A friend who ran a small restaurant for six years explained the arithmetic to me one evening after service, and it changed how I think about eating out more than any amount of reading about food had.
The short version is that the ingredients on your plate are a minority of what you are paying, and everybody's intuition about which dishes are overpriced is wrong.
The rough shape of the numbers
These vary enormously by type of restaurant and location, and the broad pattern is fairly consistent.
Food cost typically runs somewhere around a quarter to a third of the menu price. Staff cost is usually similar or higher. Rent, utilities, insurance, licensing, equipment, repairs, accounting and waste take a large further slice.
What is left as profit is generally in the low single digits as a percentage, which is why restaurants close constantly, including good ones.
The consequence is that a dish costing four times its ingredients is not being marked up four times. It is being priced to cover everything that is not ingredients.
Why the cheap dishes are the profitable ones
The bit that reframed things for me.
A dish made from inexpensive ingredients has a much better margin than an expensive one, even at a lower price, because the non-food costs are roughly the same for both.
Which is why menus are structured the way they are. The expensive items are there for people who want them and to anchor the perception of the menu. The money is made on the pulses, the vegetables, the rice, the bread and above all the drinks.
Drinks in particular. The margin on beverages is dramatically better than on food, which is why service is attentive about topping up your glass and why a restaurant that is full of people not drinking is in trouble regardless of how busy it looks.
What waste does to the calculation
The invisible cost and the one that ruins businesses.
A restaurant has to hold stock for a menu, and the demand for any individual dish varies unpredictably. Anything perishable that does not sell is a total loss.
Which explains several things that customers find annoying. Why menus are shorter than they used to be. Why specials exist, which is partly creativity and partly using what needs using. And why a restaurant is reluctant to make something that is not on the menu, because the ingredients for it are portioned into a plan.
It also explains why places push certain dishes on certain nights, which is not always about what is best.
The staffing reality
The part that made me a better customer.
Front of house staff in many places are paid at or near the minimum, with tips forming a meaningful share of actual income. Kitchen staff often earn less than customers assume for hours that are long and physically demanding.
A restaurant that is busy for two hours still needs to be staffed for the whole service, which is why the quiet stretches are not free money and why a table that sits for three hours over one course is a genuine cost.
None of that obliges anybody to eat quickly. It did change how I feel about lingering at peak time on a Saturday versus at three on a Tuesday, which costs the place nothing.
What is genuinely overpriced
To be fair, some things are.
Anything where the price is driven by scarcity signalling rather than by cost. Certain imported items carry markups well beyond their handling cost.
Bottled water, universally.
And anything in a location where the rent is the product — the view, the address, the room. That is a legitimate thing to sell and it is not the food.
How this changed what I order
I order the cheap dishes more, and not to save money.
The dishes with the best margins are the ones a kitchen can afford to make properly, with time and attention, without watching the cost. The expensive protein is frequently the dish under the most cost pressure, because its margin is thinnest.
I also drink what I actually want rather than treating the drinks as an overpriced add-on, on the basis that the drinks are subsidising the food and I would rather the place stayed open.
And I stopped being irritated by prices on simple dishes, having understood that the simplicity of the dish has almost nothing to do with the cost of putting it in front of me.
Delivery, which changes everything
Worth adding since it now accounts for a large share of many restaurants' business.
Platform commissions take a substantial percentage of the order value, frequently in the region of a quarter to a third.
For a business already operating on thin margins, that is not a small adjustment. It is why some places price delivery menus higher, why others refuse platforms entirely, and why a restaurant will often ask you to order directly.
Ordering direct where possible is the single most useful thing a customer can do for a small place, and it usually costs the same or less.