors like revenue, expenses and the type of role that the owner plays in the business.
Calculate The Restaurant’s Net Income
If you want to determine the restaurant owner’s salary, then you must first calculate the restaurant’s net income. The equation is pretty simple. Subtract the total expenses from the total revenue or vice versa depending on whichever amount is higher.
Consider The Owner’s Role In The Business
The prominence of a restaurant owner’s role depends on the size and structure of the business. While some restaurant owners involve themselves in day-to-day operations, some simply take care of the strategic planning and management. The salary of the restaurant owner can be determined only after their role in the business is analyzed.
Set A Reasonable Salary
The third step is to calculate a reasonable salary for the owner. This can be done by allocating a specific percentage of the net income as the owner’s salary. Even this percentage will vary based on the owner’s role in the business and the current industry standards.
A restaurant owner need not necessarily be compensated in the form of a salary. They can also receive other types of compensation like bonuses or a percentage of the profits. These types should also be considered when the owner’s overall income is calculated.
Salaries Of Restaurant Owners
Wish to know how much restaurant owners make? On average, they earn anything between $24,000 and $155,000 per annum.
If you wish to get first-hand reports about salaries of restaurant owners, you could talk to your peers. Although open talks about finance are still a taboo, to get an idea about what your restaurant owner friends are taking home, it is worth talking to them. This will help you know the range that you can expect to earn depending on your restaurant’s type and location.
When Does A Restaurant Start Earning Money?
Restaurants typically take several years to earn a consistent profit. It depends on the business model used. Some restaurant owners start earning from the beginning and get paid through loans or startup funds from investors. A few of them survive using their savings or funds from other jobs until the restaurant begins to generate funds. How they pay themselves depends on their individual financial situation, the money available to run the business and the amount of cash inflow that the business is able to generate.
How To Increase Restaurant Owner Income?
There is no surety about success in the restaurant industry. But there certainly are strategies that restaurant owners can deploy to increase their revenue. Following are a few of them.
Menu Engineering – This strategy involves the task of analyzing the restaurant menu to maximize profitability.
Marketing And Advertising – Both these tasks are necessary for taking the brand to new customers and increasing sales volume.
Cost-Cutting Measures – This measure to increase the profit margin must be undertaken without compromising the quality of the restaurant’s offerings or service.
Expanding Services And Offerings – This will help in keeping the customers interested and motivate them to keep coming back.
Utilize Technologies To Boost Sales – Technology can assist restaurants to predict their upcoming sales, to optimize labor and inventory management every month.
Tax That A Restaurant Owner Needs To Pay
The estimated average federal tax is 22%. After this percentage has been deducted, the take-home of restaurant owners is $ 44,163 per annum.
Owning and running a restaurant is an exciting career when you possess a passion for the food and hospitality industry. To play the role of a restaurant owner, you need to have an entrepreneurial mindset, considerable knowledge of or experience in the industry and perseverance and commitment to succeed in the community. Only then will this career be satisfying and lucrative for you. This blog would have surely helped you get an idea about your earning potential and guide you to start the planning of your career path. For more assistance on free restaurant website building and digital marketing for restaurants, get in touch.