Average Restaurant Profit Margin (Calculator + How To Grow Yours)

It takes more than just culinary passion to keep your restaurant afloat — especially during challenging economic times in the restaurant industry. Figuring out your finances is a big part of the game, and your restaurant’s profit margin is the key player. It’ll tell you how much money you get to keep after paying all the bills. 

While no magic number guarantees success, industry benchmarks for average restaurant profit margin give you a great reference point to see where there’s room for growth for your restaurant. 

Our free restaurant profit margin calculator helps you quickly and easily compare your profit margins to the industry averages for your restaurant type. 

We'll break down what a healthy profit margin looks like, how to calculate it and how to compare your results from our calculator to the industry averages. And I’ll also share five tips I’ve learned from years of working with restaurant owners across the country.

What Is Restaurant Profit Margin?

Restaurant profit margin tells you what percentage of your revenue you keep as profit after all your expenses. Basically, it’s the amount you pocket for every dollar of sales you make.

Tracking and managing your margins can mean the difference between a thriving restaurant and going bust. Maintaining a healthy profit margin allows you to reinvest in your restaurant, adapt to changing market conditions and improve the likelihood of long-term success. 

Understanding your profit margins helps with several aspects of your business, like:

• Pricing: Use it to fine-tune a competitive yet profitable pricing strategy that isn’t too high to deter customers or too low to impact operations.
• Menu planning: Examine the price margins for each dish to discover opportunities for adjustments to pricing, portion sizes or ingredient sourcing to enhance profitability.
• Budgeting: Understanding your profit margins is essential for effective budgeting and financial forecasting.
• Uncovering cost leaks: A close look at your profit margins can reveal specific areas where costs may be too high, whether it’s in food costs, labor or overheads.

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How to use our restaurant profit margin calculator 

To calculate your restaurant profit margin, simply input your total revenue, cost of goods sold (COGS), and total operating costs (prime costs)— then pick your restaurant type and hit calculate. 

This restaurant margin calculator will calculate your restaurant’s gross and net profit margins automatically. It’ll also show you the industry average for your restaurant type and how you compare. 

If you’re looking for additional insights on exactly how to calculate restaurant profit margins, what a good profit is, and how to increase yours, keep reading.

Gross Profit Margin vs. Net Profit Margin

As I pointed out in that last image, there are two main ways to look at a restaurant's profit margin. Let’s look at them more closely: 

Gross Profit Margin: 

• Focuses on revenue vs. the cost of the food you sell.
• Subtract the cost of goods sold (COGS) from your total revenue, and then divide that number by your total revenue.
• Useful for: Strategizing menu pricing and monitoring inventory management.

Net Profit Margin: 

• Takes into account ALL your expenses, not just food costs
• Subtract all your operating expenses from your total revenue, then divide that number by your total revenue.
• Operating expenses should include labor costs, marketing expenses, location costs and any other expenses that go into your business’s operating costs.‍
• Useful for: Identifying cost leaks, benchmarking your performance and tracking your restaurant’s financial health.

Average Profit Margins in the Restaurant Industry

So, how much profit are we talking about here? Industry reports tell us that the average restaurant profit margin sits around 10.66%. 

That might not sound like a huge number, especially considering the long hours and dedication you put into running your restaurant. But remember, even small percentage increases can translate to significant gains.

Let's put that 10.66% profit margin into perspective: 

• Imagine your restaurant brings in $10,000 in a day in total revenue. 
• With a 10.66% profit margin, that translates to $1,066 in profit. 

Once you scale those profits up to a year, with the presumption your business is open five days a week, a profit of around $278,000 sounds pretty nice. But remember that restaurant profit margins can vary depending on the type of restaurant you run.

Fine Dining 

Fine dining restaurants typically use high-quality, premium ingredients that cost more than what you'd find in other establishments. But that also translates to higher sales tickets per customer. Additionally, they provide a higher level of service with attentive wait staff, which translates to increased labor costs.

Successful Examples: Eleven Madison Park, The French Laundry and Commander’s Palace.

Casual Dining 

Casual dining shares some similarities with fine dining, but with a more relaxed atmosphere and potentially lower food costs. They often use slightly less expensive ingredients or smaller portions compared to fine dining.

Successful Examples: Olive Garden, Applebee's and The Cheesecake Factory.

Fast Casual 

Combining elements of fast food and casual dining, these restaurants often benefit from economies of scale and prepped ingredients, leading to potentially higher margins. 

Successful Examples: Chipotle, Panera Bread and Shake Shack.

Fast Food

Efficiency is king in fast food establishments. Standardized menus, lower labor costs and high-volume sales can contribute to the profit margins in this category. 

Successful Examples: McDonald's, Chick-fil-A and Taco Bell.

Cafés and Coffee Shops

Coffee shops that primarily focus on beverages might have lower margins compared to cafes with a larger food selection. Food items generally have higher profit margins than beverages, so a cafe with a wider food menu can potentially boost their overall profitability.

Successful Examples: Starbucks, Peet’s Coffee and Panera Bread.

Pizzeria

Pizzerias can leverage economies of scale when buying ingredients in bulk. They also benefit from focusing on a single main course, which can streamline operations and potentially lead to higher margins. 

Successful Examples: Domino’s, Little Caesars and Pieology.

What Is a Good Profit Margin? 

Every restaurant is unique, and your profit margin goals will depend on your specific business model, location and even the crazy things life throws your way (such as a global pandemic).

As an owner, you’ll likely experience inflation pushing up food costs, supply chain hiccups making ingredients harder to find and even labor shortages making staffing a challenge. Understanding your financials before you strategize on how to improve your profit margin is key.  

Even a small increase in your profit margin can make a big difference to your bottom line. Especially when you consider how much a restaurant can bring in — we're talking hundreds of thousands in a year! So, let's dig into some strategies to help you push your profit margin in the right direction.

How To Raise Your Profit Margin: 3 Costs To Manage

How do we translate this knowledge of profit margins into something actionable? The first step is understanding your restaurant's financial landscape. 

With a firm grasp on your costs, you can identify areas for improvement and unlock hidden opportunities to boost your bottom line. Because figuring out how to increase your restaurant sales can lead you to a higher profit margin.

The Importance of Food Costs

The biggest part of your restaurant’s costs of goods sold (COGS) will always be food. The obvious strategy is to reduce food waste and ensure that your team is using standard portions.

But it's also super important to know your food margins, or food costs. You calculate them by dividing the total amount you spent on food during a specific period by the total number of food sales. Taking the time to figure out these margins will allow you to maximize profits with strategic menu planning. 

Example: Consider how McDonald’s upsells its highest profit margin food items, fries and soda, without customers even noticing. The $5 Big Mac (with a 40% food cost) may be the thing that brings them in the door, but the fries, beverages and desserts are the lowest food cost items at approximately 10% each. 

By encouraging meal deals that add these items, they’re making pure profit on their upsell.

Labor Expenses Aren’t Just in the Kitchen

The cost of labor doesn’t just apply to your kitchen staff, waitstaff, bartenders and host/hostesses. If you hire marketing agencies or a social media marketing person to post on your restaurant’s behalf, include those costs in your labor expenses. But you may not need all of those people to improve your bottom line.

Example: Bestia of Los Angeles gives its staff something to smile about by incorporating them into its social media for the restaurant. It’s able to give praise to deserving employees and show glimpses of the team enjoying what they do while simultaneously marketing the restaurant.

Marketing Costs 

Traditional marketing costs may include advertisements, website development and maintenance, engagement with community events and public relations. But did you know that you could also consider the costs of third-party delivery apps as marketing expenses? 

They’re useful for promoting your restaurant and bringing in new customers, but DoorDash charges restaurants up to 30% on commission and delivery fees. You can (and should) control how reliant your business is on third-party apps — especially when there are DoorDash alternatives for restaurants worth considering. 

Example:  Talkin Tacos, a specialty taco restaurant in South Florida, was losing over $20,000 a month on delivery fees through apps like DoorDash, UberEats and GrubHub. By building out a new website and developing their own app, they now make $120,000 each month in direct online sales. 

Customers can order directly through the restaurant directly, plus, the staff now gets to keep the tips that used to go to the third-party app delivery drivers.

Focus on Conversions for Profit Margin Growth 

If you’re looking to ramp up your profit margin to compete with the average restaurant industry statistics, I recommend building a website that helps you increase your online traffic and then converts that traffic into paying customers.  

Owner.com can help you drive more profitable sales with an SEO-optimized website to attract more customers, a custom mobile app, automatic marketing and an online delivery and marketing system for your restaurant.