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# How to Figure Gross Margin on a Restaurant

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The restaurant industry is not forgiving -- if you cannot make a profit, your business will not survive. It's important, then, to keep your costs down and your revenues up. A simple measure for keeping track of this is the gross margin. Calculate your gross margin on a regular basis and aim to keep it as high as possible.

## Revenues

Calculate your revenues by adding up your sales for the period. For instance if you had food sales of \$2,000, non-alcoholic drink sales of \$1,000, and alcoholic drink sales of \$1,500, your revenues would be \$4,500.

## Cost of Goods Sold

Calculate the cost of goods sold for the period. This is the total cost to create the food that you sold. To calculate the cost of goods sold, add up all of your

variable costs for producing the food. Variable costs are costs that change with production level, such as food costs, hourly wages paid to cooks and servers, and gas used for your stoves. For example, if you used \$400 worth of food, paid hourly wages of \$1,000, had gas expenses of \$900, and had other variable expenses of \$200, your cost of goods sold would be \$2,500.

## Calculate Gross Margin

Calculate the margin by subtracting your cost of goods sold from your revenues. For instance, if you had revenues of \$4,500 and cost of goods sold of \$2,500, you would have a gross margin of \$2,000. These are not profits. These earnings must first pay off your fixed costs -- costs that do not vary by production level -- before you see any profits.

Category: Forex