Running a restaurant is no child's play. It involves dealing with a lot of numbers on a day-to-day basis. Having said that, if you are already running a restaurant and want to gauge how you're doing, you need to take note of a couple of key restaurant operational metrics and what they mean for your business.
Keeping track of your restaurant's health' using these key restaurant metrics is imperative to your restaurant staying afloat and doing well in the long run. These KPIs(Key Performance Index) indicate how well your restaurant is doing or whether it has some room to grow.
Restaurant Metrics are further divided into several categories based on the section they deal with
Restaurant Operational Metrics:
Operational metrics deal with the restaurant's operating costs like rent, labor, cost of inventory, etc. These restaurant metrics give us an idea of how well the restaurant is doing concerning the operations side and if expenses could be brought down by making changes without compromising against anything. The following are the key restaurant operational metrics to look out for when running a restaurant.
Cost of Goods Sold:
Cost of Goods Sold is as the name suggests, the expense incurred in preparing the food for the customer.
It gives you an insight into if the menu items are priced on point or the cost of preparation is high. Every restaurant will have this restaurant operational metric as a benchmark for the amount of inventory utilized every week. This allows owners to plan out their purchases ahead of time for better restaurant inventory management.
We can calculate COGS as follows
COGS = The inventory at the beginning of the week + any purchases made that week - Inventory at the end of the week
Labor Cost Percentage:
One of the fixed costs of running a restaurant is the cost of labor. Labor costs can make or break a restaurant if left unchecked. Labor cost percentage allows you to see how much of your sales end up as wages for your workforce. Keeping your labor costs at about 20 - 35 % of your sales is a good benchmark to maintain. This percentage can fluctuate based on where the restaurant is located as wages are different. Moving to a mobile food ordering system might help alleviate some of those costs.
Let's see how we calculate Labor Cost Percentage
Labor Cost Percentage = Wages/ Sales
Prime Cost:
The prime cost can be defined as the two significant expenses a restaurant incurs regularly. It highlights the most substantial cost faced by a restaurant. This information affects how competitively you price your menu and set goals for your restaurant.
Calculating the prime cost is very simple.
Prime Cost = Wages + Cost of Goods Sold.
Break-Even Point:
The break-even point is one of the very critical metrics to look out for when operating your restaurant. This restaurant metric tells you how much you have to sell every week to turn a profit. Initially, when opening a new restaurant the costs are high and sales might be steadily increasing. Implementing this metric will help you calculate how long will it take for you to make a return on your investment. This metric can also act as a weekly sales benchmark to beat.
Calculating the break-even point involves figuring out the total fixed costs and variable costs associated with running a restaurant. The formula is as follows:
Break-Even Point = Fixed Costs/((Sales - Variable Costs)/Sales)
Food Cost Percentage:
Food Cost Percentage is a pretty important restaurant metric. It tells you the difference between what it costs to produce a dish and its price on the menu.
Utilizing this metric is very useful because it gives you an idea of how much margin you have to take care of overhead costs and how much is left over for profit. Keeping track of this metric regularly also shows you the cost of food increasing steadily due to inflation and other outer factors. Having a margin of 25-35% on each item is acceptable and standard industry practice.
Food Cost Percentage = Cost of the item/ Selling price
Gross Profit:
Another key restaurant metric is gross profit. It highlights how much money your restaurant makes after considering the cost involved in preparing and selling it. This helps you compartmentalize the funds for other expenses like the cost of labor, rent, etc.,
Gross Profit = Total Revenue - COGS
Inventory Turnover Ratio:
The inventory turnover ratio helps you visualize the number of times the restaurant has sold its total inventory in a period. This helps you decide to stock your inventory and prevents being under or overstocked.
Inventory Turnover Ratio = COGS/ ((Inventory at the Beginning + Inventory at the End.)/2)
Net Profit Margin:
Net profit margin is the profit your business makes after taking into account all expenses. Turning a profit might be a good thing if you have recently opened up a restaurant and it signals the fact that you are heading in the right direction.
Net Profit Margin = (Sales - Operating Expenses)/ Sales
We will be covering more about performance and customer metrics in detail in a separate article. While you're here do check out our other articles that might be useful for you as well.
You can get in touch with us directly for more information.
, DiNAMIC
18th March 2021