Restaurant costs and profit margins: how to work out your own

Do not run your restaurant on somebody else's average. Work out four numbers from your own books: your food cost percentage, your labour as a share of sales, your contribution per cover, and what a no-show or a commission actually costs you. With those in front of you, you can see which costs you can change (commission, software, waste, no-shows, marketing you cannot measure) and which you cannot.

All the figures below are round, illustrative examples to show the working. Use your own.

How do you work out your food cost percentage?

For the business as a whole, over a set period such as a month:

Food cost % = (opening stock + purchases − closing stock) ÷ food sales × 100

Two things trip people up. First, count stock properly at the start and end of the period, or the number is a guess. Second, use sales without VAT. Your menu prices include VAT, and that VAT was never yours.

As an example: opening stock of €3,000, purchases of €12,000 and closing stock of €3,500 means food used of €11,500. If food sales without VAT were €38,000, your food cost is about 30%.

Then do it per dish. Cost every ingredient on the plate (garnish and oil included), divide by the dish's price without VAT, and you have the dish's food cost. A menu where one popular dish runs far above the rest is a menu where your best seller is quietly eating your margin.

Labour as a share of sales

Labour % = total wage cost ÷ sales without VAT × 100

Total wage cost means everything: wages, employer PRSI, holiday pay and any staff meals you account for. Measure it by week as well as by month, because the weeks tell you where the problem is.

As an example: a week with €4,200 of wage cost against €12,000 of sales is a labour share of 35%. The same team in a €9,000 week is closer to 47%. The rota did not change. The trade did. That is why filling a quiet night can do more for your labour percentage than cutting a shift.

Contribution per cover: the number that decides your prices

Contribution is what a cover leaves after the costs that rise with each customer, mainly the food and drink on the table and any card and commission fees. It is the money that pays your staff, rent, energy and you.

As an example: an average spend of €40 without VAT, with €12 of food and drink and €1 of fees, contributes €27 a cover.

This is the number to use when you decide on an offer. An early bird at €27 with €9 of food contributes €18, which is worth having on a half-empty early sitting and a loss of €9 a cover if it replaces a full-price diner at eight.

What does a no-show cost?

Less than the bill, more than most people think. Count contribution, not spend, because you did not buy the food for a table that never came, unless it was a pre-order.

As an example: a table of four with a contribution of €27 each is €108 lost. If that happens four times a week, that is around €430 a week, or over €20,000 a year, before you count the people you turned away for that table.

The cheapest fix is a reminder the day before, because most no-shows are people who forgot. Then a deposit on the tables where a no-show really hurts: large groups, peak nights and set menus. On Mosey, reservations are free up to 75 bookings a month and deposits carry no commission. See how to reduce no-shows.

What does 30% commission do to a €25 order?

Delivery apps commonly charge around 30%. As an example, on a €25 order that is €7.50. If the food and packaging cost €9, the order leaves €8.50, against €16 if the same order is collected from your counter with no commission.

On a busy takeaway night that gap repeats on every order. Moving even a share of your regulars from delivery apps to ordering ahead for collection is one of the biggest margin changes most places can make. Order Ahead on Mosey runs at 1.5% commission.

Which costs can you actually change?

Rent, energy and insurance are largely fixed once you have signed. These are the ones worth attacking:

• Waste. Track what goes in the bin for a fortnight. A shorter menu that uses the same ingredients across several dishes usually cuts it fastest.
• Commission. Check what each channel costs per order, not per month.
• Software subscriptions. A small place rarely needs five tools at a monthly fee each. Prefer tools that charge when you earn, so your quietest month is not also your most expensive one. See restaurant software for small independents.
• No-shows. Reminders and targeted deposits.
• Marketing you cannot measure. If you cannot say what a spend brought in, it is a cost, not marketing.

On Mosey, your profile, menu and listing are free. You pay commission when you sell, such as 1.5% on collection orders and 4.5% on gift vouchers, plus 23% VAT on Mosey's fee, and loyalty is free. Reservations are the one subscription, at €79.99 or €169.99 a month once you pass 75 bookings a month.

How much should a restaurant spend on marketing?

There is no right percentage, only a right test: could you say afterwards what it brought in?

• Fix the free things first: listings, opening hours, a menu with prices, photographs of dishes.
• Spend on your existing customers next. A message to a regular who has drifted costs far less than finding a stranger.
• Spend on strangers last, and only where you can count the result. Decide the number before you start (twenty more covers, ten new ratings) and check it after.

On Mosey, paid reach such as a Boost shows you the estimated audience and the price before you pay, and you set the budget.

A monthly ten-minute check

Once a month, write down five numbers: food cost %, labour %, average contribution per cover, no-shows, and total fees and commission. Compare them with last month. The one that moved is where you look next.

Start with this month's stock count. Claim your business free or See pricing.