Three margins every owner should know
gross margin = (sales − food and drink cost) ÷ sales prime cost = (food and drink cost + labor) ÷ sales net profit margin = (sales − all costs) ÷ salesGross margin
What's left of each dollar after the food and drink on the plate and in the glass. It says whether your menu is priced right. See the food cost and pour cost calculators to fix it dish by dish.
Prime cost
Food, drink, and labor together, the two costs you can move week to week. A common rule of thumb is to keep prime cost under about 60% to 65% of sales. Over that, there's usually not enough left for rent and profit.
Net profit margin
What you keep after everything. Figures commonly cited for full-service restaurants are in the low single digits, often around 3% to 6%; bars and quick-service spots often run higher. Your own trend month to month matters more than any average.
A worked example
$100,000 in sales, $30,000 in food and drink, $32,000 in labor, and $33,000 in everything else. Gross margin is 70%, prime cost is 62%, and you keep $5,000, a 5% net margin.
Questions owners ask
Should I count my own pay?
If you take a salary, put it in labor. If you only take what's left, your net profit is your pay, and a 5% margin on $100,000 a month is $5,000 before taxes.
Why is my food cost higher than my recipes say?
Waste, over-portioning, comps, staff meals, and theft. Compare your monthly food cost (starting inventory + purchases − ending inventory) with what your plate costs predict. The gap is money you can win back.
Where do card fees go?
In "everything else." If they're a big share, run the card processing fee calculator against a second quote.