March 10, 2022

Restaurant Profit & Loss (P&L): A Guide

Maintaining a thriving business in the F&B industry is an incredibly tough feat, especially when taking into consideration the drastic impact the ongoing pandemic has had around the world, including in India. A restaurant that stays on top has adopted the most innovative technological solutions and sustained a healthy P&L. 

One solution that has surged in popularity has been CloudKitchens® Delivery Kitchens since they provide a more efficient and cost-effective approach for food businesses that want to tap into a market and share the culinary delights they have with customers in a densely populated area. 

If you are thinking about joining the ever-growing number of eateries operating out of CloudKitchens® delivery kitchens in a bid to boost your profit margins, here’s what you need to know. 

What Does a Profit Margin Entail?

A restaurant’s profit margin simply refers to the money they have made from sales. To work this out, all your need to do is minus all the business expenses from the total revenue generated. Profit margins can be a figure or percentage and can be used to provide a better insight into your business. For example, you can opt to work out the profit margin for particular dishes or time periods, such as a month, six months or 12 months, to gain a better understanding of whether your eatery is heading in the right direction financially. 

Restaurants earn most of their revenue from the food and drinks they sell, but it is not as crystal clear when it comes to the expenses they incur as they can vary significantly. Some of them include: 

  • Food ingredients
  • Kitchen equipment & repairs
  • Rent
  • Utilities
  • Salaries, benefits and other costs associated with labour
  • Marketing activities to raise brand awareness
  • Taxes
  • Credit card & POS system fees

Since these costs will change depending on the performance of your business, your profit margins can go up or down even if your revenue remains the same. Given how much a restaurant’s expenses can change, the average P&L is around 3-5%. However, it is closer to 15% for food businesses in the top tier.

Gross Profit vs Net Profit: What’s Different?

Your business’s gross profit refers to the amount of money you have left after taking the Cost of Goods Sold (CoGS) into account. This gives you an insight into how your restaurant is functioning and the theoretical profit that will be made. To work out your gross profit, simply use the formula below: 

Gross profit margin = ((selling price – CoGS) / Selling price) 100

Let’s put this formula into use to make things easier. If your eatery was to sell INR 1,000 worth of food in a day and it cost INR 500 to make it, then your gross profit margin would be the following: 

((1000 – 500)/1000)100 = 50%

Net profit, meanwhile, revolves around the actual profit your business makes. This can be worked out using the following formula: 

((Total revenue – total expenses)/revenue)100

If, for example, there was a mistake made for one particular dish and you had to remake it, the revenue might be the same, but the expenses incurred have increased to INR 560. As a result, the net profit would be this: 

((1000- 560)/1000)100 = 44%

What are the Best Ways to Increase the P&L of Your Restaurant?

There are multiple methods to increase the P&L of your restaurant, but here are the three most common ways to do so: 

  1. Boost the volume of sales
  2. Decrease costs
  3. Increase the menu prices

Most restaurants will enthusiastically be searching for ways to achieve the first two as it will have a beneficial impact on their P&L. To help reduce costs, here is a recipe costing guide that can help you achieve that. 

However, if eateries opt to raise the prices of items on their menu, it could result in a drop in customers as people would not be happy to pay more. 

Here’s How Delivery-Only Kitchens Can Benefit the P&L of Your Restaurant

Delivery-only kitchens, like those provided by KitchenPlus, offer a multitude of ways to help increase your sales volume and reduce your business’s overall costs. How you may ask, well find out below:

1. Operational Expenses Go Down

As its name suggests, delivery-only kitchens have no dine-in area, so you can save a small fortune when it comes to furniture, decor and having a flashy front of house area. 

2. Say Goodbye to Sky-High Rent

As mentioned, since restaurants don’t need a seating area when operating out of a CloudKitchens Delivery Kitchen, it results in a significant reduction in expenditure towards rent that can instead go towards other parts of the business in order to make it more profitable.

3. Cost of Labour Falls

Given that there is only a kitchen area, there is no need to have the front of house staff like waiters, bartenders or even pricey general managers. As a result, restaurant owners can save a lot of money when it comes to staff costs. 

4. Better Rental Terms

Traditional brick-and-mortar eateries want to be in high-traffic areas in order to attract as many customers as possible. However, such prime real estate often comes with a hefty price tag and rental terms that can be a nightmare for restauranteurs, especially when considering that there is nothing concrete to suggest a restaurant will have a healthy P&L despite being located in such a densely populated area. 

Delivery-only kitchens, on the other hand, are already set up and come equipped with some of the equipment you will need. Plus, the rental agreements are a lot more flexible, which is one less thing for business owners to worry about if things don’t work out. 

5. Get Started Quickly

When setting up shop in a delivery-only kitchen, you can have everything in place in just a few weeks. Quite a difference when considering that traditional brick-and-mortar restaurants may only open their doors after a year when doing all the renovations, decoration and obtaining the licences they need in order to operate. 

6. All-in-One Ordering System

Efficiency is the name of the game in CloudKitchens® Delivery Kitchens and this is evident in the way orders come in. Instead of having waiters come in and explain orders or any particular requests, everything is streamlined and neatly done on one tablet. What makes the process so much smoother is that the orders will come through even if your eatery works with multiple food delivery businesses. 

With all the orders easily accessible, customers won’t be kept waiting and will have a positive experience when ordering from your restaurant. This will result in positive satisfaction and an influx of new customers, which will no doubt have a positive impact on the P&L of your restaurant.

7. Welcome to the New Age

Online deliveries have been growing in prominence and there is nothing to suggest this will change anytime soon, especially when taking into account that the revenue from online food deliveries is forecast to reach US$13,988 million this year. Since this will continue to be the future of the F&B industry, CloudKitchens® Delivery Kitchens provide the perfect platform to enjoy the benefits and make plenty of money, which will give your restaurant’s P&L a major boost. 

The Ball is in Your Court

Now that you are aware of the plethora of benefits associated with delivery-only kitchens and how they can help your restaurant’s P&L, it’s time to get set up in one. 

Just note that in addition to reaping the rewards that come with operating out of a CloudKitchens® Delivery Kitchen, it is also essential to have the following components: 

  • Experienced and passionate chefs
  • An appealing menu that is priced appropriately
  • A clearly defined target audience and type of cuisine
  • Memorable brand awareness and promotions
  • Reliable suppliers

If you have all this nailed down, the P&L of your restaurant is only going one place – up, up, up!

Want to know more about delivery-only kitchens? Fill up the form at the bottom and we will provide you with all the assistance you need.

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