Money Matters

Understanding profit margins for restaurants

Want to understand what healthy profit margins look like for the restaurants? Read on for advice on minimising costs and improving revenue.

18 June, 202112 min read Share

Most restaurants run on net profit margins of around 2% to 6%, meaning the share of revenue that is left over to reinvest in the business or take as profit once expenses are covered.

Restaurant margins are relatively slim compared with other sectors, but there are still practical ways to strengthen performance so your business stays viable and grows.

For a healthy result above the 6% mark, you need to understand your numbers early in your venture’s lifecycle, along with the costs, pricing decisions, and revenue levers that shape them.

Read on to learn how to apply those insights to your own business.

Here’s what we cover:

What are restaurant profit margins

Restaurant profit margins show how much the restaurant’s revenue exceeds the costs of doing business.

Profit margins inform pricing, menu size, and how many customers (known in the restaurant trade as “covers”) you need to turn a profit each day.

Profit margins form an important part of your restaurant business plan, particularly when it comes to your menu and financial projections.

This is because they give you insights into several operational aspects, such as:

• How much you need to charge per dish.

• How many covers you need per day.

• The size of your menu.

There’s no hard and fast rule about how high your margins need to be to make it in this industry.

But as a successful restaurateur, you need to have these numbers at your fingertips to have a truly comprehensive view of your operations and make informed decisions.

What is a good profit margin for a restaurant?

A net profit margin of 6% or more is considered healthy for most restaurants. Cafés and catering businesses can achieve 15% to 20% with tighter cost control.

Restaurant margins tend to sit at the lower end because costs in the sector are higher than most—rent, utilities, payroll, licensing, and maintenance all add up quickly. Pair that with highly competitive pricing and it’s clear why net margins can feel tight.

It’s worth noting that the 6% benchmark refers to your net profit margin, not gross profit, which is the margin after ingredient costs only.

• Gross profit margin is your revenue less the cost of goods sold.

• Net profit margin accounts for all running costs of the operation.

Net profit margin gives a clearer view of your restaurant’s overall financial health.

What’s the average profit margin for restaurants

Restaurant profit margins average 2% to 6% globally, though they can range from zero to 15% depending on location, restaurant format, and how well costs are managed.

There’s no one-size-fits-all answer, primarily because revenue and expenses can vary so significantly between countries and, for example, fast-food restaurants and Michelin-starred venues.

It also depends on the day-to-day running costs, rent, utilities and so on in your area and how well you manage your finances as a business owner.

What is the average net profit margin for restaurants in the UK?

The UK average profit margin is approximately 4.2%, with full-service restaurants at 3% to 5% and quick-service/fast casual at 6% to 10%.

The bottom line is that costs in the restaurant industry are higher than most.

When you combine that with highly competitive pricing, it is no surprise that margins often look relatively low.

Some formats can achieve higher margins:

• Cafés can reach 20%.

• High-end catering can reach around 15%.

• Traditional restaurants usually sit at the lower end.

What is the average turnover of a restaurant in the UK

UK restaurants registered an average annual turnover of £307,736 in 2024, according to a Lumina Intelligence study of 323,004 restaurants.

A restaurant’s annual turnover, or final sales figure, depends on a number of variables.

This makes it difficult to nail down a realistic figure, particularly when you’re the new kid on the block.

That said, the overall numbers for restaurants in the UK are encouraging.

Lumina calculated that the UK eating out market would grow +2.8% in 2024 to a value of £99.4bn. Divided by the country’s 323,004 restaurants, that produces the average revenue figure of £307,736 per location.

However, averages only tell part of the story.

ONS data from 2020 revealed 2,010 businesses that were generating £1mto £2m per year, even with the pandemic in full force.

That points to a wide spread in performance across the sector, with turnover shaped by factors such as:

• Location

• Concept

• Pricing

• Customer demand

• Operating model

How do you calculate net profit margin for a restaurant?

Subtract total expenses from total revenue to get net profit, then divide by revenue and multiply by 100 to get your net profit margin percentage.

When it comes to calculating profit margins for your restaurant, there are two types you need to know about: gross profit and net profit margins, respectively.

Restaurant gross profit is what remains after you’ve deducted all the Costs of Goods Sold (CoGS) and is particularly useful when it comes to measuring the day-to-day efficiency of your business.

However, it doesn’t factor in things such as running costs, making it just one part of a wider, more detailed picture.

And that’s where your net profit comes in.

Gross profit margin

To calculate your gross profit margin, use this formula:

(Selling price – CoGS) / Selling price = Gross profit

Gross profit x 100 = Gross profit margin in %

So, if you’re selling a main course for £18, and it costs £6 to make, here’s how that calculation would look in action:

£18 – £6 = £12

12/18 = 0.67

0.67 x 100 = 67% Gross profit margin

Net profit margin

Next up, your net profit margins.

This is the best way to check on the overall profitability and success of your establishment.

Simply put, you need to deduct the costs of running your restaurant from the total revenue. Those costs include anything from supplier invoices to payroll, rent, utilities, taxes and so on:

Total revenue – Total expenses* = Net profit

(Net profit / Revenue) x 100 = Net profit margin

*Total expenses = CoGS plus the costs of running your restaurant as detailed above.

And to put that into practice, say your revenue for last month was £100,000, with expenses of £60,000:

£100,000 – £60,000 = £40,000

£40,000/£100,000 = 0.4

0.4 x 100 = 40% Net profit margin

What is the average salary of a restaurant owner in the UK?

UK restaurant owners earn £37,886 a year on average; the middle 50% earn £33,985 to £41,446, based on Salary.com’s 2025 UK estimate.

The Salary.com report doesn’t include the upper and lower extremes, but Glassdoor cites base pay ranging from £26,000 to £64,000.

Your early days as a restaurant owner can feel overwhelming at times, and unexpected costs like broken equipment, faulty plumbing, or missing inventory are a fact of life when you work in this industry.

But there are ways to prepare and account for these financial road bumps and make sure you still pay yourself a decent salary.

And remember, if this is your first year in business, your expectations for salary and turnover need to reflect that if you’re going to reap the rewards in the long term.

How to improve profit margins for restaurants: Minimise costs and increase revenue

Shoring up your profit margins is about more than the way you price your food and drink offering and keeping an eye on your profit and loss account.

Here are a few top tips for boosting revenue and cutting down on unnecessary costs.

Tips for increasing restaurant revenue

Ecommerce

In recent years, restaurants and cafes across the country have kicked their e-commerce plans into overdrive.

Some venues ramped up their existing online offering, while others, such as London restaurant Tredwells, pivoted their operations and jumped into e-commerce for the first time.

How could you follow suit?

Consider creating a smaller menu for deliveries and collection and maybe even branded merchandise that gives customers the opportunity to enjoy your unique flavours at home.

Take Dishoom, for example. The popular chain has an online store where customers can buy meal kits to help re-create their favourite meals at home, as well as cocktail kits and their iconic cookbook.

The Food Council’s 2025 figures indicate that delivery and takeaway now represents 27% of total restaurant revenue.

But third-party platform commissions of 20% to 30% per order mean direct digital channels are preferable for protecting margins.

Loyalty programme

Consider setting up a loyalty programme to encourage customers to keep coming back, especially in your early days in business.

You could offer anything from exclusive discounts and promotions to a freebie with every tenth meal.

The choice is yours, and your customers will thank you for it.

Evaluate your menu

When you’re planning your menu, take a quality over quantity approach.

While it’s important to offer your customers a good range of options and cater for different dietary requirements, having too many items on the menu can be overwhelming to diners and staff alike.

On top of that, you’ll find yourself spending money on huge amounts of food that will likely expire before you get a chance to use it, which is essentially like throwing money in the bin.

Review your menu regularly to figure out what works, what doesn’t, and what you should try next to keep customers coming back for more.

Upgrade your POS

A modern, cloud-based Point of Sale (POS) system does more than simply process payments or organise reservations.

Tap into your POS data to dig into all your restaurant’s most important insights, and use that data to run your business more effectively.

It will help you ensure you’re getting more out of every pound and penny.

The Food Council found that more than 85% of restaurant leaders plan to invest in new technology in 2025. And with 63% of reservations now booked online, digital tools are becoming a core part of how restaurants operate.

That trend now extends to AI too. More than 74% of operators have adopted AI, and 99% say they have seen tangible operational benefits.

For restaurant owners, that points to a growing opportunity to improve efficiency, reduce friction, and stay competitive.

Rethink your floor plan

Get creative with the way you use your space.

The number of covers you can accommodate every day can make a huge difference to your bottom line, so it’s worth spending time on your floor plan and making the most of what you’ve got.

With coronavirus restrictions in place, restaurants and cafes all over the UK have had to get creative with their floorplans, finding a healthy balance between public safety and making enough covers daily to feasibly keep doors open.

Get social

Are you making the most of social media to boost your business?

When it comes to advertising, you need to be where your customers can see you. And chances are, 99% of your target market are on social media platforms such as Instagram, Facebook and TikTok.

Create profiles on the platforms that your customers are using and post regular updates about your restaurant, including tantalising photos of your dishes and snaps of your friendly staff to give a face to your business.

And don’t worry about trying to have a presence on all of them – focusing on one or two, at least to start with, is a good approach. And that way, you won’t be too stretched.

Most social media platforms today favour video content, or are entirely video-based, so consider creating quick videos of staff doing their thing, your best dishes coming together, or sharing some pro kitchen tips people can try at home.

If you don’t have a Google My Business listing yet, go ahead and get that sorted first.

This is a free Google profile you can set up which will make your restaurant easier for people to find. It also provides key information such as location, opening hours, and reviews, which you can also ask satisfied customers to leave as part of your social marketing plan.

Tips for minimising costs

Reduce cost of goods sold

When planning your menu, take CoGS into account to keep quality high without sacrificing your profit margins.

You don’t have to go for lower-quality ingredients to do this. Simply shop around and get quotes from different vendors to find the best deal before signing on the dotted line.

Ensuring you have accurate inventory numbers is also central to keeping costs down while minimising food waste, which is a huge issue in the food and drink industry today.

Reduce waste

Staying on top of your inventory is just one part of the banquet that is your business.

Make sure you’re serving up the right portion sizes for each course.

While some customers will thank you for a large portion of their favourite dish, more often than not, you’ll just end up with more food being thrown out and wasted.

Review your menu regularly to find out what’s not selling, and let your food orders reflect that.

If your original-recipe Wagyu burgers are not working for this demographic, cut them from the menu and stop letting valuable stock go to waste and eat into your bottom line.

Decrease staff turnover

Hiring and training new employees takes time and money, so keeping staff turnover to a minimum is key.

That is especially true in this sector, where staff turnover averaged 38% in 2025, up 3% year over year, according to the Food Council. A healthy target is below 25%.

This is a competitive industry, and having a great server or in-demand chef can be what brings in that all-important repeat business. To keep turnover under control, focus on the basics:

• Invest in regular training.

• Pay a fair wage.

• Offer a strong benefits package where possible.

• Recognise great work and celebrate success.

• Address performance issues before they escalate.

For example, if a member of staff is consistently late, texting on the job, and not offering the right kind of customer service, what will you do to resolve that?

You might opt for a formal three-strike warning system, or you might arrange one-on-one time to talk to that employee and work out a plan to improve their performance together.

The key is finding what works for your business.

Final thoughts: Preparation is key

In the kitchen it really is all about nailing that prep time – and it’s no different when it comes to the financial side of your business.

Good planning and preparation are the key to making sure you stay in profit, with thick enough margins to continue nurturing your business and maybe even expanding your operations.

From estimating figures for your business plan to figuring out which suppliers to use, what to serve, who to hire, and beyond, there’s no detail too small to consider when you’re running your own restaurant.