How do I know if my restaurant is profitable?

Your restaurant is profitable when a month's sales cover every cost, a fair wage for your own hours included, and something is left over. You can test it in about 15 minutes with last month's numbers: count your own pay, compare prime cost and rent with the targets for your type of restaurant, then work out your margin and your break-even sales.

What you need

One recent month, the same month for every figure: net sales (after discounts and comps, without sales tax), food and drink purchases, payroll with its taxes and benefits, rent and utilities, every other bill, your loan payments and the hours you worked yourself. Your P&L has most of these. Bank statements and your payroll report fill the gaps.

The test, step by step

1. Separate profit from cash in the bank

Profit is sales minus the month's costs. Cash is what's in the account. They drift apart because:

• Only a loan's interest is a cost on the P&L. The part that pays the loan down leaves the bank uncounted.
• Money you take out for yourself isn't a cost on the P&L either.
• If your books count food used rather than food bought, a full walk-in is cash spent that isn't a cost yet.
• Sales tax you collected sits in your account but belongs to the state.
• A new oven leaves the bank at once but reaches the P&L a little each year.

So a healthy balance can hide a loss, and a thin one can hide a profit. The steps below use the P&L view. Step 6 brings loan payments back in.

2. Pay yourself first in the math

If you work in the restaurant and aren't on payroll, your P&L counts your hours as free. Put a number on them: what you would pay a manager to do your job, for the hours you work. Subtract it from the profit before you judge the result. If you're already on payroll at a fair wage, it's in labor, so don't count it twice. A restaurant that shows a profit only while you work for nothing is paying you less than the job is worth.

3. Check prime cost against your ceiling

Prime cost is food and drink cost plus total labor, as a share of net sales. It's the biggest block of costs, and the one you can change week to week.

Over your ceiling, the leak is in food, drink or labor. The prime cost guide shows how to find which half is over.

4. Check rent against its ceiling

Add rent, the property charges your lease passes on, and utilities. Divide by net sales. Above the top of your format's range, 10% of sales for quick service, fast casual and cafés or 12% for the rest, occupancy starts squeezing profit. It changes least of all your costs, so know it before a lease renews. See how much rent a restaurant can afford.

5. Work out your margin

Margin is what's left of each dollar after every cost, your fair wage from step 2 included.

Above zero means the restaurant is profitable. For scale: in the National Restaurant Association's survey of more than 900 restaurants, the median income before taxes in 2024 was 2.8% of sales for full-service restaurants and 4.0% for limited-service ones. The Association says these aren't standards or goals for any one restaurant, and its article doesn't say how each counted its owner's pay. Read them as where the middle restaurant landed, not as a pass mark. For why published margins differ so much, see average restaurant profit margin.

6. Find your break-even sales

Break-even is the monthly sales at which nothing is left. Split your costs into the ones that rise with every sale, like food and drink, and the bills that stay about the same, like rent, salaries, insurance, loan payments and your own pay. If a loan's interest is already in your bills, add only the part that pays the loan down.

The further your sales sit above break-even, the more room you have for a slow month.

A worked example

A full-service restaurant with $80,000 in net sales last month. The owner works the floor about 60 hours a week and isn't on payroll. All the figures are round examples.

1. 01Prime cost is 32% + 34% = 66%, one point over the 65% ceiling for full service. One point of $80,000 is $800 a month.
2. 02Occupancy is $7,200 ÷ $80,000 = 9%, under the 12% ceiling.
3. 03The margin is 7% on the P&L, but 2% once the owner's hours are paid for: under the Association's 2.8% median for full service.
4. 04The loan's interest is in the other bills. The $1,500 a month that pays the loan down leaves $100 of cash.
5. 05Break-even: food and drink rise with sales (32%). Everything else, the owner's wage and the $1,500 included, is $54,300 a month. $54,300 ÷ (1 − 0.32) = about $79,900, just under the $80,000 sold.

So the restaurant is profitable, but only just. The first place to look is the point of prime cost over the ceiling: $800 a month, half of what the owner keeps after a wage.

What your result means

• Profitable after your wage, well above break-even: run the test monthly and watch prime cost weekly.
• Profitable only before your wage: the job pays less than it's worth. Start with the biggest gap over a ceiling.
• Below break-even: check prime cost first, then rent, in the order of the checks for a busy restaurant that isn't making money.

Common questions

How often should I run this test?

Once a month, when the month's bills are in. Prime cost needs only invoices, payroll and sales, so you can check it every week.