Margins… why they’re important and what you need to know

If you're running a hospitality business, be it a bustling high street café, a pub, or a mobile food van, there's one thing you need to obsess over: your margins. Margins are the difference between keeping the lights on and quietly bleeding cash.

But let’s keep it simple. You don’t need to be an accountant to get a handle on it—just a few clear rules of thumb can go a long way.

1. Know Your Key Terminology

Some key terminology to help you along your journey

• Gross Profit = Sales – Direct Costs (e.g. food, drink, packaging)

• Gross Margin = Gross Profit / Sales x 100

• Net Profit = What’s left after ALL of your costs (rent, staff, utilities, marketing etc etc)

• Net Margin = Net Profit / Sales x 100

A healthy hospitality business should aim for:

• Gross Margin of 65–70% (that’s a 30–35% cost of sales)

• Net Profit Margin of 10–15%
  

2. The 30/30/30 Rule

If you want a rough-and-ready breakdown to aim for:

• 30% cost of sales (ingredients, drink, disposables)

• 30% staff costs

• 30% overheads (rent, energy, insurance etc.)

• 10% net profit

Of course, in the real world it won’t work exactly like this but if one of those categories is creeping higher, the others need to compensate. Otherwise, your profit disappears.

3. Alternative Catering vs Bricks and Mortar

Margins work differently depending on your setup:

• Bricks and Mortar:

  • Higher fixed costs (rent, business rates, staffing)

  • More stable revenue potential if location is right

  • You need volume to cover fixed costs before turning a profit

• Alternative Catering (food trucks, online food services etc) :

  • Lower fixed costs, more variable revenue

  • Margins can be stronger on good days, but weather, footfall, or event success are make or break

  • Watch your travel, fuel, and pitch fees—they add up

In short: a café or restaurant needs consistent footfall to stay afloat, while a food truck might swing from boom to bust based on weather and events. The model affects how tight your margin control needs to be.

4. Watch the Pennies…

Margins don’t usually fail from one big hole—they bleed out from lots of little ones:

• Staff over-hours

• Wastage of stock

• Over-ordering

Fixing just one of these can mean the difference between loss and profit.

5. Regularly Review Your Menu Profitability

It’s common for businesses to know their top-selling dishes but not their most profitable ones. Sometimes your best-seller is actually a margin killer.

Find a quiet day once a month and work through the numbers. If it costs £3.20 to make and sells for £9.00, you’re probably fine. If it costs £5.80 and sells for £9.00... that’s a silent killer.

Final Thought

You don’t need to become an accountant. But you do need to know your numbers well enough to spot trouble before it arrives. Get comfortable with a few rules of thumb, track your biggest cost categories, and you’ll put yourself ahead of most.

If in doubt, start simple. Understand your cost of sales, fix the biggest leaks, and build from there.