Restaurant Profitability and Failure Rates: What You Need to Know

Success in the restaurant industry isn’t easy.The statistics aren’t pretty: 60 perrcent of restaurants don’t make it past their first year and 80 percent go out of business within five years. Despite the hurdles, many restaurant owners and operators believe that as long as they’re making money, they’re doing “good enough.” The failure in this approach is that it doesn’t account for a universal truth—costs increase. 

According to an IBISWorld report on single location full-service restaurants in the U.S., 67 percent of a restaurant’s costs go directly to wages and purchase expenses. Additionally, the average profit margin for a restaurant, after removing all other costs, is only 6.2 percent. With a profit margin this slim, insolvency is unfortunately never far away.

The biggest risk for the restaurant industry is rising wages and food costs. If you’re not constantly working to improve profitability and grow your revenue, the costs will take over. It’s…