PROFITABILITY GUIDE
Restaurant contribution margin: the number behind profitable delivery sales
Revenue can grow while cash contribution falls. Contribution margin prevents that confusion by measuring what remains from an order after the costs that move with that order. It is not the same as bank payout and it is not final accounting profit.
Choose the revenue basis first
Define whether revenue includes GST, packaging, delivery collected for another party and discounts. For internal decisions, many operators begin with restaurant-owned sales net of taxes collected on behalf of government. Consistency matters more than copying a benchmark. Document the definition beside the result.
Worked order example
A delivered order has ₹600 of restaurant revenue under your chosen definition. Ingredients cost ₹180, packaging ₹25, restaurant-funded discount ₹45, platform commission and related variable services ₹120, advertising allocation ₹30 and expected refund or wastage allowance ₹12. Contribution is ₹188, or 31.3% of revenue.
The bank receipt for this order may differ because settlements include tax movements, withholding, prior adjustments and payout timing. Use settlement reconciliation for cash control and contribution margin for operating decisions.
| Order component | Amount | % of revenue |
|---|---|---|
| Restaurant revenue | ₹600 | 100.0% |
| Ingredients | ₹180 | 30.0% |
| Packaging | ₹25 | 4.2% |
| Funded discount | ₹45 | 7.5% |
| Platform services | ₹120 | 20.0% |
| Advertising | ₹30 | 5.0% |
| Refund allowance | ₹12 | 2.0% |
| Contribution | ₹188 | 31.3% |
Move from an order to a menu
Calculate contribution in rupees as well as percentage. A low-priced item can show a high margin percentage but produce too few rupees to cover labour and rent. A higher-priced combination may have a lower percentage yet contribute more cash. Compare both measures by item, daypart and offer.
For shared costs, use a rule that reflects cause. Allocate a campaign to orders attributed to that campaign, not evenly across every sale. Allocate packaging from the actual item configuration where possible. When a value is estimated, label it and keep the method stable.
From contribution to operating profit
Contribution must still cover fixed or semi-fixed expenses: kitchen rent, permanent salaries, licences, software, equipment and owner overhead. A simple break-even estimate divides monthly fixed cost by average contribution per delivered order. If fixed cost is ₹150,000 and average contribution is ₹150, the simplified break-even volume is 1,000 delivered orders. Capacity, wastage and step-up staffing can make the real curve less linear.
Decisions this metric supports
- Set a maximum restaurant-funded discount that keeps contribution positive.
- Identify items that sell well but destroy contribution after commission.
- Compare organic and advertised orders after including acquisition spend.
- Model a price or recipe change before publishing it.
- Separate temporary cash timing from structural unit-economics problems.
Frequently asked questions
Is commission the only platform cost?
No. Depending on the agreement, there may be payment, logistics, promotional, service or other charges, plus taxes on services. Use the authorised invoice rather than assuming one universal percentage.
Should owner salary be included?
For contribution margin, normally not if it does not change per order. Include it later when calculating operating profit and economic profit.
What if ingredient costs change weekly?
Use the latest weighted recipe cost or a documented average, then run sensitivity cases. A margin calculated from an obsolete recipe is misleadingly precise.
Educational information only. Verify commercial and tax inputs against your own records.