One thing I always say is being a great chef today is not enough – you have to be a great businessman. ― Wolfgang Puck
Whether you are responsible for the success of one restaurant or 1,000, you already know that, when it comes to quantifying success, numbers matter. You’re probably already monitoring your average daily covers, but other metrics can have a significant impact on the bottom line. How many of these are you collecting, analyzing, and reporting on regularly?
1. Overhead Rate
Your overhead rate is the percentage of revenue that you have to spend just to keep the lights on and the doors open. It might include figures like rent, utilities, or marketing. Calculate your overhead by determining expenses without food or labor costs and then dividing that figure by sales in the same period of time. As overhead rate goes down, profits go up. One way to lower your overhead rate is by implementing energy-saving practices at your restaurant and making sure that employees are routinely taking the expected steps to follow them. You can also reduce advertising costs and purchase refurbished equipment when possible.
2. Food Cost Percentage
Simply put, food cost percentage is the difference between the cost of buying food and the revenue generated by selling it. When you know this figure (typically recommended at around 30%), you can work toward driving expenses down and profit up by upselling and prioritizing some menu items over others. Remember to factor both kitchen staples and seasonal special-order items into your calculations.
3. Cost of Goods Sold
Understanding cost of goods sold (COGS) helps restaurant owners understand how much it costs them to sell their inventory in any given period. To calculate your COGS, you’ll need three figures:
- The value of your beginning inventory (BI)
- The of the inventory sold during your calculation period (IS)
- The value of your ending inventory (EI)
Then use this formula:
(BI + IS) – EI = COGS
Ideally, your COGS will come out to about one third of your revenue during the calculation period. If you determine that COGS is higher than it should be, you can reduce prices by negotiating better wholesale costs with suppliers, changing suppliers, using more seasonal ingredients, and investing in an audit system that helps you avoid waste by managing inventory and expiration dates.
4. Labor Costs and Labor Percentage
How much are you spending on staffing each month? That’s your labor cost. Remember to include not only the wages of your front-of-house staff, but also expenses related to back-of-house labor, payroll taxes, and benefits as well. Dividing your labor cost by total revenue gives you your labor percentage, the portion of income that you’re spending on staff. Most restaurants target a labor percentage of 25-30%, with fast food restaurants aiming in the lower range and more upscale restaurants going higher.
5. Prime Cost
Prime cost rolls your two biggest expenses (food and labor) into one figure. It’s important to know this number because, to some degree, you can control it. Taking steps like maximizing scheduling efficiency and improving inventory management can lower prime cost.
6. Break-Even Point
When in the month does your restaurant become profitable? You need to know this figure to report on success to executives or investors, to apply for a loan, or even to justify spending on one-time expenses like marketing campaigns, equipment, or kitchen overhauls. To determine that break-even point, you need to know your fixed and variable expenses, as well as your total sales. The formula looks like this:
Total Fixed Costs ÷ ( (Total Sales – Total Variable Costs) / Total Sales) = Break Even Point
If you’re managing numerous restaurants, your break-even point might change from location to location and tracking operations at each site is critical.
7. Table Turnover Rate
On average, how many times do you re-seat a table during any given period? Depending on your restaurant, you might calculate table turnover rate for the entire day or for lunch or dinner service. To calculate table turnover rate, divide the number of parties served during a specific period by the number of tables. Typically, a higher table turnover rate is preferred and drives revenue. If your turnover rate is lower than desired, consider extending your hours or taking steps to improve kitchen and service efficiency.
8. Wait Time
Acceptable wait time varies from person to person and restaurant to restaurant, but one thing doesn’t change: customers don’t like having to wait. When they do, they tell friends, family, and even strangers about it. Look at negative online reviews for any restaurant, and you’ll probably see the dreaded words “slow service” or “long wait” come up over and over again. Track average wait times at your restaurant and do what you can to lower them. Many establishments are reducing customer wait time by adding QR codes, self-serve kiosks, and online ordering options. Audits to ensure that employees are given clear guidelines and adhere to protocols can also help streamline processes in the kitchen.
9. Employee Turnover
Staff churn in the restaurant industry is at an all-time high. Calculate your annual employee turnover rate by dividing the number of employees who left in the past 12 months by your average number of employees, then decide whether that figure is acceptable to you. If it’s not, determine steps to lower it. These might include talking to long-term employees to ask what they do and don’t like about their jobs, better training so that staff feels more confident at work, and, of course, financial incentives.
10. Customer Acquisition Cost
Acquistion costs can be expensive. You might have to spend up to 7x to acquire a new customer than to retain one. Track marketing expenses like paid advertising and compare them to the number of new customers you served during the expense period. Remember to focus on improving retention rates and customer lifetime value (CLV) with special offers, rewards, and ensuring consistency across locations.
Reduce costs and boost profits by creating a consistent customer experience across locations with Daily Chex and AuditApp by MeazureUp. We’ll show you how. Schedule a demo today.
