The short version
If margins are under 10%, audit prime cost first—aim under 60%. Fix leaks in food (28-32%), labor (30-35%), and pricing. Use our Prime Cost Calculator to spot the gaps fast.
Why busy restaurants still lose money
A full dining room doesn’t guarantee profit. In fact, high volume can mask (and even worsen) underlying problems:
- Prime cost (food + labor) creeping above 60–65% of sales.
- Menu items priced by gut instead of contribution margin.
- Excessive waste and theft.
- Overhead like card fees or utilities eating 2-5% unnoticed.
Track with tools from calculators to see where volume isn't converting to profit.
The real math: diagnosing low margins
Net margin % = (revenue - total costs) / revenue. Break it down:
- Food cost over 32%? Check inventory variances.
- Labor over 35%? Review scheduling efficiency.
- Other costs: Delivery fees, waste adding up.
Example: $100k sales, $65k prime cost = 65% (too high). Target 55-60% for 10-15% net.
Factors killing your margins in 2025
Common culprits beyond the basics:
1. Pricing lags
- Costs up 5-10%, prices static—margins shrink fast.
- Delivery apps taking 20-30% commissions.
2. Ops inefficiencies
- Overstaffing during slow hours.
- Poor inventory leading to rush buys at premium prices.
3. Hidden fees
- Card processing 2-4% of sales.
- Utilities, maintenance creeping up.
4. Menu mix
- Low-margin items dominating sales.
- No upselling strategy for high-profit add-ons.
Quick low margin audit
Fix starts with data—do this weekly:
Step 1: Calculate key %s
- Prime cost, food cost, labor % from P&L.
- Use Prime Cost Calculator in The Vault.
Step 2: Spot the leaks
- High food? Run inventory template from templates.
- High labor? Check staff-to-sales ratio.
Step 3: Prioritize fixes
- Biggest gap first—e.g., re-price menu if costs rose.
- Track progress with contribution margins.
How to boost margins without losing customers
Smart tweaks over drastic cuts:
- Menu engineering. Highlight high-margin items, axe dogs.
- Cost controls. Standard recipes, portion tools, waste logs.
- Pricing strategy. Small increases with value adds (bundles).
- Ops optimization. Cross-train staff, negotiate vendor deals.
Use the Menu Engineering Matrix from calculators or simple templates from templates.
Where the RPS tools plug in
Low margins need consistent tracking—our stack automates it:
- Prime Cost Calculator: Weekly food + labor % check.
- Contribution Margin Calculator: Per-item profit insights.
- Break Even Calculator: Sales needed for target margins.
- Live Menu Engine service: Auto-updates prices as costs change to protect margins.
If you’re comparing DIY tools and live systems to the big all-in-one platforms, our Us vs Them page breaks down why Restaurant Profit Systems is different.
Simple next step for this week
Run your prime cost %. If over 60%, pick one fix: inventory count or menu re-price. Measure impact next week.
FAQs
What affects restaurant profit?
Food cost, labor, waste, pricing, and operations.
Why do busy restaurants lose money?
Low margins, high costs, or poor menu pricing.
How do I improve profit?
Lower prime cost, fix pricing, and track contribution margins.