A bistro that sells €62,000 in four weeks and keeps €5,100 before tax runs a net profit margin of 8.2%. Out of every €10 a guest pays, net of VAT, €3.16 goes on food and drink, €3.23 on staff, €2.79 on rent and everything else, and 82 cents stays. That is a good result: the figures usually quoted for full-service restaurants are lower.
This article follows the same bistro used in prime cost down to the bottom line. The per-dish half of the sum, food cost and its mirror image gross profit, is covered in how to calculate food cost per dish, and the free food cost calculator works it out for one plate.
Three margins, three different questions
"Margin" in a restaurant means one of three numbers, and arguments about whether a margin is good usually turn out to be about two different ones.
| Margin | Formula | The bistro, 4 weeks |
|---|---|---|
| Gross margin (GP) | (net sales − cost of goods sold) ÷ net sales | €42,400, 68.4% |
| Operating margin | gross profit − labour − overheads, before interest and tax | €5,800, 9.4% |
| Net margin, before tax | operating profit − interest | €5,100, 8.2% |
Gross margin answers whether the menu is priced right for what it costs to buy. Operating margin answers whether the business works as a business. Net margin is what is left for the owner, the bank and the tax office. All three are calculated on net sales, without VAT and without tips.
Profit tax is left out on purpose: rates and the company-or-sole-trader question differ too much between the US, the UK and Ireland for an after-tax figure to compare anything.
GP: how UK kitchens talk about margin
In UK kitchens the everyday number is GP, gross profit as a percentage of net sales. A chef who says a dish "runs at 70%" means 70% GP, which is a 30% food cost. Pubs split it into dry GP for food and wet GP for drinks, and the wet figure on draught beer is usually lower than on food.
A fish and chips at £16.50 on the menu, with £4.10 of ingredients:
- net price: £16.50 ÷ 1.20 (20% VAT) = £13.75;
- gross profit: £13.75 − £4.10 = £9.65;
- GP: £9.65 ÷ £13.75 = 70.2%.
Two mistakes recur. The first is working GP out on the price including VAT: (£16.50 − £4.10) ÷ £16.50 gives 75.2%, five points that belong to HMRC. The second is confusing margin with markup: adding 70% to the cost gives £6.97, a 41% GP. For 70% GP, divide the cost by 0.30. That is £13.67 net and £16.40 with VAT, and it is the division most online "GP calculators" perform; the risk is feeding them a VAT-inclusive price.
Food GP targets of 65–70% are commonly quoted by UK operators and trade press. They suit a kitchen that buys some components ready-made. A scratch kitchen pays for its GP in wages, which is why a high GP with no labour figure next to it proves little.
Where the money goes: one four-week P&L
The bistro from the prime cost example, extended to the bottom line. Figures are illustrative and net of VAT.
| Amount | % of net sales | |
|---|---|---|
| Net sales | €62,000 | 100% |
| Cost of goods sold (from the stock count) | €19,600 | 31.6% |
| Gross profit | €42,400 | 68.4% |
| Total labour, with employer contributions | €20,000 | 32.3% |
| Rent and service charges | €6,200 | 10.0% |
| Energy | €2,600 | 4.2% |
| Card fees | €1,100 | 1.8% |
| Repairs and maintenance | €1,000 | 1.6% |
| Insurance, accountant, software, licences | €1,500 | 2.4% |
| Cleaning, laundry, smallwares | €1,000 | 1.6% |
| Marketing | €800 | 1.3% |
| Depreciation of the fit-out and equipment | €2,400 | 3.9% |
| Operating profit | €5,800 | 9.4% |
| Loan interest | €700 | 1.1% |
| Net profit before tax | €5,100 | 8.2% |
Rent at 10% sits at the top of the 6–10% of sales that is commonly given as a ceiling for occupancy. Depreciation is the line owners most often leave out, because no money leaves the account that month. The fit-out still wears out, and a P&L without it overstates profit by the cost of the next refurbishment.
What a normal margin is, and why the figures disagree
Figures quoted by POS vendors, accountants and trade press put net profit for full-service restaurants at around 3–5% of sales, and quick service a few points higher, around 6–9%. None of these come from an audited sample. They mix owner-run places with chains, and sites with old leases with sites that opened last year.
Three things move a margin more than skill does. The owner's pay: an owner-chef who draws no salary shows a profit that is partly their wage, so book their hours at a replacement's rate before comparing. Rent: sites at 6% and 14% of sales can be run equally well and show margins eight points apart. Age: in its first two years a restaurant carries depreciation and loan interest that a paid-off one does not.
Compare your margin with your own last twelve periods first, and with a benchmark second. A margin falling for three periods in a row says more than any industry average.
Why a 10% drop in sales cuts profit by two thirds
Most restaurant costs do not fall with sales. Rent, insurance, depreciation and the core team are paid whether the room is full or not.
Take the bistro with sales down 10%, to €55,800. Food falls in proportion, to €17,640. Labour has a fixed core: modelled on the quiet-week example in the prime cost article, €12,000 of it stays and the rest moves with sales, so labour falls only to €19,200. Card fees drop to €990, and everything else stays where it was. Profit before tax falls from €5,100 to €1,770, a 3.2% margin.
The same arithmetic gives the break-even point. Fixed costs are €28,200 for four weeks: the €12,000 core of labour and €16,200 of overheads. Variable costs take 46.3% of sales: food, the flexible part of labour and card fees. Break-even is €28,200 ÷ (1 − 0.463), about €52,500. The bistro has a 15% cushion.
That cushion is the number to know before signing a lease or adding a cook.
Which lever moves the margin most
On the bistro's numbers:
- Prices up 3% with the same number of covers: €1,860 more sales, €1,827 after card fees, profit up 36%.
- Food cost down one point, for example through portion control: €620, profit up 12%.
- Labour down one point through scheduling: €620 as well, harder to hold over a season.
- Rent: fixed until the lease says otherwise.
Price is the strongest lever because the whole increase falls to profit if volume holds. The condition is the volume. At a 68% gross margin, a 3% rise survives a fall in units of up to about 4%, and how to test it before rolling it out across the menu is in menu pricing. In a neighbourhood where the bistro is already the most expensive option for its type of food, the volume does not hold, and the work is on cost.
Food cost is the lever most owners reach for first, and the one with the smallest payoff per hour spent. It still matters, because a two-point gap between theoretical and actual food cost is pure waste and costs nothing to close except attention.
Delivery orders run at a different margin
A delivery order through a platform pays a commission that the dining room does not. At 28% on the gross order value, plus payment fees, the gross margin on a delivered meal is a fraction of the same dish served at the table, before any promotion the restaurant funds. A full worked order is in delivery platform commissions. If delivery is a large share of sales, track its margin as a separate line. Averaged in with the dining room, it hides.
Profit is not cash
A profitable month can still empty the account. Loan principal repayments do not appear in the P&L, only the interest does. VAT collected on sales is paid out quarterly in one block. Depreciation works the other way: it reduces profit without any money leaving. A bistro making €5,100 per four-week period on paper and repaying €3,000 of loan principal in the same period has €2,100 left to build a reserve. Look at the cash forecast alongside the margin, not instead of it.
Tracking the food side
The WMenu panel does not produce a P&L; your accountant and your bookkeeping software do. What it holds is the per-dish half: an ingredient library with current invoice prices, recipe cards that point to it and the food cost and GP of each dish against your target, recalculated when a supplier changes a price. That is the Standard plan, €29 a month (pricing). Margin problems that start in the kitchen show up there first; the ones that start in the lease do not show up in it at all.
Frequently asked questions
What is a good profit margin for a restaurant?
Commonly cited net margins are 3–5% of sales for full-service restaurants and around 6–9% for quick service. Before comparing, make sure the owner's work is paid for in the figures and depreciation is included. Your own trend over twelve periods is a better guide than either range.
Is GP the same as profit?
No. GP is sales minus the cost of ingredients only. A dish at 70% GP still has to pay for wages, rent and energy out of that 70%, and the restaurant above keeps 8.2% of sales after all of it.
How do I calculate GP on a dish?
Divide the menu price by 1 plus the VAT rate to get the net price, subtract the ingredient cost, and divide the result by the net price. At 20% VAT, a £16.50 dish with £4.10 of ingredients runs at 70.2% GP.
What is the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of the cost. A dish costing £4.10 and selling for £13.67 net has a 70% margin and a 233% markup.
