Restaurant finance

Understand the numbers behind the restaurant.

A practical guide to restaurant financial concepts, metrics and the economics that determine whether a business survives.

Core financial concepts

The building blocks of restaurant economics.

Revenue

Orders × Average Ticket Size

The total money generated from all sales across all channels — dine-in, takeaway, delivery. Revenue is the starting point, not the ending point of financial analysis.

Variable Costs

% of Revenue (typically 35–55%)

Costs that increase as sales increase — primarily food costs, packaging, delivery platform fees and variable labour. These move with every order.

Contribution Margin

Revenue − Variable Costs

What remains after variable costs. Contribution covers fixed costs and eventually generates profit. It is the most critical metric in restaurant economics.

Fixed Costs

Rent + Fixed Salaries + Utilities + Etc.

Costs that remain roughly constant regardless of sales volume. Rent, permanent staff salaries, insurance, maintenance. These must be covered before any profit exists.

Illustrative P&L

The flow of money through a restaurant.

This illustrative example shows how revenue flows down through variable costs, contribution and fixed costs to operating profit — and where restaurants typically lose control of the numbers.

Illustrative exampleMonthly operating view

Monthly revenue₹6,00,000

Variable costs₹3,00,000

Contribution₹3,00,000

Fixed costs₹2,25,000

Operating surplus₹75,000

Key takeaways from this example:

→ Variable costs at 50% leave ₹3L in contribution
→ Fixed costs consume ₹2.25L of that contribution
→ Operating surplus is ₹75K — just 12.5% of revenue
→ Reducing variable costs by 5% adds ₹30K to profit

Industry benchmarks

What the numbers should look like in a healthy restaurant.

These are general guidelines — actual healthy ranges vary by format, location and concept. Use them as starting points, not rigid targets.

Food Cost %Food cost as a percentage of food revenue

Good28–35%

Watch35–42%

Concern>42%

Labour Cost %All labour including management

Good25–30%

Watch30–38%

Concern>38%

Prime CostFood + Labour as % of revenue — the most important combined metric

Good<60%

Watch60–70%

Concern>70%

Rent %Rent as percentage of revenue — varies by format

Good<8%

Watch8–12%

Concern>12%

Operating Profit %Net operating profit as % of revenue

Good>15%

Watch8–15%

Concern<8%