These days, the challenges of running a restaurant are well-known. Operators face a labor shortage and an uncertain economic climate despite rising customer expectations. As a result, success requires dedicated planning, strong management skills, and a keen financial sense.
To ensure that your business continues to grow and thrive, familiarize yourself with the ins and outs of your restaurant’s profit margin. In this post, we’ll cover:
What is restaurant profit margin?
Why is restaurant profit margin important?
What’s the average restaurant profit margin?
How to calculate restaurant profit margin
Tips for improving restaurant profit margin
What is restaurant profit margin?
A restaurant’s profit margin is the percentage of annual sales that can be considered pure profit. From a bookkeeping perspective, profits are whatever is left over after subtracting expenses from your restaurant’s revenue.
Why is restaurant profit margin important?
Given the current labor crunch as well as food inflation costs, restaurateurs everywhere have to keep a close eye on every dollar spent. Consequently, restaurant profitability is a strong indicator of financial health.
If you ever want to secure a business loan or seek restaurant investors, your restaurant’s profit margin is a crucial metric. Higher profits show you’ve mastered some skills in controlling expenses and growing revenue.
What’s the average restaurant profit margin?
Across the restaurant industry, profit margins vary depending on the type of restaurant, its geographic location, and a couple of other factors. However, in general, restaurant profit margins tend to be relatively low compared to other industries, as restaurants deal with high operating costs on top of losses due to seasonality, staff turnover, and waste.
Full-service restaurants generally have the lowest margins. Ingredient costs run higher, and more labor is involved, which adds up to higher expenses.
Fast casual restaurants and food trucks tend to have higher profits, less food waste, and lower labor costs.
Full-service restaurants: 3 to 5%
Fast casual restaurants: 6 to 9%
Fine dining restaurants: 2 to 4%
Food trucks: 7 to 15%
How to calculate restaurant profit margin
Restaurant profit margins are typically expressed as a percentage. However, you can calculate your restaurant’s profit margin by subtracting the cost of goods sold (COGS) from total revenue and dividing that number by the total revenue. COGS refers to the total cost of any menu item – including raw ingredients and labor.
In the following examples, we’ll look at the formulas for gross profit margin and net profit margin.
Gross profit margin formula
To calculate your gross profit margin, you’ll need to deduct your COGS from your total revenue for a given time period – let’s say a month.
Gross profit margin = (total revenue from food and drink sales - cost of goods sold) / total revenue from food and drink sales
Hypothetically, let’s say your restaurant’s total revenue for the month of August was $20,000, and your COGS amounted to $10,000.
Here’s how we’d calculate your gross profit margin:
Gross profit margin = (20,000 - 10,000) / 20,000
Gross profit margin = 10,000 / 20,000
Gross profit margin = 0.50 or 50%
In this example, your restaurant's gross profit margin for the month of August is 50%, meaning that for every $1 a customer spends, 50 cents is gross profit.
Net profit margin formula
Your net profit margin refers to the profits left over once you deduct all of your fixed, variable, and mixed expenses from your gross profit margin. That sum is smaller – but represents the money you actually have on hand.
To calculate your net profit margin, you need to deduct all costs from your revenue over that same month, then divide that sum into your revenue. Included in your costs are expenses like your rent, payroll, equipment rental, etc.
Net profit margin = (revenue - costs and expenses) / revenue
For this example, to find your restaurant’s net profit margin for the month of August, we already know you generated $20,000 in revenue. Let’s say your total expenses came to $18,000. Here’s how you’d find your net profit margin:
Net profit margin = (20,000 - 18,000) / 20,000
Net profit margin = 2,000 / 20,000
Net profit margin = 0.10 or 10%
At 10%, your restaurant’s net profit margin is a lot less than its gross profit margin. For every $1 you generate in revenue, you take 10 cents home.
Use our Business Budget Template to get started with understanding and tracking your COGS and other expenses.
6 tips for improving restaurant profit margin
1. Reduce food waste
Not only is excessive food waste notoriously bad for the environment, but it can also negatively impact your restaurant profit margin. To minimize what you are throwing away at the end of every day, conduct a thorough waste analysis. Track the weights and types of waste (paper goods, produce, meat, etc.) to get a baseline understanding. Next, ensure your staff is storing food properly and your prep cooks are yielding the most out of your ingredients. For example, rather than toss what you don’t use, you can make soups and stews with many of your leftovers.
Monitor your sales data to forecast busy and slow days so you can order the correct amount of ingredients. Once you have a handle on your food cost control, you can move on to other strategies.
2. Keep a close eye on expenses
For maximum profits, restaurateurs need to constantly monitor their food costs – especially now, when prices can fluctuate week to week. The price of ingredients continues to fluctuate wildly; ditto with the price of gasoline and transportation.
Allen Young from Major Phillie Cheesesteaks saw a dramatic rise in his food prices.
Provolone’s our #1 selling cheese and it used to be $38 a case. It is now $60 a case. Chicken prices have reached a high as well – chicken breasts were almost at $200 a case.
Manuel Bucio from Chicago-based Ice cream store Razpacho’s saw the price for lettuce go from around $18 a box to $90.
For things that I buy online, prices increased a little bit, maybe 20 to 30%, but transportation increased 100 to 200%. So it's really been a challenge. It's been difficult. But I personally have a hard time raising my prices, thinking, ‘What about the customer – how are they going to take it?'
One way to avoid raising prices is to keep a watchful eye on expenses instead. Restaurateur Kwini Reed from LA’s Poppy + Rose shared her insights on this topic at Main St Summit: LA.
We're constantly looking at our revenue and expenses. I'm in the books and scrubbing. ‘Do I need this? Can I get a better rate here?’ If you have three different purveyors, you need to start bargaining and figure out how to get costs down.
3. Practice menu engineering
Menu engineering is a process that factors in the profitability and popularity of every item on your menu to help increase your restaurant's revenue.
Start by analyzing each menu item (breaking down the cost of all ingredients) as well as the sales volume for a recent time period to see which dishes are the most profitable and which are the least profitable. Then adjust accordingly. Substituting lower-cost ingredients in the least profitable dishes – or removing them entirely – can help reduce costs.
For online orders, photos and descriptions make a big difference too. Investing time to design a menu that sells is another form of menu engineering.
Bucio is always making tweaks to Razpacho’s online menu to optimize it. “If it's not working – what’s going on, what’s missing? Then I start making changes or upgrades so it looks good, like working on a different menu description.”
4. Grow your takeout and delivery business
Now more than ever, offering delivery is a great way to increase restaurant sales. With McKinsey estimating the global food delivery market at over $150 million, restaurants are no longer choosing whether or not to implement delivery, but how to do so.
Offering pickup and delivery can drive incremental revenue to your business and improve profit margins. Packaging costs will rise due to paper products and takeout containers, but rent margins will decrease assuming you don’t need to lease any additional space for your delivery business. Plus, while food and food preparation costs are usually about the same, the labor required for off-premise operations often runs lower.
DoorDash offers two complementary ways to support that growth. DoorDash Marketplace connects you with people already looking for their next meal, helping you reach both new and repeat customers. DoorDash Commerce Platform builds on that momentum by helping you bring those same customers back to order directly from you — with simple marketing tools and commission-free online ordering. You just pay a standard payment processing fee of 2.9% + $0.30 per order.
By combining the power of Marketplace and Commerce Platform, whether a customer orders on the DoorDash app or directly from your business, DoorDash handles the delivery — getting direct orders from your kitchen to customers' homes.
5. Boost direct orders
Another way to protect your margins is by capturing more direct sales.
The first step is setting up an online ordering system if you don't have one yet, so customers can order directly from your business online. You'll want to go with a technology provider that offers commission-free online ordering, like Commerce Platform. With Commerce Platform, you just pay a standard payment processing fee of 2.9% + $0.30 per order.
Next, you'll need to implement restaurant marketing best practices to drive people to your online ordering menu to order directly from you. Of course, adding marketing to your growing list of to-dos might feel overwhelming. But it doesn't have to!
With Commerce Platform you get simple marketing tools that allow you to build your brand and encourage customers to order directly from you. From automated email marketing to a built-in loyalty program (available in the US only), Commerce Platform gives you everything you need to establish and grow your direct ordering business with as little effort as possible.
6. Train (and incentivize) your staff to upsell
Upselling is the art of suggesting items to customers – especially items with higher profit margins. It’s one of the most effective ways to increase sales and improve restaurant profit margin without increasing labor costs. Be sure to give your employees a chance to taste new menu items and have them pick a favorite profitable dish, along with drink and dessert pairings, to recommend to guests.
A savvy waitperson might say, "Can I offer you dessert tonight? Our crème brûlée is my personal favorite." Simple actions like this can help increase your average meal profits.
For digital sales, build upselling into your ordering process. Marketplace suggests add-ons to third-party orders placed on DoorDash, while Commerce Platform automatically offers upsells on orders placed directly through your site or mobile app (branded mobile apps available in the US only).
The bottom line on restaurant profit margins
Understanding your restaurant’s profit margin is one of the most practical ways to stay steady in a fast-changing industry. Once you know how your costs, pricing, and operations connect, it becomes easier to spot where you’re doing well and where small adjustments could make a meaningful difference.
Whether you’re reviewing expenses, looking for ways to streamline service, or exploring tools that support takeout and delivery, each step helps you build a more stable foundation for long-term growth. Strong margins don’t come from one big change — they come from consistent, thoughtful decisions that help your business stay resilient day after day.
