Gross profit margin is the percentage of revenue remaining after deducting the cost of goods sold (COGS). In a restaurant, it shows how much of food or beverage sales remains after the direct cost of the products sold, before labour and other operating expenses are deducted. The exact calculation depends on the revenue and cost categories included.
Gross profit = Net sales − Cost of goods sold
Gross profit margin % = Gross profit ÷ Net sales × 100
If a restaurant records $100,000 in net food sales and $30,000 in food cost of goods sold, gross profit is $70,000 and gross profit margin is 70%.
Food cost percentage is the share of food sales consumed by food cost. When both are calculated on the same basis and no other direct cost categories are included, gross profit margin is the complement of food cost percentage. For example, a 30% food cost corresponds to a 70% gross margin before other expenses.
Gross profit is calculated before labour, rent, utilities, marketing, insurance and other operating expenses. Operating profit deducts additional operating costs, while net profit also reflects other income, expenses and applicable taxes.
Chef’s tip: Define which costs are included in COGS and use the same accounting method each period. Compare gross margin with labour, prime cost and sales mix to understand the restaurant’s overall performance.
Key distinction: Gross profit margin measures the share of sales remaining after COGS; it is not the same as net profit margin or markup.
This term is one of hundreds covered in depth across OCS courses, learning paths, and 1-on-1 coaching with Chef Eric.
