Gross profit is the amount remaining from a business’s revenue after subtracting the cost of goods sold (COGS) for the same period. In a restaurant, gross profit shows how much revenue remains after the direct cost of the food and beverages sold, before other operating expenses such as rent, general administration, marketing and many labour costs are deducted.
Gross profit = Net sales − Cost of goods sold
If a restaurant records $500,000 in net food and beverage sales and $150,000 in COGS, gross profit is:
$500,000 − $150,000 = $350,000.
Gross profit is a dollar amount. Gross margin expresses gross profit as a percentage of net sales:
Gross margin = (Gross profit ÷ Net sales) × 100
Using the example above, the gross margin is 70%. The business should use a consistent accounting definition of COGS and net sales when comparing periods or locations.
Gross profit helps management evaluate menu pricing, purchasing, recipe costs, sales mix and inventory control. A restaurant may increase gross profit by improving selling prices, reducing ingredient costs, controlling waste or increasing sales of items with stronger contribution. However, gross profit alone does not show whether the business is profitable after labour, occupancy and other operating expenses.
Gross profit is calculated before operating expenses outside COGS. Net profit is the amount remaining after all recognised expenses, interest and applicable taxes are accounted for under the business’s reporting method. The exact presentation depends on the accounting framework and income statement format.
Example: A restaurant generates $500,000 in net sales and incurs $150,000 in food and beverage COGS. Its gross profit is $350,000, which is then used to cover labour and other operating costs.
Chef’s tip: Review gross profit alongside food-cost percentage, labour cost and operating expenses. A strong gross margin does not guarantee a profitable restaurant if labour or occupancy costs are too high.
Key distinction: Gross profit is revenue less COGS. Gross margin is that gross profit expressed as a percentage of sales; net profit includes the remaining expenses of the business.
This term is one of hundreds covered in depth across OCS courses, learning paths, and 1-on-1 coaching with Chef Eric.
