Have you ever wondered why sometimes your server looks slightly annoyed when you tell them you're having water with your meal? Or that she is more worried about the level in your wine glass than you? Or why many restaurants went to free re-fills on soda a few years back without batting an eye?

There are logical answers to all of these questions, centered on one thing and one thing only: money. As you might expect, restaurants do not make the same amount from every single item they sell. Some items boast huge profit margins -- so logically, they will try to lure you to order the ones that rake in the most cash.

What follows is my list of the top "money makers" in the restaurant industry -- good information that might shed light on a few things the next time you dine out. The list provides a neat insider's view into how restaurants are run; for more applicable ways to save money, check out these other tips to save money while eating out, as well as great restaurant discount resources such as the Entertainment Book.


1. Non-Alcoholic Beverages
This would include all soft drinks, coffee, and tea. The cost for restaurants in this area is literally pennies on the dollar. This is why many restaurants and chains switched to "free refills" without worrying one bit about their bottom line. These items cost the restaurant between 5 cents and 20 cents per serving. Keep that in mind the next time you want to order a $2.50 Coke. Soda is so cheap that paper cups, when used, represent a bigger expense than the soda itself.

2. Wine

The markup on wine is astronomical, though it depends on the brand you drink and whether you order by the glass or bottle. Regardless, a very conservative estimate would land in the 200% range, while some put the markup at closer to 600% at higher-end restaurants.

This solves the mystery about why my servers always seemed obsessed with keeping my wine glass full. It also answers why some restaurants make ordering a bottle of wine into some sort of royal event of epic proportion. A few times, I thought the red carpet would roll out and the ticker tape would fall. Restaurants are trying to dress up this experience to make it more enticing. And if you want the royal treatment, expect to dish out like a king or queen.

3. Pasta

This one should be easy to figure out. First, a history lesson: Pasta translates as "paste" from Italian and was the food the peasants ate, along with other now-trendy items such as polenta (corn meal mush) and tomato sauce. (The Italian gentry once thought tomatoes were poisonous.)

We've all bought pasta from the grocery store, so we know it is relatively inexpensive. And don't forget that we pay "retail" --whereas restaurants get it at wholesale prices.

It's impossible to assign a dollar figure to a category such as pasta because the markup depends on what it is topped with. But if you exclude pasta dishes with seafood or red meat, you can probably figure that your bowl costs the restaurant somewhere between $1 and $2.50. Consider that a high-end restaurant might charge $25 for a pasta meal (if it has some meat and vegetables in it), and you can easily see what a killing they make.

4. Pizza

Do you know how you can tell that a particular item, food or drink, has a high markup? Because it's always on sale. When I think of things always on sale, two come to mind: pizza and mattresses. We'll save the mattress talk for later.

Think about the core ingredients that go into a pizza. First, there's dough. Do you know what goes into dough? Mostly it's water and flour. Let's see, water is basically free and flour costs pennies. Minimal amounts of yeast, salt and sugar and there you go. Next, pizza sauce. Even the most dressed-up, fresh homemade sauces are not that expensive; it's just tomatoes, water and spices. Cheese and toppings, while costlier, still add a substantial markup.

Some cursory research on the subject gave me these rough figures. A medium pizza from any one of The Big Three chains costs about $2.60 to make. That comes to 25 cents for the dough, $2 for the cheese, and 35 cents for the sauce. Even if you go all the way up to a large with everything, you're looking at a cost of about $4 to $4.50. Compare these to the retail pricing, and you're basically getting robbed!

5. "The Special"

The nightly special is typically one of the higher priced items on the menu (if not the highest) and as such, usually carries a high profit margin for the restaurant. By "discounting" the price, restaurants simply lower their absurdly high profit margins by a fraction.

When you get into the pecan-crusted and pan-seared high-end fish dishes and throw in a sautéed shrimp topping, a salad and side of asparagus, a restaurant can easily get away with charging $30 for this dish. This also goes for your 100% Angus Beef cooked on a wood-burning grill, topped with a mushroom basil Marsala wine sauce, and served with roasted garlic mashed potatoes. Your nightly special typically comes with a ton of "stuff" prepared in a unique fashion, and a spiel that each server is required to recite to suck you in.

Sure, they're tasty dishes. But they're also expensive and the restaurant usually makes a mint off of them.

The final dish...

As a consumer, I am really more concerned with how my food tastes and not how much it costs me. I am not much of a wine drinker and I never order soft drinks at a restaurant. One way to eat inexpensively is to eat healthy, which I'll explore in a later post. In the meantime, check out my advice on how to eat healthy on a budget, in part by by using awesome products such as E-mealz.

While I'm by no means telling you to avoid wine or pizza, It's nice to know exactly how your local eatery cashes in on these breadwinners. Now there's one thing your eager server will almost always avoid telling you.

David Bakke is a staff writer and frequent contributor for the popular personal finance blog, Money Crashers. In addition to his extensive experience in the restaurant and food industry, David specializes in writing about finance topics like frugality, investing for the future, retirement, and smart shopping.

Increase your money and finance knowledge from home

What is Inflation?

Why do prices go up?

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

Add a Comment

*0 / 3000 Character Maximum

6 Comments

Filter by:
Sean Lenahan

Markups may seem large, but a markup exists to include labor, rent/mortgage, cost of utilities, to cover the cost of plates, silverware, etc... (Which break, are taken, etc...). The average return on the dollar in the restaurant industry is 4 percent; most are lucky to reach that. Few exceed that. Say your pasta meal cost $5 in raw ingredients, and you pay $20 for that and a soda, before tip. You are there for 2 hours. You got bread, and your server is at $5/be (tip based employment has wage laws different from that of the non-tip minimum wage of $7.25 federal). It may be higher, depending on the laws, etc.. Your busboy makes $7.25, or 5 if the waitresses tip him; the chef is salaried, and other kitchen workers are making at least minimum wage. The $10 wage your waitress made, the $14.50 the busboy made in your 2 hours, plus the kitchen staff and ingredients-- your $20 stay cost the Restaurant money. Moreover, few places pay the minimum wage economy wide. Add this into the fact that if the owner is going to have money to pay for his life (rent, medical care, children, etc...), there is little left over. The markup only represents the markup. Profit is a possibility, but it is not a guarantee. Also, don't forget that serving alcohol requires a liquor license and insurance. If you don't want to pay these prices and tip the waitstaff, eat at home. But don't think for a minute your local grocer doesn't have similar concerns and markups. My father is a lifelong restauranteur; I have lived the industry on both sides. It is a difficult and costly industry that most people will only glimpse, and few are cut out for. Never forget that the average mom and pop restauranteur is a hardworking person with a dream who battles every day to see it stay open another day. Their life expectancy, as a human being, is lower than the general population, and most restaurants do not last a year.

June 22 2013 at 11:40 PM Report abuse rate up rate down Reply
Sean Lenahan

There is a huge difference between markup and profit. Yes, mark

June 22 2013 at 11:15 PM Report abuse rate up rate down Reply
Gursimran Bedi

what a jerk . I totally agree with gary . I am no business man but did some research to open one and Pizza does cost around 12 to 15 $ depending upon location and its rents . What a BS article . SO stupid so naive . Dude are you in 5 grade??

September 23 2012 at 10:16 PM Report abuse rate up rate down Reply
Gursimran Bedi

what a jerk . I totally agree with gary . I am no business man but did some research to open one and Pizza does cost around 12 to 15 $ depending upon location and its rents . What a BS article . SO stupid so naive . Dude are you in 5 grade??

September 23 2012 at 10:15 PM Report abuse rate up rate down Reply
garys

David,

Allow me to comment that your article is more than mis leading....It may be true that a Pizza's raw ingrediences may cost $2.60 but you neglect to mention and rightly consider the labor it takes to put one together.... added to that, how about the gas for the ovens, Rent on the building, insurance, electric, payroll taxes, city taxes, license fees, maitainence cost, health insurance and on and on. Add up all the overhead and salaries and you quickly are up to 12.00. And Oh yes, the guy making the pizza and cooking your food does not do it for kicks, he does it to make a profit. I hope you make corrections to your article in the next piblication of Daily Finance.

gary

September 23 2012 at 3:57 AM Report abuse +1 rate up rate down Reply
Brian Erickson

What a load of bs. Hopefully nobody takes this writer seriously. I'll assume that's the case since this seems to be the first comment. This writer has probably never run a successful business, successful meaning it didn't go out of business.

Restaurants aren't taking their customers for a ride as this person suggests. Many restaurants are squeezing more money out of every possible avenue of opportunity just to stay afloat and hopefully walk away with some profit. As most people already know a majority of restaurants go out of business.

What jerks like this writer don't take into account is that when people go to a restaurant their sitting in a cost vacuum: a building with furniture (lease and maintenance), staff take orders, prepare, and deliver food (paychecks), presumably the restaurant has electricity and running water (bills), food and beverage is always in stock yet all must be paid for when bills come, perhaps not all food sells or some gets accidentally dropped on the floor (more costs), maybe there's bad weather and people don't come out to eat for a while, perhaps the owner needed a loan to start the business (more bills), and it goes on and on.

If an item appears to cost say $1 and sells for $5 in reality it probably costs more like $4 and leaves the restaurant with 20% profit, and this is quite high as an overall profit margin for all sales; that drops to something less than 20% and hopefully stays above 15%.

Hope nobody takes trash like this seriously. Remember if you like the food you're receiving, service, establishment, etc. you're not just dumping money into the owner's pocket. You're contributing to the upkeep of an entire business machine full of moving parts, some costly. Most owners aren't laughing all the way to the bank. They're just happy if business is good, bills and staff get paid, etc., and if some is left over so the owner can put some away too then everybody's happy. And, it's pretty darn hard work too. Profitable restauranters deserve some reward.

October 27 2011 at 5:22 AM Report abuse +1 rate up rate down Reply