85% of restaurant failures stem from poor cost control, not lack of customers. Most owners obsess over revenue while their costs silently eat away profits. Five major expense categories determine if you'll succeed or join that statistic.
The five biggest cost items
Your typical restaurant P&L contains hundreds of line items, but five categories consume 85-90% of total expenses:
- Food cost (ingredients): 28-35% of revenue
- Labor costs: 25-35% of revenue
- Rent and real estate costs: 8-15% of revenue
- Energy costs: 3-8% of revenue
- Other operating costs: 8-12% of revenue
💡 Example: Restaurant with €50,000 monthly revenue
- Food cost: €16,000 (32%)
- Labor: €14,000 (28%)
- Rent: €5,500 (11%)
- Energy: €2,500 (5%)
- Other: €4,500 (9%)
Total costs: €42,500 (85%)
Profit before tax: €7,500 (15%)
Food cost: your biggest variable expense
Food cost represents every ingredient you buy. It's variable - more customers mean higher ingredient costs, fewer customers mean lower costs.
Formula: Food cost % = (Total ingredient costs / Revenue excl. VAT) × 100
⚠️ Watch out:
Many owners calculate food cost using revenue incl. VAT. This makes your food cost appear lower than reality. Always calculate excluding VAT.
Labor costs: your biggest fixed expense
Labor costs include more than just salaries:
- Gross salaries and wages
- Social contributions (employer share)
- Holiday pay and 13th month bonus
- Pension premiums
- Health insurance
- Temporary staff and freelancers
Add everything together and divide by revenue. From tracking this across dozens of restaurants, healthy labor costs range between 25-35% of revenue.
💡 Example: Calculating labor costs
Monthly revenue: €40,000 excl. VAT
- Gross salaries: €8,500
- Social contributions: €2,100
- Holiday pay/13th month: €700
- Temporary staff: €1,200
Total: €12,500 = 31.3% of revenue
Rent and real estate expenses
This category covers all premises-related costs:
- Rent or mortgage
- Service charges
- Property insurance
- Maintenance and repairs
- Municipal taxes
Rule of thumb: keep rent below 12% of revenue. Above 15%? Profitability becomes nearly impossible.
Energy costs: the silent profit killer
Energy expenses have skyrocketed recently. In restaurants, the biggest energy consumers are:
- Kitchen equipment (ovens, fryers, grills)
- Refrigeration and freezers
- Dishwashers
- Lighting and air conditioning
Review your energy bill monthly. Above 8% of revenue? You're probably wasting money somewhere.
Other operating expenses
Everything else needed to run your restaurant:
- Marketing and advertising
- Accountant and administration
- Software and systems
- Cleaning supplies
- Repairs and maintenance
- Insurance
- Phone and internet
⚠️ Watch out:
Small expenses accumulate fast. €50 extra monthly = €600 yearly. At €300,000 revenue that's 0.2% of your profit margin.
How do you use these numbers?
Review monthly to see if you're staying within these percentages. If one category consistently runs high, you know where to focus:
- Food cost too high? Audit your recipes and supplier prices
- Labor costs too high? Examine your scheduling and productivity
- Energy costs too high? Consider upgrading to efficient equipment
A food cost calculator like KitchenNmbrs can track these percentages automatically, keeping you informed about your position.
How do you analyze your P&L? (step by step)
Gather all cost data from last month
Get your invoices and bank statements. Sort all expenses into the five main categories: food, labor, rent, energy and other. Add up everything per category.
Calculate the percentage of your revenue per cost item
Divide each cost item by your revenue excl. VAT and multiply by 100. This shows you what percentage of your revenue goes to which costs.
Compare with benchmarks and identify deviations
Check which cost items exceed normal percentages. Start with the biggest deviation - that's often where the most savings can be made.
✨ Pro tip
Review your five biggest cost categories every 14 days during your first 6 months. Catching percentage creep early prevents small problems from becoming major profit drains.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What is a healthy profit margin for a restaurant?
A net profit margin of 10-15% is healthy for restaurants. Less than 5% signals trouble, while more than 20% is exceptionally strong.
Why should I calculate food cost excluding VAT?
VAT is money you collect for the government, not actual revenue. Including VAT in your calculation makes food cost appear artificially lower than reality.
How often should I review my P&L?
Monthly at minimum. If problems emerge, switch to weekly reviews. You can monitor food cost daily to catch issues quickly.
What if my rent exceeds 15% of revenue?
You need to either boost revenue or renegotiate your lease. Above 15% rent makes healthy profits extremely difficult unless you operate with exceptional efficiency.
Do delivery packaging costs count as food cost?
Packaging that goes directly with dishes (boxes, bags) typically counts as food cost. General packaging materials go under other operating expenses.
Should I include credit card processing fees in other costs?
Yes, payment processing fees belong in other operating costs. They typically run 2-4% of revenue and can significantly impact your bottom line if not monitored.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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