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How To Calculate Margin Cost For Food And Beverage Business

Jun 16, 2023

How To Calculate Margin Cost For Food And Beverage Business

When it comes to restaurants, there isn’t a definite number that can determine your profit margin. Here are some general estimations based on different types of restaurants.

Table service restaurants

Most table service restaurants earn the lowest profit margins—only around 3%-5%. Since they generally have more personnel—waiters, hosts, cooks, and management team–profits are hugely reduced due to their salaries. That is all without taking renovation and furnishing fees into account since this business requires a brick-and-mortar location to run.

Fast food restaurants

This kind of restaurant requires fewer staff and capital on ingredients and supplies. Because of that, item prices can be varied—causing customers to buy at different budgets at a time. Due to the concept of the restaurant being fast and convenient for customers, profits can be generated higher and faster. Therefore, the profit margin should be from 6% to 9%.

Cloud kitchens

Cloud kitchens—or in simpler terms catering—can generate up to a 7%-8% profit margin. This is considerably high because they operate with fewer staff, minimal rent, and zero renovation or furnishing costs. They are also able to allocate funds to higher quality ingredients, allowing them to serve food and beverages as good as table service restaurants. 

Food trucks

Food trucks enjoy higher profit margins compared to the rest due to their similar nature to cloud kitchens—except that they have no rent, low overheads and a mobility advantage. With the speed of fast food restaurants, they are also able to spend more on higher quality ingredients to serve better food and beverages. Their profit margin sits comfortably at around 6%-9%.

Collecting sales data is essential to calculate your restaurant’s profit margins. This can be done effectively through a POS system. It tracks the restaurant’s most crucial data; cost of sold goods, total revenue, sales revenue, expenses, gain, and losses.

How to calculate gross profit:

Your restaurant’s gross profit lets you see the difference in value between the selling price of a dish and the cost of materials and ingredients used to make it. A decent gross profit should be around 70%. Here’s how to calculate the percentage of your gross profit;

Gross profit = (revenue – cost of sold goods)

Gross profit % = (gross profit / revenue) x 100

How to calculate net profit:

Net profit is the remaining money your restaurant has after calculating gross profit, subtracting expenses, and adding gains. Here’s how to calculate your net profit;

Net profit = (revenue + gains) – (losses + expenses)

Net profit % = (net profit / revenue) x 100