How Restaurants Make Money

The profit margins on restaurant food are slim. Diners are only willing to pay so much, even for quality ingredients. With many restaurants offering expensive foods like shrimp and steak, sometimes it seems surprising that restaurants ever manage to make a profit margin. However, restaurants have several secrets behind the scene that help keep costs low and profits high.

One of the most profitable items at any restaurant is the dessert menu. Desserts at most restaurants outside of the gourmet field come to the restaurant pre-made. Some restaurants even use common frozen dessert products. It’s not unusual for a restaurant to take a $5 pie, cut it up, put it on plates, and sell each slice for $4. Drizzling a thin layer of sauce over each piece makes it seem like the pie was lovingly crafted by a trained dessert chef instead of Sara Lee.

Appetizers are another food item where restaurants can make a heavy profit. Like desserts, not all appetizers are created fresh at the restaurant, yet it’s common to see menus with prices of $5 to $10 for a starter item. Patrons enjoy ordering appetizers because they make the meal seem more expansive, and restaurants are happy to keep serving up small plates at large prices.

Labor costs can be kept low or very low, depending on the ethics of the restaurant. Most servers make only a few dollars per hour, with tips expected to provide the bulk of the server’s compensation. Hostesses and busboys can be hired at minimum wage with promises of a waiting position when one opens up. In the kitchen, unscrupulous restaurants will hire undocumented workers to heat up frozen food and wash dishes. It’s not uncommon to walk into the back of an Italian, Japanese, or American-style restaurant and find that the cooks are all Hispanic.

Restaurants have high overhead costs in the form of food, rent, electricity, and water. A restaurant may only make a few cents on the entrées that they sell. Restaurants must cut labor costs, use cheap desserts, and pile on the appetizers to keep in business. Individual restaurants should be not blamed for playing by the rules of the game. Not using these tricks means higher prices, making the restaurant less competitive and unlikely to stay in the market.