14 Restaurant Profit Margin Strategies for Short and Long-Term Gains

Restaurants have had their fair share of ups and downs, and it’s no surprise that 2025 brings new challenges. Rising food costs, supply chain issues, labor shortages, and changing customer expectations threaten your restaurant's financial viability.  

It's not all bad news, though. According to the National Restaurant Association (NRA), the food service industry will hit $1.5 trillion in sales this year. The demand for quality dining experiences is on the rise. 

To overcome the challenges in your industry and capitalize on consumer sentiment, you need to take a serious look at your restaurant profit margin. In this article, we'll show you how.

Understanding Restaurant Profit Margins in 2025 

Restaurant profit margin is the net income a restaurant earns after expenses, expressed as a percentage of sales. Let's say your restaurant made $1 million in gross revenue and had $900,000 in expenses. Your profit would be $100,000. And your profit margin would be 10% (100,000 / 1 million) x 100 = 10). 

Here's the equation you can use to figure out your own profit margin:  

[(Revenue - Expenses) / Revenue]  

Not a math whiz? There are many free restaurant profit margin calculators online. 

It's important to remember that as a restaurant brand, you drive profit in multiple ways. You sell food and drinks, possibly rent out your location for events, sell branded merchandise, franchise your company, and so on. 

It's equally important to remember that your restaurant's expenses aren't entirely fixed. Inflation impacts the cost of goods, utilities, and labor. It can shift consumer spending habits, too. 

To stay competitive in 2025, you need to develop an effective pricing strategy, minimize expenses, and optimize operations for efficiency. Don't worry, we're here to help! 

What Is the Average Restaurant Profit Margin? 

According to New York University (NYU), the average restaurant profit margin in 2024 was 10.62%. But honestly, that insight doesn’t make a difference right away. We need to dig deeper into the four primary segments: 

1. Fine Dining: 10-15% 
2. Casual Dining: 3-9% 
3. Fast Casual: 2-6% 
4. Quick Service: 2-6%  

As you can see—and likely already knew—profit margins in the restaurant industry are slim. All the more reason to optimize pricing, cut costs, and boost efficiency. 

What Is a Good Profit Margin for a Restaurant? 

We covered the average restaurant profit margins. Now let's talk about good restaurant profit margins. What should your establishment aim for, in terms of profitability? 

First, understand that different business models have different goals. A quick service franchise, for example, shouldn't expect to hit the same profit margins as a ghost kitchen. 

Second, "good" is a subjective term. Some restauranteurs are passionate about the food they make. As such, their goal is to simply "keep the lights on" so they can continue doing what they love. Other restauranteurs are all about the profits and want high margins, no matter what. 

A good profit margin for a restaurant is at or above industry norms. So, if you're in the fine dining space, you should aim for at least 13% margins. This is slightly higher than average, but still well within the realm of possibilities for most establishments. 

3 Cost Optimization Techniques to Improve Margin

One of the best ways to increase the average margin on restaurant food is to minimize expenses. The good news is there are plenty of ways to do this. Here are three popular ones: 

1. Cut Down on Food Waste and Inventory Costs

To improve your restaurant's average profit margins, look to minimize food costs. You can do this in two ways: reducing food waste and negotiating better deals on inventory. 

To minimize food waste, train your staff so they don't ruin food before it reaches customers. Also, invest in AI-powered technology for better demand forecasting. That way your restaurant doesn't over-order. Eliminating spoilage is key to your restaurant's financial health. 

To negotiate better deals on inventory, build strong relationships with your suppliers. But don't be afraid to work with a new company if they offer a significantly better price. As your restaurant grows, you ought to negotiate bulk discounts, too. 

2. Reduce Labor Costs Without Sacrificing Quality

Full-service restaurants deal with sky-high labor costs. If you can lower labor costs without impacting the guest experience in a negative way, you'll improve your gross and net profit margins. The question is, how do you do it? Try these tactics: 

• Reduce Your Headcount: Are your employees always busy? If the answer is no, consider scheduling fewer people per shift. This can drastically increase profit margins. 
• Use Restaurant Technology: The right tools will help your restaurant do more with less. Touch-screen kiosks, for example, can take customer orders, eliminating the need for additional waitstaff—without sacrificing quality. Scheduling tools ensure you schedule the right number of staff members. These solutions limit your labor expenses. 

3. Manage Overhead Expenses

Look to lower overhead costs, like rent, utilities, and digital marketing. Talk to your landlord. Can you negotiate a lower rent payment by signing a longer lease? If you're not comfortable with that arrangement, perhaps you can sublet a portion of the building. 

Also, consider investing in energy-efficient restaurant equipment. Doing so will help you save on utilities. If the equipment is well-made, you will save on maintenance costs, too. 

And what about marketing? Audit your current efforts to see what drives results. For example, you might find that Facebook Ads do really well but have no evidence that the billboard you pay for boosts sales. In a case like this, consider cutting the billboard strategy and investing more into Facebook. 

Every restaurant has operating expenses. Minimizing yours will improve gross profit margins. 

Maximizing Revenue Streams to Strengthen Profitability 

As a successful restaurant owner, you’re already obsessing over maximizing revenue. What can you do to secure loyal customers, make more sales, and ensure healthy profit margins? Here are three ways: 

1. Optimize Your Menu Pricing Strategy

The ideal food cost percentage for a restaurant is 28-35%. To find this metric, simply divide the amount of money your establishment spends on food by the amount of money that food generates in revenue. Then multiply the figure by 100. 

For example, if you spend $30k on food inventory and make $100,000 in food sales, your food cost percentage would be 30%. 

The equation looks like this: [(30,000 / 100,000) x 100 = 30]

To make sure your restaurant has a healthy food cost percentage, optimize your menu pricing strategy. You can do this by adjusting prices to account for inflation. Or, you can train your staff to offer upsells effectively. Another idea is to prioritize high-margin menu items like alcohol. (More on this below.) 

Also calculate your cost of sales percentage at least once per year. This number shows you the total expense from buying materials needed for your daily operations, which is useful for uncovering potentially overlooked patterns and financial insights.

The key is balancing menu prices with customer expectations. If done correctly, this will enable you to achieve the highest profit margins possible without offending your guests. 

2. Improve Your Alcohol Sales

One of the best ways to improve bar and restaurant profit margins is to sell more alcohol. Why? Because alcoholic drinks, including well drinks, are incredibly profitable. We're talking about 70-80% margins. 

Keep in mind, this strategy might not work for quick service restaurants. If you're in the fast-food game in the United States, be very careful before attempting to sell alcohol. 

Expand your inventory of alcoholic beverages. Then ask your waitstaff to recommend these drinks when they interact with customers. You can also try hosting premium experiences and themed events inside your restaurant. These get-togethers tend to provoke social drinking. 

3. Leveraging a Loyalty Program

If you own a coffee shop or casual dining establishment, you probably already have a customer loyalty program. But it's an underused strategy by sit-down and fine dining restaurants. That's a shame because 90% of fine dining guests say they'd sign up for a next-gen loyalty program if it was available. 

What should your loyalty program look like? Take inspiration from others. For example, every dollar spent in Papa Murphy's loyalty program helps participants earn free pizza in the future. 

At Chipotle, loyalty members earn 10 points for every dollar spent. Points then lead to free food, which is pretty typical. But Chipotle upped the ante by offering "special challenges." Once completed, these challenges allow participants to earn more points (and food!) in less time. 

Then there are high-end brands like Legal Sea Foods, which offered new loyalty members two of their famous lobster rolls for the price of one. That ends up being a $43 savings. 

How much profit do you want your restaurant to make? A top-level loyalty program will help you get there by keeping patrons returning to your dining room. 

8 Pricing Strategies That Protect Restaurant Profit Margins 

Proper pricing will help you increase total sales and improve your restaurant business. But what should you charge for each menu item? How should you communicate price changes to customers?

And how can you adjust prices in specific scenarios to maximize profits? Here are a few ideas you can experiment with to answer the above questions: 

1. Determine the cost of each menu item, then add a predetermined profit margin. 
2. Study other restaurants in your area to see what they charge for similar items. 
3. Get to know your guests and price each item at a number they're willing to pay. 
4. Vary your pricing depending on the time of day and date on the calendar. 
5. Remove unpopular dishes from your menu and promote popular, high-margin dishes. 
6. Tell customers when menu items go up. You can do this by emailing or texting them if you have their contact information. Or, you can tell them in-person before they order. 
7. Run regular promotions to help get new and existing customers in the door. 
8. Offer discounts when customers purchase multiple products. For example, customers can buy a burger for $8, fries for $4, and a drink for $3. Or they can buy all three for $13. 

Frequently Asked Questions About Restaurant Profit Margins 

You might still have questions about restaurant profit margins. Here are five popular ones:  

What is a good profit margin for a restaurant? 

A good profit margin for a restaurant is somewhere between 2% and 15%. This completely depends on the kind of restaurant and the goals of the specific restaurant owner. 

How much profit can you make owning a restaurant? 

The average restaurant owner makes $82,566 a year. But there are restaurant owners who make a lot more than this. In fact, some of them make millions of dollars. 

Why are restaurant profit margins so low? 

Profit margins are low for restaurants because of competition, high labor costs, and general inefficiencies. People have a lot of dining options, so restaurants have to price their dishes competitively. Restaurants also have to pay many employees to cook food and offer exceptional dining experiences. Finally, restaurant inefficiencies lead to wasted food, which reduces profits. 

What's the main reason so many restaurants fail? 

Restaurants fail when operational expenses outpace revenue. This can happen for many reasons: the food or location is bad, too much competition, the owner doesn't understand basic business principles, a natural disaster strikes, customer preferences change, and many other reasons. 

Which restaurant food has the highest profit margin? 

Burgers, pizza, and ice cream tend to have the highest profit margins. Other high-margin foods include soups, sandwiches, pasta dishes, and baked goods, like cake and cookies. 

Strengthening Your Restaurant’s Financial Future 

Running a profitable restaurant is difficult, but it's not impossible. While 2025 presents unique challenges for those in the food and beverage industry, many of them can be overcome with smart strategies that protect your profit margins. 

The right technology is essential to success in this endeavor. Invest in tools that help you forecast demand and inventory, take orders and lower headcount, and more. 

Speaking of technology, we have multiple solutions to help you improve profit margins with data-driven solutions. Request a demo to learn all about them!