Restaurant profit margin, and why yours may be lying to you.
Profit margin is what is left after everything: stock, labour, rent, overhead and the cost of being open. It is also the number that most often disagrees with your bank balance, which is what sends owners looking for an explanation.
Reading the margin
(Sales − all operating costs) ÷ sales × 100 = operating margin.
An operating margin above about 15% on a single-site venue is a healthy result. Under about 5% and the venue is exposed: one bad quarter, one equipment failure or one rent review and there is nothing to absorb it.
But the headline is not where the answer lives. Work backwards through the four lines underneath it.
| Line | Where we want it | Where it starts costing you |
|---|---|---|
| Wage cost | at or under 30% of sales | 35% is where we start calling it a leak |
| Food and beverage cost | at or under 36% of sales | 40% and the menu needs work |
| Prime cost, wages plus stock | at or under 62% of sales | 68% and the venue is running for someone else |
| Rent | at or under 10% of sales | 15% and the site has to earn its keep |
The bands we work to on a standard single-site venue. Licensed venues, function work and heavy takeaway sit differently, which is part of the conversation.
Profit and cash are not the same thing
A profit and loss can show a good month while the account runs dry. The usual causes:
- GST and PAYG. They sit in your account and they are not yours.
- Superannuation. Accrued each pay, paid quarterly, and easy to spend in between.
- Stock build. Money converted into a coolroom rather than into sales.
- Loan principal. The interest is an expense; the principal is not, and it still leaves the account.
- Equipment. Paid in full this month, expensed over years.
- Owner drawings. Not an expense, very much a withdrawal.
Every one of those is normal. Together they are why the P&L and the bank balance tell different stories, and why a venue can feel broke in a profitable year.
Getting the margin back
Margin recovery is rarely one large move. It is a point off wage cost by reshaping a shift, a point off food cost by recosting the top ten dishes, and a hard look at hours that cost more to stay open than they return. On $1.5M of sales, two points is $30,000 a year.
Run the 60-second Margin Check on your own figures. Nothing is sent anywhere; it runs in your browser.
Most venues sit on Hospitality Margin Protection at $990 + GST a month, which carries the bookkeeping, payroll for up to five staff and BAS oversight underneath the monthly margin review.
Straight answers.
What is a normal profit margin for an Australian restaurant?
It varies widely by format and site. We work to above 15% as healthy and under 5% as exposed for a single-site venue, and we read prime cost and rent to explain why a venue sits where it does.
Our revenue grew but profit did not. Why?
Almost always prime cost. If wages and food cost grew with sales rather than more slowly, extra volume buys you work rather than profit.
Does rent really matter that much?
Yes. Rent is fixed while trade is not, so a site above roughly 15% of sales sets a floor on how bad a quarter you can survive.
Stop finding out in July.
Fifteen minutes, direct with Pink. We look at your real numbers and tell you where the margin is going.