What is a healthy profit margin in the hospitality industry?

A healthy profit margin in the hospitality industry is between 3% and 15%, depending on your type of business. Restaurants usually operate on a net margin of 3-5%, cafés can achieve 10-15%, and catering companies often sit between 5-10%. These margins are important for your financial stability, growth and absorbing unexpected costs. (source: Kijk Op Het Noorden)

Why is a healthy profit margin important for your hospitality business?

A healthy profit margin in the hospitality industry forms the basis of your business stability. Without sufficient margin, you cannot absorb setbacks, make investments or grow. Your profit margin determines whether your business is financially healthy and remains future-proof.

A healthy margin gives you breathing space for unexpected expenses such as repairs, seasonal dips or economic headwinds. It also allows you to invest in new equipment, staff or marketing. Without sufficient margin, you are essentially working for nothing and run the risk of your business collapsing at the first sign of trouble.

In addition, a healthy margin gives you more opportunities to reward your staff well and maintain high quality. This results in better employees and satisfied customers, which in turn contributes to your long-term success.

What is considered a healthy profit margin in the hospitality industry?

The profit margin for restaurants varies considerably depending on the type of catering business. Restaurants often have the lowest margins due to high staff costs and rent, while cafés and bars can achieve higher margins due to the lower cost of drinks.

The profit margin for catering is often higher than for restaurants because you have fewer fixed costs and can purchase more efficiently for larger groups. Please note: these figures are guidelines. Your own situation may differ depending on location, concept or business operations. (Source: Zenchef)

How do you calculate the profit margin of your restaurant or catering business?

To calculate your profit margin in the hospitality industry, use this formula: (Turnover – Total costs) / Turnover × 100 = Net profit margin percentage. For the gross margin, calculate: (Turnover – Purchase costs) / Turnover × 100.

Include all costs in your calculation:

• Purchase costs of ingredients and beverages
• Personnel costs (wages, social security contributions, insurance)
• Rent and energy costs
• Depreciation on equipment
• Marketing and administrative costs
• Insurance and taxes

For example: your restaurant has a monthly turnover of €50,000. Your purchasing costs are €17,500, staff costs €20,000, rent €5,000 and other costs €5,000. Total costs: £47,500. Your net profit margin is then: (£50,000 – £47,500) / £50,000 × 100 = 5%. (Source: Sligro)

What factors influence your profit margin in the hospitality industry?

Various factors have a direct impact on your catering profit margin. You can influence internal factors yourself, but you need to respond to external factors in a smart way.

Internal factors:

• Menu engineering and pricing
• Procurement and inventory management
• Staff planning and efficiency
• Food waste
• Energy consumption and operating costs

External factors:

• Seasonal fluctuations in demand
• Competition and market prices
• Ingredient prices and inflation
• Economic situation and purchasing power
• Regulations and taxes

By having your internal processes in order, you can better cope with external pressure on your margins.

How can you increase your profit margin without compromising on quality?

You can increase your profit margin by working smarter, not by cutting corners on quality. Focus on efficiency and cost awareness rather than cheaper ingredients.

Practical strategies:

• Menu engineering: promote dishes with higher margins
• Portion control: consistent and efficient serving
• Smart purchasing: seasonal products and bulk discounts
• Minimising food waste
• Optimising staff planning
• Reducing energy costs through efficient equipment

For catering companies, use software to monitor your margins per dish, buffet and event in real time. This allows you to immediately see which orders are most profitable and focus your efforts on those. A good quotation system also helps you to factor your margins into your pricing. (Source: Rabobank)

What are common mistakes when calculating profit margins?

Many hospitality entrepreneurs make the same financial mistakes, which means they do not know their actual profit margin. This can be fatal for your business operations.

Common mistakes:

• Do not include your own labour costs in the expenses
• Forgetting depreciation and replacement costs
• Only direct ingredient costs count, no overheads
• Do not take seasonal fluctuations into account
• Underestimating food waste
• Underestimating personnel costs

Another mistake is focusing on turnover rather than profit. A busy restaurant with low margins earns less than a quieter establishment with healthy margins. Always look at your net result, not just the turnover figures.

How do you ensure a stable profit margin in your hospitality business?

A stable profit margin requires a structured approach and regular monitoring. It is not a one-off action, but an ongoing process of measuring, analysing and adjusting.

Long-term strategies:

• Monthly profit margin analysis per product or service
• Flexible menus that respond to seasons and price fluctuations
• Strong supplier relationships for stable purchase prices
• Diversification of income sources
• Contingency fund for unexpected costs
• Regular price adjustments based on cost increases

Modern software can help you automatically calculate and track your margins. This allows you to immediately see when a dish or event is becoming less profitable and make timely adjustments.

A healthy profit margin is not a luxury, but a necessity for every hospitality business. By closely monitoring your margins and making smart adjustments, you can build a financially stable business that can grow and withstand setbacks. At Catermonkey, we help caterers and hospitality entrepreneurs to gain insight into and optimise their profit margins, so that you have more time for what you do best: creating great experiences for your customers.

Recommended reading: ➡️ The path to an easier working day at Wolter Pragt Events

Would you like to optimise your profit margins?

Do you have questions about improving your profit margins or would you like to know how Catermonkey can support your business? We are happy to discuss the possibilities our platform offers. Whether you need help calculating your margins, drawing up profitable quotes, or streamlining your processes, we are here to assist you. Contact us for a no-obligation brainstorming session in which we will look at your specific situation together.

Plan your brainstorming session with Catermonkey!