What is the profit margin of a restaurant?

At a restaurant, margin slips away faster than with other catering formats: higher front-of-house costs, higher rent, and a menu that isn't always costed properly.

Below you'll find what a healthy profit margin is for a restaurant, which costs decide it, and how to work it out yourself.

What is a healthy profit margin for a restaurant?

A healthy net margin for a restaurant usually sits between 3% and 6%, lower than other catering formats.

That's mainly down to fixed costs: rent, a bigger team for kitchen and front of house, and a menu that has to be available all year, even in the quiet weeks.

Restaurants that keep a close eye on food cost and staff planning often reach the top of that range. A business that buys and plans by feel tends to drift towards 3%.

Which costs decide your restaurant's profit margin?

Ingredient costs typically run at 28-35% of your revenue. Staff costs are usually the biggest item, 30-35%, from the combination of kitchen and front of house. Rent and fixed property charges add another 6-10% on top.

Energy, kitchen equipment maintenance and insurance also count, together usually a few percent more.

Those costs are largely fixed, however busy you are. That makes an empty room more expensive for a restaurant than for catering formats where capacity moves with each booking: there you send staff home, here the rent carries on.

How do you work out your restaurant's profit margin?

The formula is the same as for any other catering business: (revenue − total costs) ÷ revenue × 100 = net profit margin as a percentage.

Always work with amounts excluding VAT. The VAT rate on food and drink differs by country, and VAT isn't revenue anyway: it's money you collect for the tax office.

A worked example: your restaurant turns over €60,000 (excl. VAT) in a month. Your costs are €19,000 ingredients, €20,000 staff, €5,500 rent and fixed charges, €2,500 energy and maintenance, and €1,500 insurance and other. Total costs: €48,500. Profit: €11,500. Profit margin: (€60,000 − €48,500) ÷ €60,000 × 100 = roughly 19% gross, and after deducting your own wage or owner's pay you usually land on 3-6% net.

Work out your margin per dish too, not just at business level. That way you see which dishes earn money and which actually lose you some, as we cover in working out food cost in a restaurant.

Which factors affect your profit margin?

The balance between bookings and walk-ins makes a difference. A restaurant that runs mainly on bookings plans its purchasing and staff more precisely than a place that depends on who walks through the door.

The menu itself plays a part too. A menu with many different ingredients gives more scope for waste than a menu that deliberately shares ingredients between dishes.

Season and time of day matter just as much. A lunch menu with lower prices often carries a thinner margin than the evening menu, while rent and base staffing carry on regardless.

A restaurant that keeps its admin in spreadsheets and loose notes usually only spots this kind of shift once the quarter is already over, as we describe in why spreadsheets aren't enough for your restaurant admin.

How do you raise your restaurant's profit margin?

Start with your menu. Work out each dish separately and look not just at how often it's ordered but also at what it leaves on the plate.

Dishes that need a lot of fuss but earn little deserve a different price or a different spot on the menu. A tighter menu that shares ingredients between dishes saves on both purchasing and waste.

Plan staff on your actual busy periods per shift rather than a fixed roster. A Tuesday evening staffed the same as a Saturday costs you margin structurally, even if the business otherwise runs well.

Frequently asked questions

Why is a restaurant's margin lower than a catering business's?

Mainly through fixed costs: rent, a bigger team for kitchen and front of house, and a menu that has to be available all year, even in quiet spells. A catering business flexes its capacity per booking, a restaurant usually doesn't.

What is a healthy food cost for a restaurant?

Usually between 28% and 35% of your revenue. That varies by type of kitchen and menu. Work it out per dish for a sharper picture than just a business-level average.

Which cost item do restaurants underestimate most often?

Staff costs during quiet services. A fixed roster that doesn't flex with how busy each shift is costs margin structurally, even if the business looks fine on paper.

How often should I check my profit margin?

At least monthly, and your food cost per dish more often than that, especially if your suppliers keep shifting their prices. That way you quickly see which dishes still turn a profit and which deserve a new price.

What's the difference between gross margin and net margin?

Gross margin is what's left after buying your ingredients. Net margin is what's left after staff, rent, energy and your own owner's pay come off too. In hospitality those two sit far apart, so pay attention to which one someone means.

How do you work out the margin on a single dish?

Add up the purchase price of all the ingredients in the portion, including what you throw away while prepping, and subtract that from the selling price excluding VAT. Divide that difference by the selling price for the percentage. For a dish that takes a lot of hands-on work, count the kitchen hours too.

Catermonkey works out your dishes from your own purchase prices, so you see what's left over per dish and per service, without having to work it out afterwards in a spreadsheet.

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