What is gross profit?
Gross profit refers to the amount of money a restaurant earns after deducting the cost of goods sold (COGS) from its revenue. COGS includes the cost of ingredients, kitchen supplies, and other expenses associated with preparing menu items. Gross profit is an important metric for restaurants because it indicates how efficiently a restaurant is using its resources.
How to calculate gross profit
To calculate gross profit, subtract the COGS from the total revenue. For example, if a restaurant generates $50,000 in revenue and has $20,000 in COGS, the gross profit would be $30,000.
What is net profit?
Net profit is the amount of money a restaurant earns after deducting all expenses, including operating costs, rent, salaries, and taxes, from its revenue. Net profit is the ultimate goal for any business because it indicates the profitability of the business as a whole.
How to calculate net profit
To calculate net profit, subtract all expenses from the total revenue. To calculate net profit margin as for a certain time period, you need the following information, revenue, gains, expenses and losses.
Why are restaurant profit margins so low?
While there are many factors that contribute to low profit margins in the restaurant industry, one of the main reasons are three major expenses, the cost of goods sold COGS, staffing and the other is rent and electricity.
Once all expenses are paid, restaurants are typically left with between only 2 and 6% in net profit.