Glossary
Gross margin
Gross margin is the share of a sale that remains after the cost of goods sold is subtracted, expressed as a percentage of the price.
How gross margin works
Gross margin is price minus cost of goods, divided by price. On a single dish it is simply 100 percent minus the food cost percentage. Across the business it measures how much of every sales dollar survives ingredient and beverage cost to cover labor, overhead, and profit.
Higher gross margin gives a restaurant more room to absorb labor and rent without raising prices.
Example
A cocktail sells for $14 with $3.10 of liquor and mixers. The gross margin is $10.90, or about 78 percent, the kind of margin that makes a strong bar program central to profitability.
Operational limitations
Gross margin excludes labor, rent, utilities, taxes, and other operating costs. A high gross-margin item can still be unprofitable, so read it alongside contribution dollars, volume, waste, and the full profit-and-loss statement.
See also
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