Why Can't My Restaurant Turn A Profit

The short version

Restaurants that can't turn a profit aren't failing because of bad luck or a tough market. They're failing because the math is broken. Either prime cost (food + labor) is above 60%, menu prices haven't kept up with vendor increases, or fixed costs are too high for the volume they're doing. The good news: all three are fixable if you're willing to look at the numbers honestly and make decisions based on what they say.

The break-even trap: why "just covering costs" is actually losing

Most operators say they're "breaking even" when what they really mean is: revenue roughly equals expenses on the P&L. But breaking even isn't actually breaking even. Here's why:

• You're not paying yourself a real market-rate salary. You're taking scraps and calling it owner's comp.
• You're not setting aside money for equipment replacement, unexpected repairs, or the next health department mandate.
• You're not building any cash cushion for slow months, vendor payment terms, or the inevitable crisis.
• You're deferring maintenance, skipping necessary upgrades, and hoping nothing breaks.

So when you say you're "breaking even," what you're really saying is: the business is barely keeping the lights on, I'm working for free, and we're one broken cooler away from catastrophe.

That's not breaking even. That's slowly going out of business while convincing yourself it's sustainable.

The 3 core reasons restaurants can't turn a profit

Every unprofitable restaurant has at least one of these problems. Most have all three. The good news: they're all solvable. The bad news: you have to be willing to actually change how you operate.

Reason #1: Prime cost is over 60%

Prime cost is food cost + labor cost. It's the two biggest variable expenses in any restaurant, and if they're eating more than 60% of your revenue, you're not leaving enough room to cover rent, utilities, insurance, marketing, debt service, equipment, repairs, and—you know—profit.

Here's the math on a $50,000/month restaurant:

Revenue: $50,000
Food Cost @ 32%: $16,000
Labor Cost @ 36%: $18,000
Prime Cost: $34,000 (68%)

That leaves $16,000 (32% of sales) to cover everything else. Your rent is probably $6,000–$8,000. Utilities, insurance, and payment processing are another $3,000–$4,000. Marketing, repairs, supplies, licenses, and the random stuff that breaks? Another $2,000–$3,000. You're down to maybe $2,000–$3,000 left—and that's before debt service or owner compensation.

If your rent is high, your loans are expensive, or you have any unforeseen costs, that $2,000–$3,000 disappears. You're at zero. And that's in a good month.

The fix: get prime cost under 55%. That means either dropping food cost by 4–5 points (vendor negotiations, portioning controls, menu repricing) or dropping labor by 4–5 points (better scheduling, cutting waste, improving prep efficiency). Ideally, both.

Reason #2: Menu pricing is underwater

Most restaurants price their menu once—when they open or when they last printed new menus. Then they never touch it again, even as vendor costs climb 10–20% over the next 12–24 months.

Meanwhile, their food cost percentage quietly drifts from 28% to 34%. They don't notice because they're not recalculating recipe cards with current vendor prices. They just see "sales are good" and assume margin is fine.

It's not fine. Here's what happened:

Original: $12 menu price, $3.36 recipe cost (28% food cost)
Two years later: $12 menu price, $4.32 recipe cost (36% food cost)

You just lost 8 points of margin on that item. Multiply that across 20–30 menu items, and your overall food cost is in the mid-30s. Your gross margin dropped from 72% to 64–66%. On $50,000 in monthly sales, that's $3,000–$4,000 in margin you're giving away every single month—$36,000–$48,000 per year—because you didn't update your prices.

The fix: recalculate recipe costs quarterly using current vendor prices. Adjust menu prices to protect your target food cost percentage. If that means raising prices by $1–$2 per item, do it. Your customers will adjust. Your bank account will thank you.

Reason #3: Fixed costs are too high for your volume

Some restaurants have good unit economics—decent food cost, reasonable labor, clean operations—but they still can't turn a profit because their fixed costs are too high for the volume they're doing.

Fixed costs include rent, insurance, utilities, loan payments, licenses, and baseline staffing (the people you pay whether you have 50 covers or 150 covers). These costs don't change much month to month. They're just there.

Here's the problem: if your fixed costs are $18,000/month and your contribution margin (what's left after COGS and labor) is 35%, you need $51,429 in monthly sales just to cover fixed costs. Anything below that, and you're losing money. Anything above that, you're finally making a profit.

Break-Even Sales = Fixed Costs ÷ Contribution Margin %
Break-Even Sales = $18,000 ÷ 0.35 = $51,429

If you're only doing $45,000/month in sales, you're $6,429 short of break-even every month. You're losing money, and no amount of operational efficiency will fix it—because the problem isn't operations. The problem is you're not generating enough revenue to cover the baseline cost of keeping the doors open.

The fix: either increase volume (more marketing, better menu mix, higher check averages) or reduce fixed costs (renegotiate rent, refinance loans, cut unnecessary recurring expenses). If neither is realistic, you're in the wrong location or the wrong concept for your market.

The hidden profit killers nobody talks about

Beyond prime cost, pricing, and fixed costs, there are a handful of smaller leaks that chip away at profitability. None of them will kill you on their own. But together, they add up.

Untracked waste and shrinkage

Most restaurants lose 4–10% of their food purchases to waste: prep mistakes, spoilage, over-portioning, theft, "family meal," and stuff that just walks out the back door. On $15,000/month in food costs, 6% waste is $900/month—$10,800/year—in margin you're giving away.

The fix: implement a daily waste log. Make it visible. Hold people accountable. Waste drops by half when staff know someone's watching.

Unaudited credit card fees

Most operators are paying 2.5–3.5% in card processing fees. That's $1,250–$1,750/month on $50,000 in sales. But most have never audited their effective rate or negotiated with their processor.

The fix: calculate your effective rate (total fees ÷ total card sales). If it's over 2.8%, call your processor and negotiate. If they won't budge, switch. Dropping from 3.2% to 2.4% saves $400/month—$4,800/year.

Delivery platform commissions

Third-party delivery platforms charge 15–30% per order. If you're not adjusting your delivery menu prices to account for commission, you're subsidizing DoorDash with your margin.

Example: a $16 entree costs you $5 in food and $3 in labor. Your contribution margin at full price is $8. But if you're paying 25% commission ($4), your margin drops to $4. Add packaging ($0.75), and you're down to $3.25. After rent, utilities, and processing fees, you've got maybe $1 left per order.

The fix: create a separate delivery menu with prices 15–25% higher than dine-in. Pass the commission cost to the customer. They're already paying a delivery fee and tip—they won't blink at a $2 price difference.

Untracked comps and voids

Managers comping meals to "fix problems" or "keep customers happy" without tracking it. Staff voiding orders and remaking them without logging the waste. Owners giving away food to friends and family "because it's just one meal."

If you're comping or voiding 3–5% of sales without tracking it, that's $1,500–$2,500/month in margin you're giving away. On $50,000 in monthly sales, that's $18,000–$30,000/year.

The fix: require manager approval for all comps and voids. Log the reason in your POS. Review the comp report weekly. Hold people accountable. Comps should be under 1% of sales.

The diagnostic checklist: where's your leak?

If you can't turn a profit, one of these is broken. Work through the list systematically and you'll find it.

Step 1: Calculate prime cost

Pull your most recent P&L. Add COGS (food + beverage) and Labor (wages + taxes + benefits). Divide by total sales.

Prime Cost % = (COGS + Labor) ÷ Sales

If you're over 60%, that's your problem. Fix this first. Everything else is noise.

Step 2: Calculate your break-even point

Add up your monthly fixed costs: rent, insurance, utilities, baseline labor (the people you pay no matter what), loan payments, licenses, and any other costs that don't move with volume.

Calculate your contribution margin percentage: what's left after COGS and variable labor as a percentage of sales. If prime cost is 55%, contribution margin is 45%.

Break-Even Sales = Fixed Costs ÷ Contribution Margin %

If your break-even point is higher than your average monthly sales, you're not generating enough volume to cover fixed costs. You need more revenue or lower fixed costs.

Step 3: Audit your menu pricing

Pick your top 10–15 items by volume. Recalculate the recipe cost for each one using current vendor prices. Compare to your menu price.

Current Food Cost % = Recipe Cost ÷ Menu Price

If your actual food cost percentage is 4+ points higher than your target, your pricing is underwater. Update your prices.

Step 4: Track variance for one week

Theoretical food cost is what your recipes say you should've spent based on what you sold. Actual food cost is what you actually spent on invoices. The gap is your variance.

If your theoretical food cost is 28% but your actual is 34%, you've got a 6-point variance. That's $3,000/month on $50,000 in sales—$36,000/year—lost to waste, theft, or portioning errors.

The RPS toolkit: what to use and when

Once you've identified the problem, you need the right tools to fix it. Here's how the RPS system connects:

• Prime Cost Calculator: Track food + labor weekly. See your prime cost percentage in real time. Available on the calculators page.
• Break-Even Calculator: Know exactly how much revenue you need to cover fixed costs. Stop guessing. Use the break-even calculator.
• Recipe Cost Card: Build accurate cost cards for every menu item. Update them quarterly with current vendor prices. Start with the recipe cost card tool.
• Menu Engineering Matrix: Plot your items by popularity and profitability. Decide which to promote, reprice, or kill. Use the menu engineering calculator.
• Actual vs. Theoretical Food Cost Tracker: Compare theoretical vs. actual food cost. Find the variance and fix the operational leak. Available in the profit toolbox.
• Delivery Margin Calculator: Factor in commissions, packaging, and tips. See if delivery is profitable or just busy. Check the delivery margin tool.

For operators who want the full system automated, the Live Menu Engine wires your recipes, vendor pricing, and delivery platforms together. It updates your menu pricing automatically as costs move—so you never drift underwater again.

Simple next step you can take this week

Don't try to fix everything at once. Start with the biggest leak and work from there:

• This week: Calculate your prime cost percentage. If it's over 60%, that's your problem. Focus there first.
• Next week: Calculate your break-even point. Compare it to your average monthly sales. If you're consistently below break-even, you need more volume or lower fixed costs.
• Week three: Recalculate recipe costs for your top 10 items using current vendor prices. Adjust menu prices where needed to protect your target food cost percentage.

If you do nothing else and just fix prime cost, you'll see the impact within 30 days. Profitability isn't magic. It's math. Fix the math, and the profit follows.