My Restaurant Isn't Making Money. Where Do I Look?
· 4 min read
Work down the P&L in order: sales, prime cost, occupancy, everything else. Almost every unprofitable independent restaurant has its problem in one of three places — prime cost above about 68%, occupancy above about 12% of sales, or simply not enough covers to carry the fixed costs. Find which before changing anything.
The instinct when a restaurant stops making money is to cut something. The problem is that the obvious cuts — portion sizes, staff hours, quality — are the ones guests notice, and they frequently make the problem worse. So find the actual leak first. It takes an afternoon.
Step 1 — Get the four numbers
You need one representative month. Not your best, not your worst.
| Number | How to get it | Healthy |
|---|---|---|
| Total sales | POS | — |
| Prime cost % | (COGS + fully-loaded labour) ÷ sales | ≤65% |
| Occupancy % | (Rent + utilities + insurance) ÷ sales | ≤10% |
| Everything else % | All other operating expenses ÷ sales | 7–11% |
Add the three percentages. Whatever's left is your profit before owner pay, debt service and tax. If that number is under about 10%, you don't have room for all three of those — which is what “not making money” usually means in practice.
Step 2 — Find which one is out of range
Worked example · A real-feeling diagnosis
- Monthly sales
- $104,000
- Prime cost
- $73,840 · 71.0%
- Occupancy
- $9,400 · 9.0%
- Other operating
- $9,900 · 9.5%
- Left over
- $10,860 · 10.4%
- Owner draw + debt service
- $11,500
- Actual monthly result
- −$640
Occupancy and operating costs are both fine. Prime cost is six points above target, and six points of $104,000 is $6,240 a month — which is the entire problem, and it's the half of the P&L you can change fastest.
Step 3 — Size each lever before pulling it
The point of this table is that levers people reach for first are usually not the biggest ones available.
| Lever | Change | Monthly value | How hard |
|---|---|---|---|
| Menu prices | +3% on half the menu | $1,560 | Easy — one menu change |
| Food cost | −1 point | $1,040 | Medium — recost + portioning |
| Labour cost | −1 point | $1,040 | Hard — scheduling, and it has limits |
| Covers | +3% | $1,010 | Hard — marketing, months of lag |
| Average check | +$1.50 | $4,100 | Easy — attachment and mix |
| Rent | −1 point | $1,040 | Very hard — a lease negotiation |
Two things stand out. Average check is the biggest single lever and it's one of the easiest — an extra $1.50 per cover is a side, a second drink, or a dessert on one table in three. And rent is nearly immovable, which is why occupancy above 12% of sales is a structural problem rather than an operating one. Size the first row on one of your own dishes in the price increase calculator before you decide the menu can't take it.
Step 4 — The order to actually act in
- Reprice the plowhorses. High volume, below-average contribution, proven demand. Fastest money on the list — see menu engineering.
- Recost everything and fix what drifted. This is where the phantom food cost usually lives — see why is my food cost so high.
- Work on attachment. Sides, drinks, dessert. Costs nothing but training and a server script.
- Then labour. Later than you'd think, because cutting hours below what service needs shows up in reviews within a fortnight.
- Structural last. Rent, concept, hours, footprint. Slow, expensive, sometimes necessary — but not before you've proven the operating levers are exhausted.
When the answer is structural
Sometimes the honest diagnosis is that the numbers don't work at this volume in this space, and no amount of operating discipline fixes it. The signals: occupancy above 12–13% of sales, a break-even cover count you've never once hit, or a prime cost that's already at 62% with nothing left to trim.
That's worth knowing early rather than discovering after another year of subsidising it. Run your own numbers through the break-even calculator — if the covers-per-day figure is above what your room can physically turn, the problem isn't your food cost.
How long should it take to see a difference?
A price change shows up in the next week's numbers. Recosting and portioning fixes show up in the next full inventory period. Labour changes take a month to read reliably. Marketing takes a quarter. Sequence your effort accordingly.
Should I cut the menu down?
Often yes, but for prep and inventory reasons rather than direct cost. A shorter menu means fewer SKUs, less spoilage, faster service and better consistency. Cut the dogs — low volume and low contribution — and check what shares their ingredients first.
What if I can't pay myself?
Then the business isn't profitable, whatever the P&L says. Put a market-rate salary for the job you do into your fixed costs and recompute break-even. A restaurant that only works because the owner works free isn't a restaurant that works.
The cost side, weekly.
What wholesale food prices did, what it does to a typical dish, and one thing worth repricing. One email, Monday.
Terms this guide uses
Prime cost
Total cost of goods sold plus total labor cost — the two numbers that decide whether a restaurant survives.
Break-even point
The sales volume at which total revenue exactly covers total cost — the number below which you are paying to open.
Average check
Total sales divided by covers — the single most leveraged number in a restaurant's revenue line.
Read next
The Restaurant P&L, Line by Line (For Owner-Operators)
A full restaurant profit and loss statement explained line by line, with a worked example, healthy percentage ranges, and the four lines where problems actually show up first.
Why Is My Food Cost So High? A Diagnostic
Seven causes of a high restaurant food cost, in the order they're usually the answer — with the check that confirms or eliminates each one in under an hour.
Prime Cost Explained
What prime cost includes, how to calculate it correctly, the 65% benchmark, and why food cost and labour percentages are both misleading on their own.