alt Hacker News> Tips subsidize profits, plain and simple.
Nah. Profitability for the business would be higher without tips. I take x% of gross income as profit. No tips means I can charge the customer more, which means a higher gross income, which means more profit. When tipping is involved, the money slips through without allowing the business to take its cut. Good for the server, but not good for the business.
However, as theoretically great as it sounds, you are ultimately beholden to what the customer wants. There is good reason why every restaurant that has tried a "no tips" policy has failed. Nobody shows up to dine. They go somewhere else where they can tip instead. Regular people actually enjoy tipping, as hard as it may be to believe for those who are staring at screens rather than enjoying the ambiance of a restaurant.
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Why do you take a fixed profit. Why don’t you charge the amount which maximises profit?
It's not that simple. Restaurant owners don't pay payroll taxes on tips, but they do pay it on regular wages. Raising restaurant menu prices by 20% (or the average tip amount) will not result in 20% (or the average tip amount) more going to the workers. Some restaurants have tried this out, and it's backfired. Restaurants already run on very thin margins; a loss of a few percent can kill them.
Also consider that customers will get sticker shock: even though they are ultimately paying the same price, seeing 20% higher prices on the menu will make them spend less. Yes, it's dumb, but human psychology is dumb, so there we are.
(Folks in Europe are used to the listed price being what they pay. In the US businesses don't generally list tax-included prices, but businesses that do include tax in their prices end up looking -- in the eyes of customers -- as more expensive than those that don't, even when the final prices are identical.)