What is the Average Restaurant Profit Margin? [2022 Data] – On the Line | Toast POS

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This Post: What is the Average Restaurant Profit Margin? [2022 Data] – On the Line | Toast POS

As anyone in the foodservice industry will attest to, getting a restaurant off the ground — and keeping it running — is no simple task. Long hours and hard decisions abound, but with a bit (okay, a lot) of preparation and planning, you can transform logistical (and sometimes physical) pain into financial gain.

A quick scan of the current state of the restaurant industry can make the restaurant landscape look a bit bleak: massive turnover, exorbitant labor costs and food costs, sky-high rent, punishing online reviews… the list goes on.

But ultimately, whether a restaurant’s doors stay open or not depends on one thing: profit margin. You can calculate it using our free restaurant profit and loss template. Keep reading for a complete guide to restaurant profit margins, and learn everything you need to know on how to achieve and maintain profitability in the restaurant business.

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Complete Guide to Restaurant Profit Margins

What is restaurant profit margin?

Where profit is an amount expressed in dollars and cents, the profit margin is the amount of profit expressed as a percentage of annual sales.

Profit is money left over after subtracting operating expenses from gross revenue, and how you generate revenue may include more than just food and beverage sales. Total sales may consist of catering, venue hire, branded merchandise, and packaged goods, co-working space sharing, and franchising agreements, among other possible revenue streams. 

Unfortunately, even though your total revenue may come from more than one revenue stream, the sky’s the limit when it comes to expenses. Between labor, inventory, payroll, rent, utilities, advertising, credit card processing fees, equipment repairs, restaurant POS system technology, general maintenance, and the dozens of other fixed costs, variable, and above-the-line expenses thrust upon restaurant owners, it’s common to feel underwhelmed at what’s left after you’ve made all the necessary deductions.

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It’s critical that you take control of your restaurant costs to minimize expenses and stretch your margin.

During your restaurant’s early years, it’s important to manage your average restaurant revenue and gross profit margin expectations. Of course, it’d be wonderful to be the next overnight success story, but the fact is the vast majority of restaurateurs take on significant debt and achieve limited profitability when first starting out.

Making conservative estimates and goals will serve you well when unexpected start-up costs crop up. When it comes to profits, sustainability is key.

The higher the profit margin, the better. But as we’ll explore in the next section, your restaurant profit margins are always subject to change, sometimes as a result of things outside of your control.

What is the average profit margin for restaurants?

Just as a restaurant’s success is not wholly determined by the food or drinks it serves, the average profit margin for restaurants is impacted by a host of factors, like average cost per customer (especially if you’ve managed to upsell), the type of restaurant operation it is, and so on.

The range for restaurant profit margins typically spans anywhere from 0 – 15 percent, but the average restaurant profit margin usually falls between 3 – 5 percent.

Any Introduction to Statistics textbook will explain how outliers — data points on the extreme ends of a spectrum — affect averages. Gross revenue and expenses vary significantly between a QSR and a Michelin star restaurant. So it’s worth researching profit margins specific to your niche when determining how much profit you should make in a restaurant.

The biggest takeaway here is to set a goal to maintain “average-or-better” restaurant margins, year over year.

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How can I improve my restaurant profit margin?

There are two ways to approach this:

a. increasing sales volume relative to expenses, or

b. decreasing expenses relative to sales volume

It’s important to keep in mind that when it comes to typical restaurant margins — much like almost everything else in the industry — what works for one may not work for all.

For example, many QSR and FSRs believe a straight reduction in hourly labor or supplies will produce a “quick win” to cut costs and increase profits. However, this is a tactic that must be approached with caution, as failure to plan for the effects of these adjustments can compromise your customer experience, your staff morale, and your bottom line.

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When it comes to restaurant expenses, people often reference the “Big Three”:

• Cost of Goods Sold
• Labor
• Overhead

As a rule of thumb, one-third of revenue is typically allocated to cost of goods sold (COGS), another third to labor, and the remainder must account for any additional overhead expenses.

Proactive planning is crucial. It’s something that rests at the heart of every successful business venture and is essential for all types of restaurants, be they fine dining full-service restaurants, fast food quick-service restaurants, or food trucks. Setting conservative restaurant goals will offset circumstances beyond your control — things like inclement weather and economic downturns.

To help you on your way, here are seven strategies designed to keep your customers, staff, suppliers, and bank account happy.

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Restaurant Metrics Calculator

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(857) 301-6002

You must have Javascript enabled in order to submit forms on our website. If you’d like to contact Toast please call us at:

We’ll handle your info according to our privacy statement.

RESOURCE

Restaurant Cost Control Guide

Use this guide to learn more about your restaurant costs, how to track them, and steps you can take to help maximize your profitability.

Download

(857) 301-6002

You must have Javascript enabled in order to submit forms on our website. If you’d like to contact Toast please call us at:

We’ll handle your info according to our privacy statement.

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