How to Read a Restaurant Profit and Loss (P&L) Statement

Running a restaurant is not just about serving great food; it’s also about managing finances. Restaurant profit margins are thin—often just 5%, depending on your service model—so every line on your profit and loss statement matters.

The most important of those reporting tools is the profit and loss statement, commonly called the “P&L.”

Simply put, the P&L shows how much your restaurant earned and spent for a specific period, like a month or a year. It helps you see if your restaurant is making a profit or a loss, so you can understand your business’s performance and reach your goals.

The goal is simple: read your P&L, track it every month, and act on what it tells you.

Components of a restaurant P&L statement

Your P&L contains a lot of helpful data, including:

• Revenue
• Cost of goods sold (COGS)
• Operating expenses
• Prime cost
• Gross Profit
• Gross Profit Margin
• Net Profit/Loss

Knowing the numbers and their implications for your business sets you on the path to lasting financial success. Here are the seven main components of restaurant P&L statements.

Metric	Description	Calculation	Example
Revenue	Total income from food, beverages, and other sources; helps identify which parts of your restaurant are most profitable; improves restaurant revenue management	The sum of all sales for each product and income source	$80,000 (Food Sales) + $30,000 (Beverage Sales) + $10,000 (Other Income) → Monthly Revenue = $120,000
Cost of Goods Sold (COGS)	Total cost of food, beverages, and supplies; vital to restaurant accounting for controlling food costs and maintaining profit margins	Beginning Inventory + Purchases − Ending Inventory = COGS	$5,000 + $35,000 − $6,000 → COGS = $34,000
Operating Expenses	Includes labor, rent, restaurant utility costs, marketing, and insurance costs; directly impacts profitability	The sum of all restaurant costs spent for a specific period	$25,000 (Labor) + $40,000 (Rent) + $5,000 (Utilities) + $5,000 (Marketing) + $5,000 (Insurance) → Total Operating Expenses = $80,000
Prime Cost	The sum of COGS and labor costs; indicates operational efficiency; ideally at 60% or lower	COGS + Labor Cost = Prime Cost	$34,000 + $25,000 → Prime Cost = $59,000
Gross Profit	Profit after deducting COGS from total sales; preliminary profit indicator	Revenue − COGS = Gross Profit	$120,000 − $34,000 → Gross Profit = $86,000
Gross Profit Margin	Shows how efficiently sales are converted into profit; ideal margin for restaurants is around 70%	(Gross Profit / Revenue) × 100	$86,000 / $120,000 → Gross Profit Margin = 71.67%
Net Profit/Loss	Actual profit after all expenses are deducted; key indicator of sustainability and ability to reinvest	Revenue − (COGS + Operating Expenses)	$120,000 − ($34,000 + $80,000) → Net Profit = $6,000

Restaurant P&L statement example

Seeing the whole thing on one page makes it click. Here’s a sample monthly P&L that uses the same numbers as the table above, so you can follow how each line rolls up into your net profit.

Line item	Amount	% of sales
Food Sales	$80,000	66.7%
Beverage Sales	$30,000	25.0%
Other Income	$10,000	8.3%
Total Revenue	$120,000	100%
Cost of Goods Sold (COGS)	$34,000	28.3%
Gross Profit	$86,000	71.7%
Labor	$25,000	20.8%
Rent	$40,000	33%
Utilities	$5,000	4.2%
Marketing	$5,000	4.2%
Insurance	$5,000	4.2%
Total Operating Expenses	$80,000	41.7%
Prime Cost (COGS + Labor)	$59,000	49.1%
Net Profit	$6,000	5%

These figures are illustrative—they’re meant to show the layout, not a typical result. Use the format here, then drop in your own numbers.

How to track your restaurant’s profit and loss each month

Tracking your P&L isn’t a once-a-year job. The operators who stay profitable check their numbers on a set schedule and act on what they see. Here’s a routine that works.

Close your books on the same day each period. Whether that’s the last day of the month or the end of your fiscal period, sticking to one date lets you compare one month to the next without guessing.

Pull each number from the right place:

• Revenue comes from your point-of-sale (POS) system.
• Labor costs come from your payroll records.
• COGS comes from your supplier invoices, plus your beginning and ending inventory counts.

Review your fast-moving costs weekly. Food and labor shift day to day, so checking them every week helps you catch problems early. Save the full P&L review for the end of the month, when you have the complete picture.

Then compare each line as a percentage of sales, both against last month and against your targets. A labor line that jumped from 28% to 33% tells you where to dig before the next payroll run.

“The way we do team-wide financial engagement is we have a quarterly meeting where we look at the major expense categories and the major revenue categories. We get feedback from people about what they’re seeing in their day-to-day work, and whether it’s reflected in the numbers…Typically we advocate for showing the five-line P&L: revenue and profit at the top and bottom, and then three major expense categories—COGS, direct labor, and overhead.”

— Irene Li, Mei Mei

Why should owners know how to read a restaurant profit and loss statement?

The average profit margin of full-service restaurants ranges between 3% and 5%, while their fast-food and casual counterparts’ margins fall between 6% and 9%, and the National Restaurant Association reports those margins have tightened as costs climb.

These numbers might seem low, but only because the restaurant industry has many costs to cover, including ingredients, labor, rent, utilities, marketing, and other expenses. These costs can add up quickly, leaving a smaller portion of revenue as profit.

Once you know where your money is going, you can find ways to cut costs and improve your restaurant profit margin.

Make better financial decisions

If you notice that your food costs are higher than expected, you can take action to reduce waste or find a cheaper supplier.

For instance, if your restaurant P&L statement shows that your food costs are 40% of your revenue, which is above the roughly 28% to 35% many restaurants target, you can start by analyzing your menu and identifying high-cost, low-profit items. This way, you can control your expenses and increase your profit margins.

Another example is knowing which menu items are most profitable. If you see that certain dishes have high food costs but low sales, remove them from the menu. On the other hand, if a dish has low costs and high sales, you might promote it more using the right restaurant marketing strategies.

Knowing how to read this report can help you decide whether you’re ready to expand or take on investment.

For instance, when creating a restaurant business plan, you need a projected P&L statement if you plan to grow your business or attract investors. This statement shows potential investors your expected revenues and expenses, helping to convince them that your restaurant is a good investment.

You can only plan this kind of growth if you understand your financial data deeply.

Boost profits on food and other items

As you review your restaurant P&L regularly, you can see which areas of your business are performing well and which could be improved.

For example, if labor costs are consistently high, you might consider adjusting staff schedules or using labor-saving equipment to reduce expenses and increase your net profit.

Meanwhile, if your P&L statement shows that your labor costs are higher than the industry average, you can use this information to find places to cut costs, like reducing overtime or hiring part-time staff during peak hours.

Reviewing and adjusting staff schedules can make a big difference. If you can cut just 10 hours of overtime a week at $15 an hour, you can save $7,800 a year.

With labor-saving equipment, like automated dishwashers, you can reduce the need for extra staff during peak hours. Although this investment might cost $5,000 up front, it can save you $10,000 in labor costs over the year, for a net saving of $5,000.

Manage cash flow effectively

By tracking peak sales periods, you can keep enough cash on hand to cover expenses and avoid disruptions.

“Remember that knowing your cash flow isn’t just for your edification,” Sally Lauckner, the editor-in-chief of the Fundera Ledger, noted. “It’s a critical metric for small business lenders if you’re going to be seeking financing.”

If cash flow is tight during winter, you can plan ahead by setting aside funds during more profitable periods. This approach can pave the way for your restaurant’s success, so you have enough money to cover essentials like labor, rent, and utilities during the slow months.

Tips for reading your P&L

A restaurant’s P&L statement can be confusing, especially for new owners. With the right tools and habits, it gets much easier. Here are four tips for reading yours.

Read your P&L with other restaurant data

To get a complete picture of your restaurant’s financial health, you need more than just your P&L statement. Don’t just focus on individual numbers. Instead, consider how different components interact with each other.

For instance, if your restaurant labor costs are high, check how they relate to your sales and operating hours. You may need to adjust your staff schedules to align better with peak dining times.

Also, consider seasonal trends and how they affect your restaurant’s performance.

With this fuller approach, you can see how the different parts of your restaurant are really performing.

Help your team understand restaurant P&L implications

Teaching your team to manage costs can build a culture of financial responsibility within your restaurant. For example, training your kitchen staff on portion control can reduce food waste, and teaching your servers to upsell high-margin items can boost sales.

When your team understands how their actions affect the restaurant’s profitability, they’re more likely to contribute to cost-saving efforts and efficient operations.

Use the right tools for your restaurant

Having the right software can make a big difference in how well you manage your restaurant’s finances.

For example, a restaurant management app that generates P&L reports can help you save time and avoid mistakes. As a result, you get accurate and timely data without the hassle of manual calculations.

Some tools also sort your expenses into categories, so you can track and manage your operating costs easily. When your expenses are sorted, you can see where your money is going and spot areas for cost reduction.

Stay in the know

Sometimes, managing a restaurant’s finances is hard, even with the right tools. Make it a habit to read up on industry news and follow financial professionals who specialize in the restaurant industry.

For instance, Restaurant Business focuses on providing restaurant owners with the latest insights. Reputable news outlets like CNBC and Nation’s Restaurant News also have specific categories for restaurant news.

As you expand your knowledge and network, you’ll gain fresh perspectives and solutions to your challenges.

Free restaurant P&L template

Don’t want to build a P&L from scratch? You can download a free restaurant P&L template to get started. It comes with pre-built categories for revenue, COGS, labor, and operating expenses, and it calculates your prime cost and margins for you as you type. Each month, plug in your numbers from your POS, payroll, and invoices, and let the template do the math.

Calculate and improve your restaurant’s profit

Understanding your restaurant’s P&L statement helps you make informed business decisions. The data shows you how your restaurant is performing financially and where you can make improvements.

Labor is the biggest controllable line on most restaurant P&Ls, and that’s where a scheduling tool pays for itself. 7shifts is the restaurant HR platform helping operators hire, train, schedule, pay, and retain their team in one place. You can catch overspending before it hits your bottom line and keep a closer eye on your restaurant operations.

Start a free trial today and see how tracking labor as you schedule can help protect your profit.

Don’t just manage your restaurant; master it!

FAQs

How do you measure profit and revenue in restaurants?

Measuring profitability in a restaurant involves looking at two key metrics that show how well your business is performing financially:

• Gross Profit Margin is the percentage of revenue left after subtracting the cost of goods sold (COGS). To calculate it, subtract COGS from total revenue, divide by total revenue, and multiply by 100.
• Net Profit Margin is the percentage of revenue left after all expenses, including operating expenses, labor costs, and taxes, have been deducted. To calculate it, subtract all expenses from total revenue, divide the result by total revenue, and multiply by 100.

Monitoring these restaurant metrics lets you identify cost issues, which can then help you find solutions for them.

Gross and net profit margins also provide a clear picture of your restaurant’s financial health over time. It helps you identify trends, such as seasonal dips in profitability, so you can plan accordingly.

What is the most essential part of a restaurant P&L statement?

The most important part of a restaurant P&L statement is the net profit or loss section. This component shows the final measure of your restaurant’s financial performance after accounting for all revenue and expenses.

Your net profit/loss tells you whether your restaurant is making money or losing it, which is vital for understanding your business’s viability.

How often should I review my restaurant’s P&L statement?

Review your restaurant P&L statement monthly to stay on top of your restaurant’s financial performance and make timely adjustments when necessary. Monthly reviews strike a balance between having enough data to see meaningful trends while giving yourself time to proactively address issues before they become significant problems.

How do I make a P&L statement for a restaurant?

Gather your sales and expense records, then sort them into the main P&L categories: revenue, COGS, labor, and operating expenses. Total each category using a template or accounting software, then subtract your costs from your revenue to find your net profit or loss.

What’s a good restaurant profit percentage?

Net profit margins typically run about 3% to 9%, depending on your service model. Full-service restaurants tend to land on the lower end, while quick-service restaurants often run a bit higher.

Where can I download a restaurant P&L template?

You can download a free restaurant P&L template from 7shifts. It includes pre-built categories and calculates your prime cost and margins for you.