Final Word

While restaurant profit margins can be quite low, they’re easy to calculate which makes it easy for you to keep track of them. Keep an eye on your profit margin and take steps to try to boost it. That will help you put more money in your pocket.

If you need additional funding to finance daily operations of your restaurant business or expanding it, you might like to explore the best restaurant business loan options we recommend.

Best Restaurant Business Loans

Frequently Asked Questions (FAQ)

How Much Do Restaurant Owners Make?

Restaurant owners’ incomes can vary widely based on how many locations they own, the type of restaurants they operate, and how long they’ve been in business. On average, restaurant owners earn anywhere from $30,000 to $155,000 per year.

How Much Money Does a Restaurant Make?
Restaurant revenues can vary based on many factors, including the season, the type of food they serve, and how long they’ve been open. In their first year of business, restaurants bring in an average revenue of $112,000 per month.
Are Restaurants Profitable?

While there’s no guarantee that any business will be profitable, restaurants are, generally, profitable. If you own a restaurant, you can make money. However, keep in mind that margins are quite low and that profitability will vary with your location, economic factors, and many other things. 

Typically, it takes two years from when a restaurant opens to when it begins to turn a profit.

What is gross profit?/ How to calculate gross profit

Gross profit is a measure of a business’s profit that looks only at revenue and cost of goods sold (CoGS). CoGS includes things like materials, direct labor costs, commissions, and shopping fees. It ignores fixed operating costs like rent. 

To calculate gross profit, simply find your company’s revenue and subtract the Cost of Goods Sold.

Revenue – CoGS = Gross Profit

What is net profit?/ How to calculate net profit

Net profit is a measure of a business’ profit after all costs are subtracted out. Unlike gross profit, it considers both Cost of Goods Sold and fixed costs like rent. 

To calculate net profit, find your company’s revenue, and subtract all of your business’ expenses.

Revenue – Expenses = Net Profit

Why restaurant profit margins are so low

Restaurants are notorious for their low profit margins. There are three major costs that account for these low margins.

Materials. You can only mark up the price of food by so much before customers stop coming. If you buy a chicken for $5, you might only be able to sell it for $8 once it’s cooked, but you also have to account for other costs, including:

Labor. Restaurants need to hire cooks, waitstaff, and people to keep the place clean. Labor is a major expense for restaurateurs to keep an eye on.

Overhead. Restaurants can have high overhead costs; particularly rent for the location they operate. Desirable locations often have very high rent costs that you must pay each month.

About the Authors

TJ Porter

Written by: TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

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Kal Salem

Reviewed by: Kal Salem

CPA, PMP and Finance Consultant

A CPA and finance professional working with small businesses to educate owners and grow alongside their businesses. He holds a Masters in Accounting and a BS in Supply Chain Management. Owner at Salem CPA Services LLC.

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Somer G. Anderson, Ph.D.

Fact checked by: Somer G. Anderson Ph.D., CPA

Accounting and Finance Professor

Somer G. Anderson has been working in the Accounting and Finance industries for over 20 years as a financial statement auditor, a finance manager in a large healthcare organization, and a Finance and Accounting professor at Maryville University.

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