What is a Restaurant Profit Margin?

A restaurant profit margin is the total dollar amount remaining after subtracting all restaurant expenses from a restaurant's total revenue. Restaurant owners should calculate restaurant profit margins in order to understand how to best improve business operations and optimize their bottom line long term.

With the vast majority of restaurant industry businesses surviving on a razor-thin profit margin, it is absolutely crucial for a restaurant owner to calculate and compare their profit margin with their competitors. Restaurant owners should make sure their average profit margin meets or exceeds the average range of similar restaurants.

For example, it is reasonable to anticipate a different average restaurant profit margin range for a fine dining small business in comparison to a fast food chain restaurant. A restaurant profit margin that is lower than the average range can indicate a deeper restaurant operations issue that warrants immediate attention and corrective action.

By identifying issues earlier on, restaurant owners have a higher chance of long term success. Accepting and understanding the low profit margins that the restaurant industry possesses can additionally assist restaurant owners to more realistically measure business success and avoid unnecessary burnout or dissatisfaction.

Profit margins help guide restaurant owners when they are faced with important and high stake business decisions. For example, a healthy profit margin may indicate that a small business could consider expanding its storefront locations.

Alternatively, a low profit margin could indicate that labor costs or food costs have gotten too expensive to be sustainable long term. Always make sure to consider average restaurant profit margins both for the entire restaurant industry and by restaurant type.