How profitable is a restaurant?

Data provided here comes from our team of experts who have been working on business plan for a restaurant. Furthermore, an industry specialist has reviewed and approved the final article.

restaurant profitabilityAre restaurants profitable, and what is the income range for restaurant owners in various culinary categories?

Let's check together.

Revenue metrics of a restaurant

How does a restaurant makes money?

A restaurant makes money by selling food and drinks to customers.

What are the common products sold in restaurants?

Restaurants typically offer a wide variety of food and drink products to cater to different tastes and preferences.

These products can include appetizers like salads, soups, and finger foods, followed by main courses such as pasta, burgers, steaks, seafood, and vegetarian options like sandwiches or stir-fries. Side dishes like french fries, mashed potatoes, and vegetables complement these main courses.

Many restaurants also serve desserts like cakes, pies, ice creams, or puddings.

To quench thirst, they provide a range of beverages such as soft drinks, juices, water, coffee, and tea.

Alcoholic drinks like beer, wine, and cocktails might also be available in restaurants that have a liquor license.

In recent years, due to dietary preferences and health concerns, restaurants have increasingly offered options for those with allergies or specific dietary needs, such as gluten-free, dairy-free, or vegan dishes.

What about the prices?

At a typical restaurant, appetizers or starters can range from around $5 to $15, depending on the complexity and ingredients.

Main courses often fall between $10 and $30, with simpler dishes on the lower end and more elaborate ones, like steaks or seafood, on the higher end. Specialties or premium items might even go beyond $30. Sandwiches and burgers usually range from $8 to $15.

Sides and salads typically cost around $4 to $10. Desserts can vary from $5 to $12, with fancier options possibly reaching $15.

Non-alcoholic beverages like sodas and juices tend to be around $2 to $5, while alcoholic drinks such as beer or wine might range from $5 to $12 per serving.

Item Price Range ($)
Appetizers/Starters $5 - $15
Main Courses $10 - $30+
Sandwiches/Burgers $8 - $15
Sides/Salads $4 - $10
Desserts $5 - $15
Non-Alcoholic Beverages $2 - $5
Alcoholic Drinks $5 - $12

business plan eateryWho are the customers of a restaurant?

Customers of a restaurant can range from regulars, to tourists, to large groups, to one-time diners.

Which segments?

We've made many business plans for projects like this. These are the groups of customers we usually see.

Customer Segment Description Preferences How to Find Them
Young Professionals Working individuals aged 25-35, busy lifestyles, seeking convenience Quick service, trendy ambiance, online reservations Social media ads, local events, co-working spaces
Family Diners Parents with children, looking for family-friendly dining options Kid-friendly menu, spacious seating, play area Parenting forums, local schools, community centers
Food Enthusiasts Passionate about culinary experiences, open to trying new dishes Unique and creative dishes, chef's specials, tasting menus Food blogs, food festivals, cooking classes
Seniors Elderly individuals, valuing comfort, and personalized service Quiet atmosphere, traditional recipes, senior discounts Senior centers, local community gatherings

How much they spend?

Exploring the financial dynamics within the restaurant industry requires an understanding of customer spending habits and preferences. On average, a customer is likely to spend between $20 to $60 per meal in a typical mid-range restaurant. This expenditure fluctuates based on several factors such as the restaurant's location, cuisine, and the individual's own preferences or special requests.

Considering the frequency at which a customer dines out, studies indicate that an average customer tends to eat at a particular favorite restaurant about once a month to once a week, thus, ranging from 12 to 52 times a year. Loyal customers might visit more frequently, contributing to higher annual visitation rates, while others may vary their dining experiences by trying different establishments.

Calculating the estimated lifetime value of a restaurant's average customer, we consider their yearly expenditure. This brings us to an average annual spend of from $240 (12x20) to $3,120 (52x60), assuming they remain consistent patrons for a year.

Given the variables affecting customer dining frequency and spending, we can approximate that a regular customer would contribute around $1,680 in revenue to a restaurant annually, striking a median between the lower and upper bounds of our estimation.

(Disclaimer: the numbers presented above are generalized averages and may vary greatly based on the specific circumstances and location of your restaurant. External factors such as economic conditions, competition, and changes in consumer preferences can also significantly influence these figures.)

Which type(s) of customer(s) to target?

It's something to have in mind when you're writing the business plan for your restaurant.

The most profitable customers for a restaurant typically fall into the category of "loyal, high-spending regulars."

These customers are valuable because they visit the restaurant frequently, spend more on each visit, and often bring in additional diners.

To target and attract them, the restaurant can implement loyalty programs, offer personalized promotions, and maintain excellent customer service to create a positive dining experience.

Retaining these profitable customers involves consistently delivering high-quality food, service, and ambiance, responding to feedback, and ensuring their loyalty is rewarded with exclusive perks or discounts.

Additionally, staying engaged with them through email marketing or social media can keep the restaurant top-of-mind and encourage repeat visits, ultimately maximizing profitability through their ongoing patronage.

What is the average revenue of a restaurant?

The average monthly revenue for a restaurant can range significantly from $5,000 to $150,000, depending on various factors such as location, size, and cuisine. We will explore different scenarios to give you a better understanding.

You can also estimate your own revenue by considering these profiles and relating them to your situation, or using a detailed financial plan for a restaurant business.

Case 1: A cozy diner in a small town

Average monthly revenue: $5,000

This type of restaurant offers a basic menu with affordable, comfort food and has a limited seating capacity, often not accommodating more than 30 people at a time.

Such establishments usually do not provide extra services like event hosting, catering, or delivery. Their primary revenue comes from on-premises dining and perhaps minor beverage sales.

With an average spending of about $10 per customer and around 500 customers per month, the total monthly revenue for this kind of diner would be approximately $5,000.

Case 2: A trendy restaurant in an urban setting

Average monthly revenue: $50,000

This type of restaurant is situated in a busy city area, possibly in a neighborhood popular for its nightlife or cultural offerings. It offers a more extensive menu, with a variety of cuisines that cater to different dietary preferences.

Unlike the small diner, this restaurant attracts a larger crowd due to its location, ambiance, and diverse menu options. It might also offer additional services like reservations for special events, a bar area, or even live entertainment.

Considering an average bill of $30 per person, and serving around 1,666 customers per month (or approximately 55-60 customers per day), this restaurant can generate around $50,000 in monthly revenue.

Case 3: A high-end, luxurious restaurant

Average monthly revenue: $150,000

In this category, the restaurant is an upscale establishment, perhaps even boasting distinctions such as Michelin stars. It provides an exquisite dining experience that includes top-quality ingredients, exclusive recipes, and exceptional customer service.

These restaurants offer a gourmet menu, an extensive wine list, and sometimes additional amenities such as valet parking, private dining rooms, or patio seating with scenic views.

With the upscale nature of the restaurant, the average spending per customer can be quite high, easily reaching $100 or more. Assuming around 1,500 customers per month, such a luxurious restaurant can see monthly revenues hitting $150,000 or more, depending on patronage, events, and other premium services offered.

It's important to note that while the revenue numbers provide a rough idea of the earning potential in different scenarios, actual revenues can be significantly impacted by factors like seasonal fluctuations, changing consumer preferences, operational costs, and unforeseen events like the pandemic restrictions.

business plan restaurant

The profitability metrics of a restaurant

What are the expenses of a restaurant?

Expenses for a restaurant encompass food ingredients, kitchen equipment, rent or lease payments for the restaurant, staff wages, and marketing.

Category Examples of Expenses Average Monthly Cost (Range in $) Tips to Reduce Expenses
Food Costs Ingredients, groceries, meat, seafood, produce $8,000 - $15,000 Source local ingredients, reduce food waste, negotiate with suppliers
Labor Wages for chefs, cooks, servers, bartenders $5,000 - $12,000 Optimize staff scheduling, cross-train employees, monitor labor costs
Rent/Lease Monthly rent or lease payments $3,000 - $10,000 Consider location carefully, negotiate lease terms
Utilities Electricity, water, gas, internet, phone $800 - $2,000 Invest in energy-efficient appliances, monitor usage
Insurance Property insurance, liability insurance $300 - $800 Shop around for insurance providers, assess coverage needs
Marketing Advertising, promotions, social media $500 - $2,000 Focus on cost-effective marketing strategies, utilize social media
Repairs & Maintenance Equipment repairs, building maintenance $500 - $1,500 Regularly maintain equipment, address issues promptly
Licenses & Permits Business licenses, health permits $100 - $500 Stay up-to-date on renewals, avoid fines
Depreciation Depreciation of assets, equipment Varies Regularly assess asset value and depreciation rates
Interest Payments Loan interest payments Varies Shop for favorable loan terms
Taxes Income tax, property tax Varies Consult with a tax professional, take advantage of deductions

When is a a restaurant profitable?

The breakevenpoint

A restaurant becomes profitable when its total revenue exceeds its total fixed and variable costs.

In simpler terms, it starts making a profit when the money it earns from selling food and beverages surpasses the expenses it incurs for rent, ingredients, salaries, kitchen equipment, and other operating costs.

This means that the restaurant has reached a point where it not only covers all its expenses but also starts generating income; this crucial milestone is known as the breakeven point.

Let's consider an example of a restaurant where the monthly fixed costs are approximately $15,000, and variable costs per customer (food, beverages, and other table service items) are around $10.

To calculate the breakeven point, we need to know the average spending amount per customer. If, on average, a customer spends $50, the restaurant makes a $40 contribution to fixed costs with each customer served ($50 minus the $10 variable cost). With monthly fixed costs of $15,000, the restaurant would need to serve 375 customers in a month (or approximately 13 customers per day) to reach the breakeven point.

However, this indicator can vary widely, depending on factors such as location, size, menu prices, operational costs, and competition. A high-end restaurant might have a higher breakeven point than a small café because of its higher expenses, even though it might also charge more per customer.

Interested in figuring out the profitability of your restaurant? Explore our user-friendly financial plan tailored for restaurants. Input your unique assumptions, and it will assist you in calculating the revenue you need to generate to run a profitable establishment.

Biggest threats to profitability

The biggest threats to profitability for a restaurant can include high operating costs, such as rent, labor, and food expenses, which can eat into revenue and reduce profits.

Fluctuations in customer demand, seasonal variations, and economic downturns may also impact sales negatively.

Competition from other restaurants in the area can lead to price wars or loss of market share.

Poor customer service, food quality issues, or health and safety violations can result in a damaged reputation and loss of customer trust, ultimately affecting profitability.

Additionally, changing dietary trends and food safety concerns may require investments in menu adjustments and compliance measures.

Rising energy costs and inflation can squeeze margins further.

These threats are often included in the SWOT analysis for a restaurant.

What are the margins of a restaurant?

Gross margins and net margins are crucial financial metrics used to gauge the profitability of a restaurant business.

The gross margin reflects the difference between the revenue earned from selling food and beverages and the direct costs of producing those items, commonly known as the "cost of goods sold" (COGS). This margin essentially represents the profit generated after covering the expenses directly associated with food production, like ingredients, kitchen staff salaries, and restaurant supplies.

Net margin, conversely, accounts for all expenses the restaurant incurs, including indirect costs such as administrative expenses, marketing, rent, and taxes, beyond the direct cost of meal production.

By encompassing both direct and indirect costs, the net margin offers a comprehensive view of the restaurant's profitability.

Gross margins

Restaurants usually have an average gross margin in the range of 60% to 70%.

For instance, if your restaurant generates $20,000 per month, your gross profit might be around 65% x $20,000 = $13,000.

Let's delve into an example for better understanding.

Consider a restaurant that serves 500 customers in a month, with each customer spending an average of $40, making the total revenue $20,000.

The costs incurred for ingredients, kitchen staff, and related direct expenses amount to $7,000. So, the restaurant's gross profit equates to $20,000 - $7,000 = $13,000.

Therefore, the gross margin for the restaurant would be $13,000 / $20,000 = 65%.

Net margins

Typically, restaurants can expect an average net margin in the range of 3% to 9%.

To simplify, if your restaurant's revenue stands at $20,000 per month, your net profit could be approximately $1,200, or 6% of the total revenue.

We will use consistent figures to illustrate this clearly.

Using the scenario of our hypothetical restaurant with 500 customers and total revenue of $20,000:

The direct costs were established at $7,000. Beyond these expenses, the restaurant also shoulders various indirect costs, including advertising, insurance, administrative expenses, taxes, and rent, which altogether come to $11,800.

After deducting both direct and indirect costs, the restaurant's net profit would be $20,000 - $7,000 - $11,800 = $1,200.

Here, the net margin for the restaurant would be $1,200 / $20,000 = 6%.

As a restaurateur, it's vital to recognize that the net margin presents a more accurate reflection of your restaurant’s actual earning capacity, as it takes into account the complete spectrum of expenses incurred by the business.

business plan restaurant

At the end, how much can you make as a restaurant owner?

Now you understand that the net margin is the indicator to look at to know whether your restaurant is profitable. Essentially, it reveals how much money is left after you've covered all operating costs.

How much you will make will undoubtedly depend on the quality of your management, menu appeal, service, and customer satisfaction.

Struggling restaurant owner

Makes $1,500 per month

If you open a small restaurant but make choices such as using lower-quality ingredients, minimal marketing, poor location, and standard recipes without anything to differentiate your establishment from competitors, your total revenue might stagnate around $10,000.

Furthermore, if your expenses are high due to poor planning or management, your net margin might not exceed 15%.

Thus, your monthly earnings would only be about $1,500 (15% of $10,000). This is the kind of scenario you might face if you're not fully committed or strategic in running your restaurant.

Average restaurant owner

Makes $6,250 per month

If you're an owner who is somewhat more engaged, you might operate a restaurant with a decent location and good food quality. You could offer a variety of dishes, engage in some level of promotion, and provide satisfactory customer service, which could elevate your total revenue to around $25,000.

Through decent management, cost control, and operational efficiency, you could potentially maintain a net margin of around 25%.

Consequently, you'd be looking at monthly earnings of around $6,250 (25% of $25,000). This scenario reflects a balanced approach but still lacks the aggressive growth strategies required for maximum profitability.

Successful restaurant owner

Makes $50,000 per month

Suppose you're dedicated to your restaurant's success. In that case, you invest in high-quality ingredients, innovative recipes, strategic marketing, a prime location, and top-tier chefs and staff. You consistently seek feedback to improve the customer experience and engage with your community. As a result, your total revenue could soar to $200,000 or more.

By also meticulously managing your restaurant's expenses and continuously optimizing operations for efficiency, you could achieve a net margin of around 25%.

In this ideal scenario, your monthly earnings could be an impressive $50,000 (25% of $200,000). Achieving this level of success requires a combination of passion, strategy, and relentless execution.

May this success be yours! Remember, becoming an exceptional restaurant owner starts with a comprehensive, well-thought-out business plan for your establishment.

business plan eatery
Back to blog