Average restaurant profit margin research summary: Restaurant success depends on a good profit margin, as the number of guests and the amount they pay must outweigh all the costs of operation. Sounds easy, right? But many restaurants get by on the skin of their teeth.
If you’re a restauranteur curious about the average restaurant profit margin (or just a curious diner), we’ve got you covered. We’ve investigated restaurant profit margins in the US, and according to our research:
-
The average full-service restaurant profit margin is between 3-5%.
-
The average quick-service restaurant profit margin is between 6-9%.
-
Fast-food restaurants and bars have the highest average restaurant profit margins
Average restaurant profit margin by type
Restaurants have average profit margins anywhere between 0-15%, depending on the type of restaurant. This is because certain types of restaurants, like full-service, require higher operation costs than fast-food or food trucks.
Here is a chart of average restaurant profit margins by type of restaurant:
Average restaurant profit margin by type
Restaurant type | Average profit margin |
---|---|
Full-service restaurant | 3-5% |
Quick-service restaurant | 6-9% |
Bar | 10-15% |
Catering | 7-8% |
Food truck | 6-9% |
Of the restaurant types listed, bars have the highest average profit margins of 10-15%. On the opposite end, full-service restaurants only have an average profit margin of 3-5%. That means the average profit margin for bars is up to 4x larger than the average full-service restaurant profit margin.
How to calculate average restaurant profit margin
To calculate restaurant profit margins, there are a few important steps you should follow. Here’s a step-by-step guide:
-
Collect financial information. Gather your restaurant’s financial data, such as total revenue and total expenses for a specific period.
-
Calculate total revenue. Add the income from food sales, beverage sales, catering, and any other sources of revenue during that period.
-
Calculate gross profit. Subtract the COGS (Cost of Goods Sold), such as ingredients and materials used to prepare food and drink, from your total revenue to find your gross profit. This represents the money you’ve earned after covering the direct costs of producing the food and drinks.
-
Calculate net profit. Subtract your operating expenses (rent, utilities, employee wages, marketing costs, etc.) from your gross profit. After, you’ll have your net profit, or the money left over after covering all your costs.
-
Determine profit margin. To calculate your profit margin, divide your net profit by your total revenue, and then multiply by 100 to get a percentage. Here is the formula: Profit Margin (%) = (Net Profit / Total Revenue) x 100
Average restaurant profit margin FAQ
-
Why are restaurant profit margins so low?
Restaurant profit margins are low because of running costs across the entire operation. Here are the top three costs that are to blame for low profit margins:
-
Inventory. Restaurants have to be stocked up on different types of food, which can be expensive to store properly in accordance with health regulations. For example, storing meat requires freezers and proper containers, and if the meat isn’t sold before its expiration, that’s even more money down the drain.
-
Labor. Restaurants require staff, from cooks and dishwashers to managers and servers. All of these roles have different pay expectations, but without just one of them, the restaurant cannot function.
-
Rent. Whether a restaurant requires a large building or a small one, rent costs can be very high for restaurants. This is especially true as many restaurants want to rent out spaces in highly trafficked areas, where costs are more expensive.
-
-
How do you increase restaurant profit margins?
There are many ways to increase restaurant profit margins, from reducing waste to streamlining menus. For instance, here are our top recommendations for increasing your restaurant’s profit margin:
-
Minimize food waste. This includes tracking the weights and types of meat, produce, and more, as well as ensuring these items are properly stored.
-
Monitor your expenses diligently. Food costs will change over time, as well as the number of guests you have. With that in mind, it’s important to recalibrate your expenses on a regular basis.
-
Streamline menus. Bloated menus can lead to extra food waste, excessive storage requirements, and stressed staff. Instead, having a streamlined menu with fewer high-quality options can save costs.
-
Provide training (and incentives) for your staff to promote upselling. High turnover will cost your restaurant over time, so having programs in place to improve and hold onto your staff is important.
-
Expand your takeout and delivery operations. Delivery and pick-up have become more popular since the COVID-19 pandemic. If possible, connect with apps like DoorDash and Grubhub for deliveries, or think about offering services yourself.
-
Ensure your restaurant technology remains current. Technology is always changing, so keeping up with the latest trends is important for the health of your restaurant.
-
-
Which type of restaurant is most profitable?
Bars and fast food restaurants are the most profitable types of restaurants. Bars have an average profit margin of 10-15%, while fast-food is 6-9%.
Bars are typically more profitable because of prep work for drinks, and the storage required for what’s needed to make drinks is low. Plus, bars typically have more streamlined, simple food menus.
Fast-food restaurants also benefit from streamlined menus, as well as the additional profit gained from cutting out servers from the operational picture.
-
What percentage of restaurants fail?
60% of restaurants fail within their first year of operation. Unfortunately, these numbers also get worse as time goes on, with 80% of restaurants failing over the course of 5 years. Overall, this means that the average share of restaurants staying afloat is only 1 in 5.
Conclusion
The restaurant industry is tough, especially for aspiring entrepreneurs. For full-service restaurants, the average profit margin is between 3-5%, the lowest of any restaurant type. This is low compared to many other industries, but not all type of restaurant is the same.
For example, bars and fast-food restaurants have the highest average profit margins in the industry, at 10-15% and 6-9% respectively. Streamlined menus and reduced staff requirements are particularly responsible for this.
Overall, owning and operating a restaurant is a risky venture, but more than possible with the right knowledge. As an owner, it’s essential that you keep your operations as simple as possible, as well as regularly update your expenses, staff, and technology.