Your restaurant's profit margin is what is left from each dollar of sales after all your costs. To improve it, you either sell more per customer and per hour, or you spend less to deliver each sale. Square analytics will not do your bookkeeping, but it shows the sales side in detail (what sells, when, at what price and with what discounts) and, with Square timecards, your labor hours. That is enough to find most of the levers that move margin.
This guide looks at margins across the whole business. For costing individual dishes and setting menu prices, see managing food costs and pricing with Square analytics.
The three margins worth tracking
| Margin | How to calculate it | What it tells you |
|---|---|---|
| Gross margin | (Net sales − cost of goods sold) ÷ net sales | How well your prices cover food, beverage and packaging |
| Prime cost % | (Cost of goods sold + total labor cost) ÷ net sales | Your two biggest controllable costs together |
| Net profit margin | Net profit ÷ net sales | What the business actually earns after rent, utilities, fees and everything else |
Net sales come from Square. Cost of goods sold and labor come from your invoices, payroll and accounting system. Net profit comes from your profit and loss statement, ideally prepared with your accountant. Track all three monthly and watch the trend rather than chasing an industry benchmark, since the right numbers vary a lot by concept.
Lever 1: raise revenue per customer
Selling one more item to an existing customer costs far less than finding a new one. In Square, look at:
- Average ticket. Net sales divided by transactions, from your sales summary. Track it weekly.
- Modifier and add-on sales. Square's modifier sales reporting shows which paid add-ons customers choose. If extra shots, sides or premium toppings rarely sell, train staff to offer them.
- Item pairings. Look at which items sell well and build combos around them, priced so the combo still protects margin.
Lever 2: shift the menu mix toward profitable items
Two dishes can sell equally well and contribute very different profit. Export item sales from Square (units, gross and net sales), add your plate cost for each item, and calculate contribution: price minus plate cost, times units sold.
- High contribution, high volume: protect them. Keep them visible and consistent.
- High contribution, low volume: promote them with better placement, photos and staff recommendations.
- Low contribution, high volume: consider a small price increase or a recipe tweak.
- Low contribution, low volume: candidates to remove, which also simplifies prep and inventory.
For a deeper version of this exercise, see menu management with Square POS data.
Lever 3: control discounts, comps and refunds
Discounts come straight out of margin. Review your discount reporting monthly:
- Which discounts are used most, and do they bring in new or repeat business?
- Are comps and refunds concentrated on certain shifts or team members?
- Could a loyalty reward (earned after several visits) replace a blanket discount that everyone gets?
Lever 4: match labor to demand
Labor is usually the other half of prime cost. Compare Square's sales by hour with scheduled and actual hours from timecards:
- Hours where sales are low but staffing is full are candidates for shorter shifts or staggered starts.
- Hours where sales spike and ticket times suffer may need one more person, or a way to take orders without adding staff.
- Calculate sales per labor hour by daypart and track it weekly.
Always follow your local labor laws on breaks, scheduling notice and overtime, which vary by state and city.
Lever 5: watch channel costs
Every sales channel has its own cost. In-store sales carry card processing fees. Third-party marketplace orders often carry commissions on top. Compare net revenue by channel, after fees, so you know what each channel really contributes, and encourage repeat customers to order through the channels that cost you least.
A monthly margin routine
- Pull net sales, transactions, average ticket, item sales, modifier sales and discounts from Square for the month.
- Get cost of goods sold, labor cost and total expenses from your bookkeeper or accounting system.
- Calculate gross margin, prime cost % and net margin, and compare them with the previous three months.
- Pick one lever to work on next month and one metric to measure it.
Common mistakes
- Chasing sales growth while ignoring which items and channels are profitable.
- Cutting labor so far that service slows and average ticket drops.
- Treating discounts as free marketing without measuring repeat visits.
- Comparing your margins to generic benchmarks instead of your own trend.
Grow high-margin direct orders
Orders placed through your own app or website skip marketplace commissions and arrive with the customer's details attached. Orda gives Square restaurants a branded iOS and Android app and web ordering, with orders flowing into Square POS, menus synced from Square and Square Loyalty built in. Recommended add-ons in the cart help lift average ticket, and built-in marketing tools help you bring customers back. More than 10,000 Square businesses have used Orda.
Related guides: using Square's dashboard for restaurant insights and tracking hours with Square timecards.