How to Figure Gross Margin on a Restaurant

A gross margin is how much a business makes after subtracting the costs of expenses, including, in the case of a restaurant, food, supplies and employees. Gross margin is different from net margin because it does not include deductions for taxes. Restaurants with higher gross margins are usually in better financial health. However, the 2004 Restaurant Industry Operations Report states that the average gross margin for a restaurant is only 4 percent to 7 percent. Because this is so small, there is little room for error or overspending, and you must know how to calculate the gross margin to keep track of how much you are making.

Instructions

1. Add all food, beverage and bar sales together. This is the restaurant's gross income. Add the costs of doing business, including payroll, utilities, building rent or mortgage, supplies and food spoilage and loss expenses.

2. Subtract the gross income from the total expenses.

3. Divide this figure by the gross income of the restaurant. This number will be a decimal.

4. Convert the decimal figure into a percentage by multiplying it by 100. Express this figure with a percentage symbol. This is the gross margin.

References

• University of Tennessee: Selling Price, Gross Margin and Mark-Up Determination
• Restaurant Resource Group: 10 Restaurant Financial Red Flags; John Nessel