In hospitality, sales figures might look impressive, but they don’t tell the full story. We regularly see restaurants, cafés and coffee shops with busy tills and packed tables that still struggle to generate cash. More often than not, the issue sits with one key metric: gross profit.
It is one of the most important KPIs in the hospitality sector because it reflects how effectively a business turns sales into margin – before overheads like wages, rent and utilities even come into play.
What Is Gross Profit in Hospitality?
For hospitality businesses, gross profit is typically calculated as:
(Sales – Materials Cost) ÷ Sales
Materials cost usually includes food, drink, and other consumables directly related to what you sell. Expressing gross profit as a percentage of sales makes it easier to benchmark performance over time and against similar businesses. In this instance it’s called gross margin.
While target margins vary depending on concept and location, a small swing in gross profit – even 1-2% – can make a significant difference to annual profitability.
What Impacts Gross Profit in Restaurants, Cafés and Coffee Shops?
Gross Profit is influenced by several operational factors, many of which are unique to the hospitality sector.
1. Menu Pricing
Pricing isn’t just about what customers are willing to pay – it’s about ensuring margins are built into every item sold. Underpriced menu items can quietly drag overall gross income down, especially if they’re popular sellers.
Regular menu reviews are essential to ensure prices still reflect rising ingredient costs and changes in customer demand.
2. Purchase Prices
Supplier costs rarely stay still. Food inflation, seasonal availability and changes in supplier terms all affect materials cost.
Businesses that don’t regularly review supplier pricing or renegotiate contracts often see their gross profit eroded over time without realising it.
3. Sales Mix
Not all sales are created equal. A coffee shop selling more food items may see a very different gross income to one focused mainly on drinks. Similarly, a restaurant’s margins will vary depending on whether customers favour high-margin dishes or lower-margin staples.
Understanding sales mix helps explain why gross profit changes – not just that it has changed.
4. Kitchen Wastage
Over-portioning, poor stock rotation, inaccurate ordering and menu complexity can all lead to unnecessary waste. In hospitality, wastage doesn’t just reduce gross income – it’s money straight in the bin.
Tight stock controls and clear portion standards are critical to protecting margins.
5. Theft and Shrinkage
Unfortunately, theft – whether intentional or accidental – is a reality in many hospitality environments. Missing stock, unrecorded staff meals, and poor till controls all chip away at gross margin.
Regular stocktakes and clear procedures help identify issues early before they become costly habits.
Why Gross Profit Matters More Than Ever
With rising costs across food, energy and labour, hospitality businesses have less room for error than ever before. Gross income is the first line of defence. If it isn’t right, no amount of cost-cutting elsewhere will fully fix the problem.
Tracking gross income consistently – and understanding what’s driving it – allows business owners to make informed decisions on pricing, purchasing and operations.
How Specialist Accountants Add Value
Generic financial reports don’t always highlight the real drivers of hospitality performance. Sector-specific insight does.
By analysing gross profit trends alongside menu data, supplier costs and operational processes, specialist hospitality accountants can help identify where margin is being lost – and where it can be recovered.
Gross profit isn’t just a number on a report. It’s a reflection of how well the business is being run.