Free Restaurant Profit Margin Calculator

Use our free restaurant profit margin calculator to easily and quickly gauge how your restaurant’s sales compare to its expenses. When you regularly monitor and manage your restaurant’s key performance indicators, like profit margin, you can make decisions that keep the business afloat. 

If you’ve calculated your restaurant’s profit margin and aren’t sure what it says about your business, keep reading. We’re taking it back to the basics by covering:

• What a restaurant’s profit margin is
• How to calculate profit margin
• Restaurant profit margin FAQs

What Is a Restaurant’s Profit Margin?

A restaurant’s profit margin is the percentage by which a restaurant’s sales revenue exceeds its expenses. This figure compares sales to the cost of goods sold to reveal how effectively a restaurant can turn revenue into profits. Profit margin can be measured in two ways: gross profit margin and net profit margin.

Gross Profit Margin

In the world of accounting, “gross” means total. Therefore, gross profit margin is calculated by subtracting the cost of goods sold from total revenue and dividing that figure by total revenue. Cost of goods sold (COGS) includes the costs directly associated with purchasing menu items, rather than all costs associated with production, such as labor and utilities. Gross profit margin, therefore, indicates profits before expenses are deducted.

Net Profit Margin

“Net” refers to the total after deductions have been made. Instead of just considering COGS – like you would to calculate your restaurant’s gross profit margin – you have to factor in every business expense (like payroll, rent, utilities, technology, etc.) to calculate net profit margin. The result is a more conservative and holistic representation of your restaurant’s profitability.

How to Calculate Profit Margin

Use the profit margin formula or our restaurant profit margin calculator above to calculate your margin.

Profit Margin Formula

The formula for gross profit margin is:

Gross Profit Margin = [(Revenue – Cost of Goods Sold)/Revenue]*100

The formula for net profit margin is:

Net Profit Margin = [(Revenue – All Costs)/Revenue]*100

Revenue refers to your sales in dollars, or your local currency. Cost of goods sold means the price that you paid for the raw ingredients for the menu items sold. All costs refers to your restaurant’s total operating expenses, including food costs, labor, rent, utilities, technology, and more.

Example of How to Calculate Restaurant Profit Margin

Now we’ll put those formulas into action with a sample calculation. Let’s say you run a pizza parlor and want to find out both your net profit margin and gross profit margin for last year. 

First you’ll need to find all of the inputs for the formula, starting with annual revenue. By looking at your POS reports, you see that your revenue in 2021 was $1 million. 

To figure out the cost of goods sold, you look up your entire food and beverage inventory costs in your inventory management software, and find that you spent $300,000 on ingredients in 2021. Finally, you look up all of your operating costs for 2021 in your accounting spreadsheets and find that they totalled $900,000.

Now you’re ready to plug these figures into their respective formulas.

Gross Profit Margin = [(Revenue – Cost of Goods Sold)/Revenue]*100

[($1,000,000 – $300,000)/$1,000,000]*100=[$700,000/$1,000,000]*100=70%

Net Profit Margin = [(Revenue – All Costs)/Revenue]*100

[($1,000,000 – $900,000)/$1,000,000]*100=[$100,000/$1,000,000]*100=10%

Therefore, your gross profit margin for the year was 70%, while your net profit margin was 10%.

Restaurant Profit Margin FAQs

What is the average restaurant profit margin?

The average restaurant profit margin varies by service style, but generally ranges from 3-10%. Quick service restaurants (QSRs) generally have an average profit margin of 6-10%, casual full service restaurants (FSRs) have an average profit margin of 3-6%, and fine dining restaurants have an average profit margin of 5-10%. 

What is a good profit margin for a restaurant?

A good profit margin for a restaurant is about 10-15%, which is well above the industry average of 3-10%. In some cases, high-volume bars, highly efficient quick-service franchises, or ghost kitchens with little to no overhead can achieve a great profit margin of 20% or more.

How do I increase my restaurant’s profit margin?

The best way to increase your restaurant’s profit margin is to hone in one of your two biggest expenses – your Food Cost (COGS) and labor – while simultaneously increasing average check size. Some profit-margin boosting strategies are:

• Optimize Your Menu: Audit your recipe costs for every dish and remove any unpopular, low-margin dishes to streamline your menu.
• Reduce Food Waste: Keep a waste log to find out whether staff are over-prepping, over-portioning, or losing food to spoilage.
• Reduce Labor Costs: Strategies such as cross-training staff, staggering schedules, and implementing QR code ordering can all help to bring labor costs down.
• Boost Average Check Size: Add profitable modifiers (for example, adding cheese to a burger for an extra cost) and push high-margin beverages.

What profit margins do successful restaurants usually achieve?

Successful restaurants usually achieve profit margins between 12% and 15%, which is well above the average. Exceptionally successful restaurants – which are usually those with high volume, low overhead, and/or high-margin beverage programs, can achieve profit margins of 15% to 22%. Restaurants that manage to achieve these impressive profit margins usually have the following in common: they keep prime costs at or below 55%, their rent is under 6% of sales, and they have minimal waste.

How to fix low profit margins in restaurants?

Fixing low profit margins in a restaurant requires first identifying where your financial bottlenecks are and then executing targeted fixes. Here are some commons fixes restaurateurs can use to boost their margins based on the financial issue:

• High Food Costs (Over 32%): In order to bring food costs down, you can recalculate your plate costs, shrink your menu (i.e. cut the bottom 20% worst selling items), or implement a waste log to reduce waste.
• High Labor Costs (Over 33%): stagger your clock-ins by 15- to 30-minute intervals to reduce the number of staff working in full eight hour blocks, or track hourly sales data to determine when you can start cutting floor and kitchen staff early.
• High Overhead Costs (Over 30%): Audit and potentially eliminate third-party apps if the delivery premiums aren’t worth it, or negotiate your rent to bring it below 10% of your gross monthly sales.

How to use a restaurant profit margin calculator effectively?

To use a restaurant profit margin calculator effectively, you have to treat it as a live diagnostic tool, rather than a static spreadsheet, because it lacks any historical data about your restaurant’s finances. The best way to use a profit margin calculator is to run “what if” scenarios to determine if small changes to your pricing, portions, or staffing can improve your bottom line.

Calculating your restaurant’s profit margin regularly can help you better understand your business’ performance and inform decisions. Use our restaurant profit margin calculator to keep an eye on this critical restaurant metric.

Need help managing other aspects of your business? Check out our downloadable restaurant spreadsheets.

by Katherine Pendrill

Katherine is the Content Marketing Manager at TouchBistro, where she writes about trending topics in food and restaurants. The opposite of a picky eater, she’ll try (almost) anything at least once. Whether it’s chowing down on camel burgers in Morocco or snacking on octopus dumplings in Japan, she’s always up for new food experiences.

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