Why is a "good" restaurant profit only 5%?

Last week I bemoaned a $44 chicken entree at a restaurant I love and today I’m going to share some of the hidden costs to operating restaurants that may help explain how that chicken dish becomes $44. I remain firm on my position that there should have been more ounces of chicken in that dish but all it took was a look around the restaurant to figure out why it cost that much. I am not gaslighting you into thinking that going out to eat has not gotten expensive. It has. But I am here to tell you that in most cases it is not due to owner greed. The costs to operate a restaurant in 2025 are exorbitant.

Sometimes when I want to get a migraine I scroll through reddit threads about tipping culture and the cost of going out to eat these days “when I can make the same thing at home!” The summary is that people are really mad at how frequently they are presented with a tip screen and that many people feel like there is no value in going out to eat. Through sharing some of these costs I’m also hoping to shed some light as to why so many restaurants in NY and LA are closing, some of which are run by experienced operators.

As an average diner you go out to eat and you know you are paying for the food itself, you’re contributing towards the labor cost of the staff that is going to prepare it for you, serve it to you and clean up after you. I think most people’s understanding of operating costs ends somewhere around here. They may loosely recognize that the price of rent, which in major cities in “cool” neighborhoods can get up to $40k per month, is factored into their dishes. The amount of times we’ve been presented with an amazing marquee opportunity in Williamsburg to discover the rent is $36k… how can I opt out of being sent these “incredible” opportunities?

For every 50 aggrieved redditors there seems to be a least one person who has operated a small business and mentions the costs of operating like insurance (GL, disability, workers comp, health), permits & licenses, unavoidable citations, building maintenance, trash, pest control, equipment rentals, bookkeeping, CPAs, utilities, security, fire suppression, payroll taxes and fees, real estate tax (on a building you don’t own!), unsecured ...