Know Your Food Cost Percentage. Know Your Restaurant Profits.
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As a restaurant owner, you might already know that a lot of planning and elbow grease goes into making your restaurant a hit. Keeping tabs on those key restaurant metrics simplifies your job and pinpoints what needs tweaking. You must remember that tweaking just one thing won't skyrocket your profits.
It's about closely monitoring all the restaurant analytics that count. These financial insights really help you manage your eatery wisely and squeeze every bit of profit out of it!
While there's a sea of data—from detailed cost breakdowns to customer behaviors—we've zeroed in on 20 key metrics that matter from the start.
Cost of goods sold totals the amount you spend making a dish. It includes all the cash that goes into the ingredients- such as meats, veggies, and spices. It shows you exactly how much you're spending on each dish on your menu.
Formula
{CoGS}={Beginning Inventory}+{Purchases}−{Ending Inventory}
Glossary
Labor cost percentage simply gives you a picture of the portion of your restaurant's revenue you use to compensate your staff. This adds up to the costs you use to pay for things like wages, taxes, and benefits for your staff.
Formula
{Labor Cost Percentage} = {Total Labor Costs}/{Total Sales}*100
Glossary
Prime cost is the sum of your COGS and labor costs. It combines the amount you spend on the ingredients and what you pay your team—your biggest expenses. Keeping track of your prime cost informs you about your spending—whether you need to cut down on your spending or it's going well.
Formula
{Prime Cost} = {Total Labor Costs} + {Cost of Goods Sold}
Break-even analysis is like a benchmark you need to hit with your sales. It helps you ensure you earn enough to cover your restaurant's expenses. These expenses range from everything from the spices in your kitchen to the labor wages.
Formula
{Break-Even Point (in units)} = {Fixed Costs}/{Selling Price per Unit} - {Variable Cost per Unit}
Glossary
Net profit margin, or just net margin, is like taking the pulse of your company's profitability. It tells you what chunk of your sales is actually turning into profit. Basically, it's how much money you're making from your total sales, shown as a percentage.
Formula
{Net Profit Margin} = {Net Profit}/{Total Revenue}*100
Glossary
Menu item profitability, as you might have already guessed, informs you about the items acting as your best sellers, bringing in the most profit, and dishes that are wasting your investments. It helps you understand how much each dish costs to make and how much it's loved by your customers.
Formula
{Menu Item Profitability} = {Selling Price} - {Cost of Ingredients}
Glossary
An inven͏tory tu͏r͏nove͏r rat͏io tells you the speed at which you're going through your ingredients relative to how much you're stocking up.
A higher ratio highlights that you're using i͏ngredients as fast as you're s͏t͏ocking it. That is great because it means less waste and fresher ingredients on the plate. A low ratio might signal overbuying or menu items not doing so hot.
Formula
{Inventory Turnover Ratio} = {Cost of Goods Sold}/{Average Inventory}]
Glossary
Formula for Average Inventory
{Beginning Inventory + Ending Inventory} / 2
The table turnover rate informs you how quickly you can sit, serve, and see off one set of diners before welcoming the next. This pace-setting metric is crucial because the faster you can "turn" tables without rushing your guests, the more diners you can serve in a day.
Formula
Table Turnover Rate = {Total number of tables served}/ {Total number of tables available}
Glossary
Total sales by server track how much each waiter sells during their shift. Measuring this metric brags rights and helps identify which servers are up-selling effectively and who might need a bit more training to boost their sales skills.
Example
Take, for example, Sarah brings in $1000 during her shift while Tom only brings $500. This suggests that Tom might need some training.
Customer acquisition cost is the money you have to invest in attracting a new customer through your marketing and making them visit your restaurant for the first time. It helps you see what you pay to draw in a new patron. A higher customer acquisition cost suggests your marketing efforts are working in your favor.
Formula
{Customer Acquisition Cost}= {Total Costs Spent on Acquiring New Customers}/ {Number of New Customers Acquired}
Glossary
Do you know what the customer retention rate is? It's an indication that highlights how many repeat customers your restaurants have. It measures the percentage of customers who return after every dining experience.
Example
Let's say last month, you had 100 first-time diners. This month, 30 of them came back. That gives you a customer retention rate of 30%.
The employee turnover rate in your restaurant measures how often staff members leave and are replaced. So, a low rate suggests a pleased, coordinated staff contributing to your restaurant's success. Whereas, a high turnover rate may affect service flow and incur training expenses for your restaurant.
Formula
{Employee Turnover Rate} = {No. of Employees Departures}/{The Average Number of Employees in That Year}
Glossary
Food cost percentage is the amount of sales spent on ingredients that go inside your menu-making. It helps you assess and find out the right price for your cuisines so that your dish is both profitable and affordable for customers.
Formula
{Food Cost Percentage}={Total Food Costs}/{ Total Food Sales}*100
Glossary
Gross profit margin shows how much you retain from sales after accounting for the cost of ingredients. It's a much-watch metric that educates on whether your menu prices are working in your favor or they need a tweak.
Formula
{Gross Profit Margin} = {Sales} - {Costs of Ingredients}/{Total Sales}*100
RevPASH is a handy metric that measures how much each seat is making for you by the hour. It figures out how well each seat of your restaurant is paying you off during peak times.
Formula
{RevPASH} = {Total Revenue}/{Available Seat Hours}
Glossary
Average customer headcount is simply the average number of customers who visit your restaurant each day. The more the visits, the higher would be your profit.
Formula
{Average Customer Headcount} = {Total Customers}/{Number of Days}
The overhead rate helps restaurant owners determine how much money they're spending to keep their restaurant earning a living. This rate includes all the costs you spend and get nothing in return, such as rent and utilities.
Formula
{Overhead Rate} = {Total Overhead Costs}/{ Total Sales}
Glossary
The contribution margin is the profit per dish after the cost of ingredients. Once you know how much each of your dishes is capable of earning for you, you can price your menu items rightly to make a good profit.
Formula
{Contribution Margin}={Selling Price} - {Cost of Ingredients}
Wondering how much money your restaurant is earning, in a nutshell? EBITDA is the best approach to find out your earnings before expenses. It helps you understand the basic profitability of your restaurant.
Formula
{Net Income} + {Interest} + {Taxes} + {Depreciation} + {Amortization} = {EBITDA}
Glossary
Strategic product placement in a restaurant is about putting your star dishes at the front and center of your menu or eye-catching table displays. This tactic catches your guests' attention and persuades them to order high-profit items.
Here's a Simple Approach
List your dishes by profitability and popularity. Prioritize these "star" items in prime menu real estate, like the top of the page or in a special box. Doing this will attract your customers' interest in the dishes that make the most of your profits and work well for your restaurant.
Each metric this blog covers tells you about your restaurant's financial health. These 20 metrics are your toolkit for smarter decision-making. You must take care of everything- from what dishes to push to managing staff efficiently to keep your restaurant thriving. OneHubPOS makes it easy for small restaurant business owners to manage their operations and track their finances. Interested in how you can streamline your restaurant's success? Try OneHubPOS at $1 today and see the difference it can make.
Satheesh Kanchi is the Founder and CEO of OneHubPOS, He is the restaurateur behind several popular Indian restaurants in California and India. He started his career as a technology CEO, bringing that same level and learnings innovation and drive to the restaurant industry.
