How Much Do Restaurant Owners Make?

How restaurant income is actually quoted

Independent restaurants are priced on seller’s discretionary earnings — net profit with the owner’s compensation, personal expenses, interest, depreciation, and genuine one-time items added back — at multiples that generally run 1.5–2.5× for a single site. That multiple is lower than almost any other category on this site, and the market is right to set it there. A restaurant’s earnings depend on a lease you do not control, a menu the neighbourhood may tire of, and a kitchen team that can leave in a fortnight.

The number that matters to you is not SDE, it is SDE minus what it costs to replace the owner. If the seller runs the floor six nights a week, a competent general manager to do the same job costs $55,000–$85,000 depending on the market. Deduct that before you compare the price to anything. An independent listing $140,000 of SDE where the owner is also the general manager is really returning $60,000–$85,000 on the capital — still a business worth buying at the right price, but a very different one than the headline implies. The general mechanics are covered in how to value a business and SDE vs EBITDA, and the category-specific multiples are in our restaurant valuation guide.

Earnings by format

Format drives margin far more than cuisine does, because it sets the labour model. The bands below assume a stabilized site with a market-rate manager wage already deducted where the owner is not working the floor.

• Quick service and pizza, $400K–$900K sales. SDE of $45,000–$140,000. The best margin structure in the category: no table service, a short menu that controls waste, and labour that flexes with the order queue. The trade is that most of these sites are owner-worked and the ceiling on any one location is low.
• Fast casual, $800K–$1.8M sales. SDE of $80,000–$250,000. Counter ordering with a higher ticket, which is the most favourable combination available to an independent. Build-out costs are the highest per square foot in the category, so buying an existing fit-out is usually far cheaper than opening one.
• Full service independent, $900K–$2.5M sales. SDE of $60,000–$300,000, and the widest spread of any format. Table service pushes labour to 32–38% of sales, so the sites that work are the ones with either a strong bar mix or a genuinely efficient kitchen. This is where most listings sit and where most buyer disappointment happens.
• Bar-led venue, $700K–$2M sales. SDE of $90,000–$350,000. Liquor cost of goods runs 18–24% against 28–35% on food, so beverage mix is the single biggest margin lever available. Weigh that against licence transfer risk, higher insurance, and revenue that concentrates into three or four nights a week.
• Franchised quick service, $1M–$2.5M sales. SDE of $70,000–$200,000 after royalty and advertising fees of 7–11% of sales. You buy a proven system and a customer flow that arrives without marketing, and you give up menu control, supplier choice, and a mandatory remodel every seven to ten years. See buying a franchise resale for how those transfers actually work.

The cost structure

As a share of gross sales, a stabilized independent full-service restaurant runs roughly:

• Cost of goods sold: 28–35% food, 18–24% beverage. Blended, most full-service sites land at 29–33%. Waste and portioning discipline move this two or three points, which on $1.2M of sales is $30,000 of profit — larger than most menu price increases would deliver.
• Total labour: 28–38%. Includes back of house, front of house, payroll taxes, and any benefits. Quick service runs at the bottom of the band, full service with a broad menu at the top. Add the owner’s replacement wage here if the seller has not.
• Rent and occupancy: 6–10%. The hard rule of the category is that rent above 10% of sales rarely leaves a profit, and there is no operational fix for it. Check for percentage-rent clauses that quietly raise the rate as you grow sales.
• Utilities: 3–5%. Hood systems, walk-ins, and dish machines make restaurants energy-intensive. An old walk-in compressor is both a utility line and a capital-expenditure risk.
• Marketing and delivery commissions: 3–8%. Third-party delivery at 15–30% commission is the line that has changed most in recent years. A site with 35% of orders on delivery apps has a fundamentally different margin than one at 5%, even at identical sales.
• Insurance, licences, POS, repairs, and supplies: 5–9%. Repairs is the line sellers under-report most. Equipment in a commercial kitchen fails constantly, and a deferred-maintenance site hands the new owner a five-figure bill in year one.

Worked example: a $1.4M neighbourhood full-service restaurant

The site seats 84, serves dinner six nights and brunch on weekends, and turns about 165 covers a day at an average ticket of $29. That produces roughly $1,400,000 in annual sales, of which $980,000 is food and $420,000 is beverage — a 30% beverage mix, which is healthy for a neighbourhood independent.

Costs: food COGS $304,000 at 31% of food sales, beverage COGS $88,000 at 21% of beverage sales, total labour $476,000 at 34% of sales, rent and occupancy $119,000 at 8.5%, utilities $60,000, marketing and delivery commission $71,000, insurance, licences, POS, repairs and supplies $92,000. Total $1,210,000, leaving about $190,000 of net profit. Add back the owner’s $65,000 draw already sitting inside the labour line, plus $11,000 of vehicle and discretionary items, and SDE is roughly $266,000. At a 2.0× multiple that supports a price near $532,000.

Prime cost here is $868,000 on $1,400,000 of sales, or 62%. That is workable but not comfortable, and it is where the real lever sits. Pulling food cost from 31% to 28.5% through portion control and one supplier renegotiation is worth about $25,000. Shifting beverage mix from 30% to 35% of sales without adding covers is worth roughly $32,000 in gross profit because the incremental margin on liquor is close to 79 cents on the dollar. Together those two moves add about $57,000 of SDE, or $114,000 of enterprise value at the same multiple — considerably more than chasing another twenty covers a night would deliver, and far cheaper to execute.

The earnings claims to discount

Restaurant diligence is mostly an exercise in finding out which reported numbers are real.

• No manager salary in the P&L. The most common overstatement in the category. If the seller runs the floor, that role costs $55,000–$85,000 to replace and it is a permanent cost, not an add-back.
• Sales reported above what the returns show. Some sellers will hint that real revenue exceeds the filed figures. Treat unreported revenue as worth zero — you cannot finance it, insure against it, or sue over it, and a lender will not count it either.
• A peak quarter annualized. Restaurants are seasonal in almost every market. Ask for 36 months of point-of-sale data by week, not a trailing-twelve summary.
• Delivery-app revenue counted at face value. Gross order value on a third-party platform is not revenue to you. Confirm the commission rate and look at the net remittance reports directly.
• Deferred maintenance priced as goodwill. Hood suppression, walk-in compressors, HVAC, and the dish machine are the four items that fail expensively. Have a trade inspect them and deduct the replacement cost from the offer.
• A lease with under five years remaining. A restaurant fit-out is not portable and the landlord knows exactly what it cost you. Confirm remaining term, renewal options, and consent-to-assign before you spend money on diligence.
• A chef or GM whose intentions are unknown. In an independent, one or two people often hold the kitchen together. Meet them before closing and find out what they are paid relative to the local market.

Reconcile every sales claim to the point-of-sale daily export, then to bank deposits, then to three years of filed tax returns — in that order, and refuse to proceed if the three do not tie. Our due diligence checklist sets out which documents to request in what sequence, how to verify business financials covers the reconciliation itself, and red flags when buying a business lists the patterns that should end a conversation.

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