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Someone posted that the average margin for a public company in the US is 7.7%. There's an economic 'law' that basically states that the return on investment of
by Mikeb85 7y ago
Someone posted that the average margin for a public company in the US is 7.7%.
There's an economic 'law' that basically states that the return on investment of a business in a mature market (read perfectly competitive) will always trend towards the interest rate (plus the cost of whatever sort of barriers to entry are in place) because of the arbitrage principle. If a business makes higher margins, everyone will pile in and undercut the incumbents until the margins are reduced to the cost of entering the business.
For most sectors of the food industry, there's very little product differentiation. Some restaurants do make higher margins, but they're typically small and highly differentiated.
- ska 7y agoRestaurants, outside of fast food and other large chain operation, probably average below this for various reasons (churn being a big one). I've heard that 5% is a good target. In fact I suspect you can reasonably look at large chain operations as figuring out a way to reduce the factors that keep the average return lower than it "ought" to be...
- Mikeb85 7y agoNah 5% is shit (but also the average). I've been lucky to have been involved in some very profitable restaurants with margins more like 20%... When you set out to do a business plan, you should be looking at differentiation. Not producing a commodity with slim margins...
- ska 7y agoNah 5% is shit (but also the average) It can't really be both of those things. I'm sure there are outliers just like you describe, but not that many. 20% is pretty high margin in general for business.