Complete Guide to Profit Margins at Restaurants
What is the Average Profit Margins?
What is the typical profit margin of a restaurant can be a vital and difficult, yet challenging, issue to resolve. While the profit margin might be an extremely well-known metric, it isn’t always easy to comprehend everything that impacts the calculation. The profit margin of your restaurant is contingent on many factors that are out of your control.
Understanding the average profit margin can aid in tracking the financial health of your restaurant as well as identify areas the areas where you can make improvements.
What is the Average Restaurant Profit Margin?
Although many restaurant owners want an answer that is definitive on this issue, typical restaurant’s profit margin can vary widely between different types of restaurants. As there isn’t a any one formula for food and drinks to ensure success in the restaurant industry there isn’t any one-size-fits-all formula to ensure a healthy profit margin. Your restaurant’s profit margin could be influenced by the food or inventory changes, the geographic place of business, the health of the economy in general and a myriad of other elements.
Gross Profit Margin
Gross profit margin refers to what is left over from the profits after deducting Cost of Goods Sold (CoGS) as well as costs for ingredients used in the menu item. This number can be used to gauge the efficiency of your restaurant, however, it does not include the total cost of operating.
Net Profit Margin
The net margin of your profit is calculated on your net income which is your total income less your operating expenses (your CoGS and other operating expenses like payroll taxes, maintenance or rent). When you divide your net income by the total sales, you can be able to account for all costs that come with running a restaurant , and determine the percentage of net profits you make for each dollar you earn.