According to "Forbes" magazine, the average gross profit margin for a fine-dining restaurant is around 60 percent. Based on their stated 38 to 42 percent food cost range, if you sell an entree for $30, the food cost will be between $11.40 and $12.60, leaving a gross profit of $17.40 to $18.60. However, food costs are only a portion of what upscale restaurants pay, and their net profit margins typically fall between 5 and 8 percent.
While a 58 to 62 percent gross margin may be a rule of thumb, the actual profits vary greatly depending on what a given customer orders. For instance, appetizers are frequently priced at a higher gross margin, since customers focus on the cost of entrees more than appetizers. Dishes that contain less expensive ingredients -- like pasta or chicken -- are typically much more profitable than dishes containing shellfish or red meat.
After food (and sometimes before food), most restaurants' largest line-item for cost is labor. The combination of food and labor cost is called "Prime Cost." According to restaurant consultant John Nessel, a prime cost in the range of 62 to 68 percent of sales is usually normal. This leaves a profit margin of 32 to 38 percent. Restaurants with less than 30 percent profit after prime cost may be on the verge of financial trouble.
For many restaurants, beverages can be a major profit center. While a $15 steak might sell for around $38 at a 60 percent profit margin, a $2.99 soda might only cost 20 cents, offering a 93 percent profit margin. Alcohol can also be marked up for a profit margin between 65 and 80 percent, or even more at times.
In the third quarter of 2013, Ruth's Hospitality Group, owner of the Ruth's Chris Steak House, reported $84.4 million in sales and $26.5 million in food and beverage costs, working out to a 68.7 gross profit margin. The Bravo Brio Restaurant Group, which operates Italian eateries, reported $96.3 million in sales and $64.2 million in costs, for a 74.4 percent profit margin. In the same time period, the Cheesecake factory did $469.7 million in sales and had $112.4 million in costs for a 76 percent profit margin. These results include both food and beverage and may also be representative of the negotiating power that chains have when purchasing ingredients. Nevertheless, it is noteworthy that the entity that focuses on selling high-cost steaks has the lowest gross profit margin.
