Gross Margins in Restaurants: Industry Benchmarks & Improvement Strategies
What "good" looks like for full-service, fast casual, and QSR concepts—and proven strategies to improve your margins.
Key Takeaways
- •Restaurant gross margins (after food cost) typically range 60-75%, varying by concept
- •Prime cost (food + labor) is the key metric—target 55-65% of revenue
- •Food cost targets: full-service 28-32%, fast casual 25-30%, QSR 30-35%
- •Waste, over-portioning, and theft are the biggest margin killers
- •Menu engineering and item-level margin analysis drive profitability
Restaurants operate on thin margins where small changes have outsized impact. A 2-point improvement in food cost drops directly to the bottom line. A 3% reduction in waste could be the difference between profit and loss. Understanding margin benchmarks and improvement strategies is essential for restaurant profitability.
This guide provides benchmarks for different restaurant segments and actionable strategies for improving your margins without sacrificing food quality or guest experience.
Restaurant Gross Margin Benchmarks
Restaurant margins vary significantly by concept, with service model and price point being key differentiators.
Full-Service Restaurants
Below Average
<62%
Average
65-72%
Best-in-Class
75%+
Food cost target: 28-32% of revenue
Why these margins: Full-service concepts carry higher labor costs (servers, hosts, bussers), requiring strong food margins. Fine dining can achieve 75%+ food margin through premium pricing. Casual dining targets 68-72%.
Fast Casual
Below Average
<65%
Average
68-75%
Best-in-Class
78%+
Food cost target: 25-30% of revenue
Why these margins: Fast casual's limited service model allows lower labor costs, enabling good profitability with higher food quality. Fresh ingredients and visible prep justify premium pricing while maintaining strong margins.
Quick Service (QSR)
Below Average
<62%
Average
65-70%
Best-in-Class
73%+
Food cost target: 30-35% of revenue
Why these margins: QSR operates on volume with lower price points. Higher food cost percentage is offset by minimal labor and streamlined operations. Beverage and combo upselling significantly improve margin.
Bars & Beverage-Focused
Below Average
<75%
Average
78-82%
Best-in-Class
85%+
Pour cost target: 18-24% of revenue
Why these margins: Alcohol carries much higher margins than food. A well-run bar should achieve 20-22% pour cost on liquor, 24-28% on beer, 28-32% on wine. Food (if offered) subsidizes the overall COGS.
Summary: Restaurant Margins by Segment
| Segment | Food Cost Target | Avg Gross Margin | Best-in-Class |
|---|---|---|---|
| Full-Service | 28-32% | 65-72% | 75%+ |
| Fast Casual | 25-30% | 68-75% | 78%+ |
| QSR | 30-35% | 65-70% | 73%+ |
| Bars/Beverage | 18-24% | 78-82% | 85%+ |
Prime Cost: The Restaurant Metric That Matters Most
Prime Cost Formula
Prime Cost = Food Cost + Labor Cost
Example:
Revenue: $100,000
Food Cost: $30,000 (30%)
Labor Cost: $28,000 (28%)
Prime Cost = 58% (Target: 55-65%)
Margin Builders
- • Tight portion control
- • Strong inventory management
- • Menu engineering (high-margin items)
- • Beverage program optimization
- • Cross-utilization of ingredients
- • Vendor negotiation
- • Waste reduction programs
Margin Killers
- • Food waste and spoilage
- • Over-portioning
- • Theft (employee and vendor)
- • Poor inventory rotation
- • Menu items priced wrong
- • Third-party delivery commissions
- • Comp/void abuse
Strategies to Improve Restaurant Margins
1. Reduce Food Waste
- Track waste daily: Require waste logs. Categorize by type (spoilage, overproduction, plate waste). What gets measured gets managed.
- FIFO rotation: First In, First Out prevents spoilage. Label everything with dates. Conduct walk-in inspections.
- Right-size prep: Match prep quantities to actual demand. Use historical data by day/shift to forecast needs.
- Cross-utilize ingredients: Design menus where ingredients appear in multiple dishes, reducing the risk of spoilage.
2. Menu Engineering
- Calculate item-level margins: Know the food cost and margin on every menu item. Some "popular" items may be unprofitable.
- Feature high-margin items: Menu placement, server suggestions, and specials should emphasize profitable dishes.
- Reprice or remove losers: Items with below-target margins should be repriced, reformulated, or removed.
- Focus on gross profit dollars: A $30 entrée with 65% margin ($19.50 profit) beats a $12 appetizer with 75% margin ($9 profit).
3. Control Portions
- Standardize recipes: Every dish should have a documented recipe with exact portions. No "eyeballing."
- Use portion tools: Scales, scoops, and ladles ensure consistency. A 6 oz protein vs. 8 oz is 33% more food cost.
- Train and spot-check: Kitchen staff should understand why portions matter. Random audits reinforce standards.
- Track theoretical vs. actual: Compare what food cost should be (based on sales and recipes) vs. actual purchases. Variance reveals problems.
4. Optimize Purchasing
- Negotiate with vendors: Regular pricing reviews and competitive bids can save 3-8% on major categories.
- Consolidate purchasing: Fewer vendors mean more volume leverage and simpler ordering.
- Monitor price changes: Track vendor price increases. Consider menu adjustments when key ingredient costs spike.
- Check deliveries: Verify quantities, quality, and pricing on every delivery. Shortages and substitutions erode margin.
Tracking Restaurant Margins
| Metric | Frequency | Target |
|---|---|---|
| Food cost % | Weekly | By segment (25-35%) |
| Prime cost % | Weekly | 55-65% |
| Theoretical vs. actual food cost | Weekly | Within 2% |
| Waste % of purchases | Daily tracking | <3% |
| Pour cost (bar) | Weekly | 18-24% |
| Item-level margin | Quarterly review | All items above minimum |
Weekly Food Cost Calculation
Calculate food cost weekly, not monthly. Formula: (Beginning Inventory + Purchases - Ending Inventory) / Food Sales. Weekly tracking catches problems before they become monthly disasters. Require weekly inventory counts—it's tedious but essential.
Frequently Asked Questions
What is a good gross margin for a restaurant?
Restaurant gross margins (revenue minus food and beverage cost) typically range from 60-75%. Full-service restaurants average 65-72%, fast casual 68-75%, and QSR 65-70%. Your target depends on your concept and price point. What matters more is 'prime cost' (food + labor), which should be 55-65% of revenue.
How do I calculate restaurant gross margin?
Restaurant gross margin = (Revenue - Cost of Goods Sold) / Revenue × 100. COGS includes all food and beverage costs (ingredients, supplies, waste). It does NOT include labor, rent, or other operating costs. For a $15 menu item with $4.50 food cost, gross margin is 70%.
What is the ideal food cost percentage?
Ideal food cost varies by concept: full-service restaurants target 28-32%, fast casual 25-30%, QSR 30-35%. These are targets, not absolutes—higher-priced concepts can sustain higher food costs if revenue supports it. The key is consistency: actual food cost should match your theoretical food cost based on recipes.
What is prime cost and why does it matter?
Prime cost = food cost + labor cost (including taxes and benefits). It's the most important restaurant profitability metric because it captures your two largest variable costs. Target prime cost of 55-65% of revenue. Below 55% may indicate understaffing or poor food quality. Above 65% leaves little margin for rent, utilities, and profit.
How do I reduce food cost without sacrificing quality?
Focus on: (1) Reduce waste through proper storage, rotation, and portion control, (2) Negotiate with vendors or consolidate purchasing, (3) Menu engineering—adjust menu to highlight high-margin items, (4) Cross-utilize ingredients across dishes to minimize waste, (5) Regular inventory counts to catch theft or spoilage early.
What causes restaurant margin erosion?
Top margin killers: food waste and spoilage (often 5-10% of food cost), over-portioning, theft, vendor price increases not passed through, menu items priced incorrectly, and high-volume low-margin items dominating sales. Track theoretical vs. actual food cost to identify where margin is leaking.
How does delivery/takeout affect restaurant margins?
Third-party delivery commissions (20-30%) devastate margins. A dish with 70% dine-in margin may have 40-50% margin on delivery. Strategies: raise delivery prices, offer direct ordering with lower fees, design delivery-specific menu with lower food costs, or accept lower margins for incremental volume. Track channel profitability separately.
What's the relationship between food cost and menu pricing?
The traditional rule is food cost should be 28-32% of menu price (implying 68-72% gross margin). But this oversimplifies. Higher-priced items can sustain higher food cost percentages. Focus on gross profit dollars: a $40 steak with 35% food cost ($14 cost, $26 profit) beats a $15 pasta with 25% food cost ($3.75 cost, $11.25 profit).
Need Help Improving Your Restaurant Margins?
Eagle Rock CFO works with restaurant groups to analyze food cost, optimize menu profitability, and implement financial systems for margin management. We bring CFO-level expertise to hospitality businesses ready to improve their bottom line.
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