Set the decision boundary before using the numbers
Inputs and records to align
- One operating period, currency and tax basis for sales and every cost line. (not complete)
- Net sales after recorded discounts, refunds and voids rather than menu-price totals. (not complete)
- Recipe or purchase records for included food, beverage and packaging cost. (not complete)
- Labour cost and paid-hour records on a documented inclusion boundary. (not complete)
- Occupancy and other operating costs for the same period, separated from owner distributions and financing. (not complete)
- Item quantities or sales mix when the decision concerns menu composition. (not complete)
Build one transparent decision model
Operating profit = net sales - food and beverage cost - included variable order cost - labour cost - occupancy cost - other operating cost
- net sales
- Recorded sales after included discounts, refunds and voids (CU per period) — reconciled sales records
- food and beverage cost
- Consumed ingredient and beverage cost on the chosen accounting boundary (CU per period) — recipe, purchasing and inventory records
- labour cost
- Named labour cost layers for the same service period (CU per period) — payroll and scheduling records
- occupancy and other operating cost
- Period costs outside the declared item and labour layers (CU per period) — ledger and contract records
Prime cost is often modelled as food-and-beverage cost plus included labour cost, but the business must document its exact boundary and keep it consistent between periods.
- Reconcile net sales to the selected service period.
- Build item contribution from recipe, packaging and order-level costs.
- Add labour on the same time and inclusion basis.
- Subtract occupancy and other period operating costs once.
- Compare a small number of price, mix, waste, staffing or volume scenarios separately.
- Choose one operational test and record the review date and stop condition.
Worked example: bridge one service period to operating profit
Invented period: 50,000 CU net sales, 15,000 food and beverage cost, 2,000 variable order cost, 16,000 labour, 6,000 occupancy and 5,000 other operating cost.
| Line | Calculation | CU |
|---|---|---|
| Contribution before labour | 50,000 - 15,000 - 2,000 | 33,000 |
| After labour | 33,000 - 16,000 | 17,000 |
| After occupancy | 17,000 - 6,000 | 11,000 |
| Operating profit | 11,000 - 5,000 | 6,000 |
| Case | Changed input | Result | Decision signal |
|---|---|---|---|
| Lower sales | Net sales 46,000 | 2,000 | Review volume and mix |
| Base | Net sales 50,000 | 6,000 | Validate every cost layer |
| Higher waste | Food cost 17,000 | 4,000 | Inspect recipe, yield and waste |
Route the weak layer to the exact decision owner
| Layer or question | Exact tool | Unit or basis checkpoint | What the result cannot prove |
|---|---|---|---|
| Usable recipe and loaded portion cost | Recipe Costing | Ingredient quantities, yields and saleable portions | Menu price or demand |
| Menu price from loaded portion cost | Menu Pricing | Same portion, tax and target-margin basis | Commercially accepted price |
| Generic COGS plus direct labour | Prime Cost | Documented scope and same sales period | Restaurant-specific definition or healthy target |
| Restaurant food, beverage and labour | Restaurant Prime Cost | Same net-sales period and included labour boundary | Operating profit or benchmark |
| Seating and turn-capacity scenario | Table Turnover Revenue | Service window, seats, turns, occupancy and spend | Forecast covers or demand |
| Occupied-capacity threshold | Occupancy Break-even | Capacity ceiling and unit contribution | Achievable demand |
| Transaction value and volume scenario | Average Transaction Value | Same period; value and count changed independently | Guaranteed revenue or profit lift |
| Incremental opening-hours decision | Opening Hours Profitability | Only revenue and cost caused by changed hours | Forecast sales or permanent schedule advice |
Route to the calculation owner
- Recipe Costing Planner
Calculate exact usable ingredient and loaded portion cost for a recipe batch
- Menu Pricing Planner
Set a menu price from recipe yield and loaded portion cost
- Prime Cost Planner
Control cost of goods and direct labour against sales
- Restaurant Prime Cost Planner
Reconcile food, beverage and labour cost against restaurant sales
- Table Turnover & Revenue Planner
Translate table turns and occupied capacity into covers, revenue and contribution
- Occupancy Break-even Planner
Find the occupied-capacity threshold required to cover period fixed cost
- Average Transaction Value Planner
Compare transaction value and volume changes through revenue and contribution
- Opening Hours Profitability Planner
Test whether additional opening hours cover their incremental operating cost
Review the operational trade-offs before acting
- Using menu prices or gross receipts as net sales.
- Treating food-cost percentage as operating profit.
- Mixing purchased ingredients with consumed ingredient cost without an inventory policy.
- Omitting discounts, refunds, packaging, delivery commissions or waste from the relevant boundary.
- Dividing weekly labour by monthly sales or changing the labour inclusion boundary between cases.
- Assuming a target percentage applies to every restaurant format.
Decision questions
- Which metric should I start with?
- Start with the metric closest to the decision: item contribution for a menu choice, prime cost for delivery economics and operating profit for the whole-period result.
- Does a positive item contribution mean the restaurant is profitable?
- No. Item contribution still has to recover labour, occupancy and other period costs, and the sales mix must be sufficient.
Sources and methodology
- Restaurant Menu Profitability methodology — Margin101: Product-owned item contribution, mix and operational-burden boundary.
- Restaurant Prime Cost methodology — Margin101: Product-owned food, labour and period reconciliation mechanics.
Test the editable scenario
- Restaurant Menu Profitability Planner
Choose menu items and pricing from item-level contribution, popularity and operational burden
- Restaurant Prime Cost Planner
Reconcile food, beverage and labour cost against restaurant sales
- Menu Pricing Planner
Set a menu price from recipe yield and loaded portion cost
- Break-even Sales Planner
Find the units and revenue needed to cover costs or reach target profit