Eroding Profit Margins: Red Flags to Watch

In short: margins erode one point at a time. Check your monthly food cost against targets, energy spend, prices of the top 5-10 ingredients, and recorded waste.

No restaurant fails because of a single big mistake. Most of the time, margins erode slowly—one percentage point per month, almost imperceptibly—until one day the annual income statement shows a result much worse than expected.

Red flags to track every month

• Food cost % vs. target — even a small deviation, if constant over time, is more significant than an isolated spike.
• Energy spend compared to the same period last year — an increase beyond general inflation warrants a conversation with your provider.
• Rising supplier prices on key products — just focus on the 5-10 ingredients that impact your menu costs the most.
• Recorded waste — if this increases month over month, it is a red flag before it becomes a visible problem.

Why do this monthly, not annually

An annual review discovers a problem only after it has already eroded 12 months of margin. The same review performed monthly allows you to intervene after one or two months of variance.

For multi-location managers

With multiple sites, a problem that goes unnoticed in one location can repeat identically across the others, simply because no one is comparing performance between venues.

Frequently asked questions about restaurant margins

How often should I check?

Every month: an annual check finds the problem only after a year of lost margin.

Which numbers should I watch?

Food cost %, energy, key supplier prices, and waste.

Where do I calculate food cost?

You can do the math with our food cost calculator.

What about utility bills?

Discover our energy cost and utility bill monitoring.

3 steps to take today

1. Set a recurring monthly date for reviews.
2. Record your 4 key metrics.
3. Compare them with the same month from the previous year.