Key Restaurant Profit Formulas
Food Cost %
Target: 28–35%(Cost of Ingredients ÷ Menu Price) × 100
Gross Profit Margin
Target: 65–75%((Revenue − COGS) ÷ Revenue) × 100
Prime Cost
Target: <65% of revenueCOGS + Labor Costs
Net Profit Margin
Target: 3–9%(Net Profit ÷ Revenue) × 100
Real Restaurant P&L Example
Casual Dining Restaurant — Monthly P&L ($80,000 Revenue)
Revenue
$80,000
100%
Food & Beverage Cost (COGS)
−$26,400
33%
Gross Profit
$53,600
67%
Labor (kitchen + FOH)
−$25,600
32%
Rent & Utilities
−$9,600
12%
Marketing & Misc
−$3,200
4%
Net Profit
$15,200
19%
Note: This example shows a well-run restaurant. Industry average net margin is 3–9%.
Frequently Asked Questions
What is a good profit margin for a restaurant?
Net profit margins for restaurants typically range from 3–9%. Fine dining can reach 10–15%. Fast food and QSR average 6–9%. Below 3% is a warning sign — one bad month can wipe out the year.
What is food cost percentage and why does it matter?
Food cost percentage = (Cost of Ingredients ÷ Menu Price) × 100. The industry target is 28–35%. If your food cost is 40%+, you're likely losing money even with a full restaurant.
How do restaurants calculate gross profit?
Gross Profit = Revenue − Cost of Goods Sold (food + beverages). A restaurant with $50,000 monthly revenue and $18,000 COGS has a $32,000 gross profit (64% gross margin).
What kills restaurant profit margins most?
Labor costs (typically 30–35% of revenue), food waste, over-portioning, and high rent. The "prime cost" (labor + COGS) should stay below 65% of revenue.
How can restaurants improve profit margins?
Menu engineering (promoting high-margin items), reducing food waste, optimizing staffing schedules, renegotiating supplier contracts, and adding high-margin revenue streams like catering or merchandise.