This post will reveal the average profit margin for steakhouses.
I spent 10+ hours studying the ins-and-outs of profitability in the restaurant industry and collecting data so I could get the information to you accurately.
So if you want to compare your performance to the industry standard and find ways to improve your profits, this post is for you.
Oh, and I'm not going to waste your time. I’ll get straight into what you need to know.
Let's dive in.
Average Steakhouse Profit Margins
The average profit margins in the steakhouse business are:
- 60% gross profit margin
- 15% net profit margin
These margins are tight, but good relative to the rest of the food industry. However, it is still vital that steakhouse owners spend time working on their business to create a sustainable business model and efficient operations.
Otherwise, let’s look at the average cost breakdown for steakhouses.
Average Cost Breakdowns for Steakhouses
In terms of the cost breakdown, the average steakhouse spends:
- 40% of revenue on cost of goods sold (e.g. ingredients)
- 35% of revenue on indirect expenses like labor and marketing
- 10% of revenue on overheads like rent and utilities
That means for every $1 in revenue the average steakhouse business pays 40 cents on cost of goods sold, 35 cents on indirect expenses, 10 cents on overhead.
So the average steakhouse earns 15 cents in net profit for every dollar of revenue.
But why settle for average profit margins if great margins are possible? Let’s see whether it's possible to do better in the steakhouse business.
Steakhouse Profit Margin Benchmarks
Here’s the net profit margin benchmarks for the steakhouse business:
- Great: 25% net profit margins
- Good: 20% net profit margins
- Average: 15% net profit margins
- Bad: 10% net profit margins, or below
Remember, these figures are not one-size-fits-all.
A steakhouse focused on a profitable niche can have net profit margins as high as 40%, but revenue might be fairly limited. However a large steakhouse business focused on a mass market offering can make good money on margins as low as 10%. It all depends.
If you are happy with your profit margins compared to these benchmarks, congratulations. You are either in a good market, running an efficient operation, or both.
If not, you’re also in luck.
You might have the opportunity to increase your profits by making some improvements to your business and operations.
Let’s quickly look at how.
How to Improve Steakhouse Profit Margins
There are five ways to improve steakhouse profit margins:
- Increase prices
- Focus on profitable business
- Reduce direct costs
- Reduce indirect expenses
- Lower overheads
I would suggest focusing on them in that order too.
You’ll find more opportunities to move the needle by focusing on your prices, profitable business and direct costs than by fretting over indirect costs and overheads.
If you want to go deeper on any one of these profit improvement ideas, check out my article on How Smart Business Owners Improve Profit Margins.
Whether or not you check it out, I know one thing for sure. The fact that you are interested in exploring average and benchmark profit margins is a great sign.
It means you are thinking about the right issues and that you are considering the options available to improve your business and profitability.
Comparing your profit margins to industry averages is a valuable exercise. By baselining your performance you can see if there is room for improvement in your business.
It’s a great place to start, and I hope this post helped.