How to work out your restaurant profit margin

A margin is an outcome, not a target

Ask an owner about their margin and you usually hear a number they read somewhere. That number is not their margin. It is the average of thousands of restaurants that look nothing like theirs, with different rents, different wages and a different kind of guest.

Your profit margin is easy to describe: of every euro of revenue, how much is still there once everything is paid. There are two versions of that figure and they do different jobs.

In hospitality that second figure is thin. A few percentage points is the difference between a year in which you can replace an oven and a year in which you only worked. So it does not belong with your accountant once a year. It belongs on your own kitchen table once a month.

A full dining room proves nothing, by the way. Busy is the top line of the sum, and what survives at the bottom depends on what leaks out between the two.

How to calculate it, step by step

There is no trick to it. Five steps, once a month, using figures you already have.

1. Add up all your revenue for the month, including everything that came in through a platform. Take the amount the guest paid, not the amount credited to your bank account.
2. Take the VAT out. Divide food and non-alcoholic drinks by 1.09 and alcohol by 1.21.
3. Subtract what you spent on food and drink. What remains is your gross profit.
4. Subtract everything else: labour, rent, energy, insurance, commission, payment fees, packaging and depreciation.
5. Divide what is left by your revenue excluding VAT and multiply by a hundred. That is your net margin.

A month in round numbers

The amounts below are invented to show the sum, not to set a standard. Put your own lines in and the shape stays the same.

The bottom line is €3,750 on €55,000 of net revenue, a net margin of just under seven per cent. The gross margin that month is 70 per cent, and the two side by side show where the money goes: not on the menu, but in the costs underneath.

Now change one line. Suppose some of your regulars start ordering directly and the commission line halves to €2,000. You keep €5,750 and your margin lands above ten per cent. You have not changed a dish, raised a price or sent anyone home.

That is what a thin margin does. Every shift on the cost side is immediately large in percentage terms, and the other direction only shows up a quarter later.

What you use that percentage for

A margin on its own is a school report. It becomes useful when you hold it up against something.

• Pricing: you see how much room you have before you raise anything, and whether price is the lever you actually need.
• Menu: you see which dishes carry the margin and which mostly make revenue.
• Budgeting: you see a quiet month coming instead of explaining it afterwards.
• Leaks: a margin that falls while revenue rises almost always points at a single cost line.

That last case is the one you meet most often. Revenue grows, the place feels busier, everyone works harder, and less is left. Usually the growth is coming through the most expensive channel, so the commission simply scales up with the orders.

What drives your margin depends on the kind of place you run

The type of restaurant you run does not decide what percentage you reach. It does decide which costs make or break your margin, and therefore where to look first.

Recognise your business in one of those rows and you still know nothing about your margin. You do know which two lines to watch most closely.

The percentages you find online, and why you cannot copy them

Search for average hospitality profit margins and the same bands come back everywhere: a few per cent for a full-service restaurant, a little more for quick service. Almost all of those figures come from American industry reports. They are not made up. They simply describe a different sector from yours.

• There, tips carry part of the wage. Here the wage is set in the collective agreement, with employer contributions, holiday pay and pension on top.
• There, menu prices are quoted before sales tax. Your menu price includes VAT, so your revenue starts lower than the number on the receipt.
• Rent, energy and local council charges vary here by city and sometimes by street. A national average irons out precisely the difference that affects you.

If you do want Dutch figures, look at CBS, at your trade association, or in your bank’s sector report. Ask your accountant what they see across comparable businesses too, because they read real annual accounts.

Alongside that, use the comparison that always holds: your March against your March last year. Same restaurant, same neighbourhood, same season, same fixed costs. If that number moves up, you are doing something right, whatever a report from Chicago thinks.

Lever 1: purchasing and waste

Food is your largest variable cost and the only one that moves every day. Your food cost is the share of net revenue spent on ingredients: purchases divided by revenue excluding VAT. If that percentage creeps up while nothing has changed, the difference is nearly always portioning, waste, or your supplier.

Portions drift without anyone noticing. Two chefs plate differently, and on a busy Saturday both of them plate generously. Weigh the most expensive ingredient in each dish for a week and you will know whether you are handing a few euros away every evening.

Waste is the second leak. Whatever goes in the bin at the end of service was bought and never sold. One week of writing it down is enough to see the pattern, and the pattern is almost always the same product at the same point in the week.

The third leak sits with your supplier. Invoice prices do not always follow what was agreed, and a product priced in January can quietly cost more by June. Check your ten biggest lines every month.

The last move goes the other way. A side or a soft drink carries a higher margin than a main, so every order that gains one pulls your average up. On your own ordering page you put that suggestion just before checkout. On a platform, the platform decides what the guest sees.

Lever 2: labour, including the work you outsource

Labour costs are more than the figures on the payslips. Employer contributions, eight per cent holiday pay, pension premiums and sick pay all belong there. Work with gross wages alone and your margin looks better than it is while your rota stops matching reality.

Add the work you outsource to the same line. The agency running your social media, the photographer who visits each season, the friend of a friend who updates your menu online. That is not a separate marketing pot. It is labour someone else supplies, and your margin treats it the same.

The biggest gain is usually not fewer people but better scheduling. Your own order data shows, in half-hour blocks, when the rush actually starts. A shift that always begins an hour early costs you that hour every week.

And you do not need a marketer to grow online. A site that gets found and a guest list that belongs to you do part of that work without a monthly invoice. That is the difference between a fixed cost and something that keeps standing in a month when you do nothing.

Lever 3: commission, the cost that never arrives as an invoice

This is the only lever you can pull without changing your dishes, your people or your rent. Commission is deducted before the money is paid out, so no invoice arrives and your bank statement shows only the remainder. Find the amount in your settlement statements from Thuisbezorgd or Uber Eats and give it its own line. Estimating it is pointless.

Treat that line as marketing, because that is what you buy: reach and new guests. For someone who did not know your restaurant, it can be worth the price. For the Thursday regular, you pay again every week for an introduction that happened long ago.

Collection is the easiest place to start. No courier, a guest who is already nearby, and the whole commission disappears. So put one sentence in your restaurant and on your receipts: order directly next time.

You do not have to leave the platforms for this to work. You only have to move the repeat orders, because those are exactly the orders a platform does the least for. It can keep the first introduction.

From more revenue to more margin

Most plans to lift a margin start with more revenue. That only works if the extra revenue does not run through your most expensive channel. Otherwise everything scales together: the orders, the rush, the hours, the packaging and the commission, and your percentage stays exactly where it was.

Growth that does help looks different. The same guest returning more often, an order one side larger, and an order on a channel where nobody takes a cut. Three small movements that land straight on the bottom line.

In three months you run the sum again. The number you want to see then is not the average from a foreign report. It is your own, slightly higher, for a reason you can point at.