Running a successful restaurant involves much more than offering delicious dishes and maintaining superior service. It’s also about keeping a keen eye on the meat and potatoes of the business—the numbers.
Understanding and monitoring a few important restaurant metrics can help with making informed decisions, improving customer experiences, and achieving long-term success.
To help you get started, we’ve created this beginners’ guide to 17 key restaurant metrics that every owner should know.
Profit-Related Metrics
Gross Profit
Your gross profit is a key financial metric that represents the difference between your restaurant's revenue from food and beverage sales and the cost of goods sold (COGS). This includes the cost of ingredients, beverages, and any other direct expenses related to producing the meals. It essentially reflects how efficiently the restaurant is managing its food costs.
Formula: Gross Profit = Total Revenue − COGS
Importance of Gross Profit:
Efficiency Indicator: A high gross profit margin indicates that the restaurant is efficient in managing its food costs.
Profitability Insight: Helps assess if food prices are set correctly or if food costs are too high.
Benchmarking: Restaurants often compare their gross profit margins with industry averages, which typically range between 60-70% for full-service restaurants.
Net Profit
Net profit margin for restaurants is a financial metric that shows the percentage of revenue that remains as profit after all expenses have been deducted, including ingredient costs, labor, rent, utilities, and other overhead costs. It’s an important indicator of a restaurant’s overall profitability and financial health.
Formula: Revenue – Cost of Goods Sold) / Revenue x 100
Importance of Net Profit:
Profitability: The metric shows how much profit the restaurant keeps after covering all expenses.
Health Indicator: A low net profit margin may indicate high operating costs, while a healthy margin suggests good cost control and profitability.
Industry Average: Net profit margins for restaurants typically range between 3% to 6%, depending on the type of restaurant (full-service, quick-service, etc.).
Break-Even Point
The break-even metric is crucial for restaurants because it helps determine the point at which the restaurant’s total revenue equals its total costs, meaning the business is neither making or losing money. Understanding this point allows you to make informed decisions about sales targets, pricing, cost control, and profitability. It’s important to calculate your break-even point regularly to understand how much you need to sell to cover costs.
Importance of the Break-Even Metric for Restaurants:
Profitability Awareness: The break-even point helps restaurant owners know how much revenue they need to generate to cover all their costs.
Pricing Strategy: By understanding fixed and variable costs, restaurant owners can set menu prices appropriately.
Cost Control: Calculating the break-even point gives insight into the restaurant’s cost structure, including fixed costs (rent, utilities, salaries) and variable costs (food, labor).
Revenue Targets: It provides a clear target for daily, weekly, or monthly sales.
Risk Management: It helps restaurants assess financial risk and allows them to see how much they can afford to spend on things like renovations, equipment, or new hires while still staying financially healthy.
Formula: Fixed Costs by (Sales Price per Unit – Variable Cost per Unit)
Fixed Costs: expenses that don’t change
Selling Price per Unit: price of the average menu item.
Variable Costs per Unit: costs that vary with each unit sold
Cash Flow
Cash flow is the net amount of cash being transferred into and out of your restaurant. It is calculated by subtracting total cash outflows from total cash inflows over a specific period. Positive cash flow indicates that your restaurant is generating enough cash to maintain operations, invest in growth, and meet obligations. Monitor cash flow regularly to ensure you have enough liquidity to cover expenses and handle emergencies.
Importance of the Cash Flow Metric for Restaurants:
Provides Operational Stability
Allows for Inventory Purchasing
Liquidity
Accounts Receivable
Allows for Seasonal Variations
Enables Investments in Growth
Assists with Debt Management
Provides a Safety Net in case of Emergency
Attracts Investors
Burn Rate
Burn Rate is the rate at which your restaurant is spending its cash reserves, and is crucial for assessing how long your restaurant can continue to operate without additional funding. A high rate indicates that your restaurant is spending cash quickly, which may not be sustainable in the long term. To manage burn rate, closely monitor expenses, find ways to reduce costs, and focus on raising revenue.
Importance of the Burn Rate Metric for Restaurants:
Helps determine how long a business can survive on initial capital before turning profitable.
Guides decisions on when to break even or when additional funding might be needed.
Lets restaurant owners monitor how quickly they are depleting their cash reserves during slow seasons
Provides insight to investors assessing the restaurant’s financial health.
Revenue-Related Metrics
Sales Revenue
Sales Revenue measures the total income generated from food and beverage sales. It reflects your restaurant’s ability to attract and serve customers, serving as a foundation for many other financial calculations. To manage this effectively, track sales daily, weekly, and monthly to identify trends and peak times, using this data to optimize staffing and inventory levels.
Formula: Add all sales receipts over a specific period
Average Check Size
Average check size measures the average amount spent by customers per visit.
Increasing the average check size can significantly boost your bottom line without the need for more customers. Upsell high-margin items, introduce specials, and create specials to increase the average check size.
Formula: Divide Total Sales Revenue by Number of Customers.
Cost-Related Metrics
Cost of Goods Sold (COGS)
One of the most critical metrics in restaurant management, Cost of Goods Sold, or COGS, measures the direct costs of producing the product sold by your restaurant, and directly impacts your gross profit.
For restaurants, COGS (Cost of Goods Sold) refers to the direct costs involved in producing the food and beverages that a restaurant sells, including all the ingredients and materials used to prepare the menu items.
Components of COGS for Restaurants:
Food Costs: Ingredients used to prepare meals
Beverage Costs: Ingredients for alcoholic and non-alcoholic drinks.
Supplies: Condiments, napkins, takeout and delivery packaging
Other Costs: Any materials directly related to making and serving the food, such as cooking oil, spices, and herbs. .
Formula: COGS = (Beginning Inventory + Purchases) − Ending Inventory
Labor Cost Percentage
One of the largest expenses for restaurants, the labor cost percentage measures the portion of revenue spent on employee wages and benefits. Keeping this percentage in check is crucial for maintaining profitability.
Formula: Divide Total Labor Costs by Total Sales Revenue, then multiply by 100.
Food Cost Percentage
Food cost percentage measures the percentage of sales revenue spent on food ingredients. Keeping food cost percentage low by monitoring food waste, portion sizes, and ingredient costs helps keep food costs in check and is crucial for maintaining a healthy profit margin.
Formula: Food Cost Percentage = (Cost of Food Sold (COGS ) divided by Food Sales) × 100
Beverage Cost Percentage
Like food cost percentage, the beverage cost percentage measures the percentage of sales revenue spent on beverages.
Formula: Beverage Cost Percentage = (Beverage Sales Cost divided by Beverages Sold) × 100
For more on this topic, see our article: Pouring on the Profits: Understanding and Managing Your Restaurant’s Beverage Costs.
Efficiency-Related Metrics
Prime Cost
A key indicator of operational efficiency, prime cost is the sum of COGS and labor costs and is calculated by adding COGS and Total Labor Costs. A lower prime cost is an indication that you have control over your two largest expenses—wages and goods. To ensure profitability, keep prime costs below 60% of total sales.
Formula: Prime Cost=COGS+Total Labor Costs
Operating Expenses
Operating expenses measure the costs required to run your restaurant, excluding COGS and labor, and is calculated by adding all operating expenses, (e.g., rent, utilities, advertising, decor). For the overall financial health of your restaurant, keeping these costs under control is essential. Regularly review and negotiate rates with marketing sales pros, examine contracts, and look for areas to cut or reduce unnecessary expenses.
Inventory Turnover Ratio
This metric is a measure of how quickly inventory is used or sold over a period. A higher inventory turnover ratio is an indication that you are managing your inventory efficiently, thus, reducing the risk of spoilage and waste.
Formula: Inventory Turnover Ratio = Cost of Goods Sold (COGS) divided by the Average Inventory
Customer-Related Metrics
Customer Acquisition Cost (CAC)
CAC refers to the total cost a business incurs to acquire a new customer. For restaurants, this includes marketing expenses, promotions, and any other costs associated with attracting customers.
Formula: Total Marketing and Sales Expenses divided by Number of New Customers Acquired = CAC
Customer Retention Rate
The Customer Retention Rate measures the percentage of customers who return to your restaurant over a certain period of time. For restaurants, a high retention rate means that customers are coming back regularly, which is vital for long-term profitability.
Formula: (Customers at End of Period - (New Customers in Period) divided by (Customers at Start of Period) × 100
Table Turnover Rate
The table turnover rate is a measure of how often tables are occupied by new customers during a certain period of time. A high table turnover rate is an indication that you are making efficient use of your seating capacity, leading to higher sales.
Formula: Table Turnover Rate = Number of Parties Served divided by Number of Tables Available
Take Away
Regularly reviewing statistics, making data-driven decisions, and continuously looking for ways to improve your operations are crucial to running a successful operation. By keeping a keen eye on restaurant metrics, you’ll be well on your way to operating a sustainable restaurant business that will stand the test of time.
By Eileen Strauss
