Contribution Margin

Can higher food-cost drive higher profits? Yes!

Restaurant owners are constantly schooled on "food cost." Has to be 30%... 33%... whatever. But is it true?

Many even price menu items based on food cost and advertise items with the highest profit margin. 

Example: Food cost is $3. Sell for $10. That makes food cost 30%.

And certainly, the natural inclination is to promote products with high-profit margins. I’m not going to argue that, but there is another side to this coin. 

What about a menu item with a 50% food cost?

Would it make any sense at all to promote that dish?

Say you have three dinner items on your menu:

  1. Steak - 50% food cost
  2. Salmon - 40% food cost
  3. Chicken - 30% food cost

So, looking at it that way your profit margin is:

  • 50% on steak dinners
  • 60% on salmon
  • 70% on the chicken

You have exactly 100 guests tonight, and they'll order whatever you want them to. Which dinner will you sell them? Steak sells for $30, salmon $20, and chicken is $15.

Contribution Margin

Turns out one-hundred steak dinners gets you $1,500 in gross profit. Salmon drops $1,200 to the bottom line. And chicken dinners will give you $1,050. 

So, oddly enough… the highest "profit-margin" dinner actually has the lowest overall profit.

Don’t fixate on profit-margin. Be aware though, of "contribution-margin" and sell people what they want to buy, at a price that moves plenty of it.

P.S. If you find these tips helpful, please do me a favor and share this with someone you think would also benefit from it.  It’s the best way you can show me you like what I’m doing. Thanks!

Blog Updates

Recent Posts


Keep Learning

Our free online restaurant marketing Course teaches you how to:

  1. Attract more customers
  2. Increase average ticket
  3. Drive even more visits

Check It Out

Get Kamron's Book