A restaurant profit and loss statement can run to sixty line items, and almost none of them decide whether the business makes money. Five do. Learn to read those five in order and the statement stops being an accounting document and starts being a diagnosis.
The order matters, because each number explains the one below it. Net profit cannot be fixed directly. It is an output. Everything above it is an input.
What are the five numbers that matter?
Revenue, cost of goods sold, labor, prime cost, and net profit, read in that order.
Everything else on the statement is noise until those five are under control. Rent, utilities, insurance and marketing matter, but they are usually fixed or slow-moving. The five below move every week, and they move with decisions.
| Number | What it is | Healthy range |
|---|---|---|
| Revenue | All money in: dine-in, takeout, delivery, catering | Track weekly |
| Cost of goods sold | Every ingredient, beverage and paper product | 28-32% full service |
| Labor | Wages, benefits, payroll taxes, workers' compensation | 28-35% full service |
| Prime cost | Cost of goods plus labor | Below 60% |
| Net profit | What is left after everything | 10-15% |
Why is revenue the least useful of the five?
Because revenue is a vanity metric until you know what share of it you keep.
A restaurant doing $2M a year at a 4% margin makes $80K. A restaurant doing $900K at 14% makes $126K. The smaller business pays its owner more. Revenue tells you how busy you are, not how well the business works.
Track it weekly rather than monthly. Monthly is too late to catch a problem while it is still cheap to fix.
What should cost of goods sold be?
28-32% for full service, 25-28% for fast casual, and 18-22% on beverages for bar concepts.
Calculate it as beginning inventory plus purchases minus ending inventory. Not as what you spent with suppliers that month, which is a different number and usually a misleading one.
When cost of goods runs high, the cause is one of four things, and it is worth checking them in this order because the first two are inside your control this week.
- Prices are too low for what the dish costs to make.
- Portions are larger than the recipe specifies.
- Waste or theft is going unmeasured.
- Supplier costs rose and menu prices did not follow.
What should labor cost be?
28-35% for full service, 25-30% for fast casual, and 30-38% for fine dining.
Labor is not just the hourly rate. It is wages, benefits, payroll taxes and workers' compensation. Owners who track only wages consistently understate this line and then cannot work out where the money went.
High labor has four usual causes: overstaffed schedules, not cutting when business slows, unmanaged overtime, and paying above market without a productivity gain to justify it.
Why is prime cost the number that decides everything?
Because it combines the two largest controllable costs, and together they consume around 60% of revenue.
Prime cost is cost of goods plus labor. The target is below 60% of revenue. Above 65% the operation is structurally unprofitable, and no amount of extra revenue fixes it.
The trap is reading the two components separately. A restaurant with 27% food cost and 36% labor cost looks acceptable on each line. Added together, prime cost is 63%, and the business is in trouble. Neither number looks alarming on its own, which is exactly why owners miss it.
The full benchmark set, including sales per labor hour by concept, goes deeper on what each band means and how to move it.
What does net profit tell you?
Net profit is an output, so a low number points you back up the statement rather than at itself.
The benchmark for a well-run operation is 10-15%. You cannot fix net profit directly. If it is low, the answer is in revenue, cost of goods, labor or fixed overhead, and prime cost is where to look first.
There is a diagnostic shortcut here. When prime cost sits above the healthy band and net profit is thin at the same time, the math has already answered the question. That is a cost structure problem, not a sales problem, and running harder at revenue will not solve it.
How do you actually start?
Pull the last three months, extract the five numbers for each, and give prime cost a named owner with a weekly review.
- Pull the last 3 months of profit and loss statements.
- Extract revenue, cost of goods, labor, prime cost and net profit for each month.
- Compare each against the ranges above and mark the largest gap.
- Give that number one named owner with a target, not a committee.
- Review it weekly using data from the point of sale and payroll, never from the person being measured.
That last point is the one that makes the difference. A number reported by the person whose performance it reflects is not a measurement, it is an opinion. The reporting discipline behind this is what keeps the figures honest once someone other than the owner is producing them.
“Prime cost is the number that separates restaurants that thrive from restaurants that survive. If you know nothing else about your P&L, know your prime cost.”
Five numbers. If an owner cannot recite them from memory for last month, the business is being managed by feel. In an operation where roughly 60% of revenue disappears into two cost categories, managing by feel is how restaurants fail slowly while the owner believes everything is fine.
