What Are Restaurant Profit Margins?

Profit margins indicate how much money a restaurant makes and are expressed as percentages. To make sure that their food is appropriately priced, restaurant operators must check these numbers beforehand.

One of two terms is typically used when discussing the restaurant profit margin:

• Gross profit margin: (Revenue – Cost of Goods Sold) / Revenue This calculates the amount of money left over after covering the cost of food and drink.
• Net profit margin: (Total Revenue – All Expenses) / Total Revenue Labor, rent, utilities, insurance, taxes, and other expenses fall under this category. It represents the true image of profitability.

A slight increase in food costs, a few extra labor hours you didn't need, or a slow month can take off most of your profit. It's also why a lot of operators track their numbers weekly instead of just monthly, catching problems early instead of finding out at the end of the month when it's too late to adjust.