There are many restaurant metrics to find to better your establishment. These essential restaurant metrics to calculate keep your expenses down and profit margins high. From there, you can target costly expenses and adjust accordingly.
Cost-of-Goods Sold (COGS)
The cost-of-goods sold (COGS) is the total cost to create each food and beverage item. This is important because it’s one of the restaurant’s largest expenses. Calculating the COGS is important for keeping costs down and increasing profit margins. To calculate the COGS:
- Beginning inventory + Purchased Inventory – Final Inventory
Break-Even Point
The break-even point is another important number to calculate. This is the number that shows your potential investments, and you can use it to see how long it will take to get your money back. Additionally, you can utilize the break-even point to justify equipment or other commercial purchases. To calculate the break-even point:
- Total Fixed Costs / ((Total Sales – Total Variable Costs) / Total Sales)
Overhead Rate
This is the method used to break down your fixed costs to better understand your restaurant’s operation costs. This usually shows how your fixed costs allocate across time, typically by a monthly, daily, or hourly basis. To measure overhead rate:
- Total Fixed Costs / Total Amount of Hours Open
Prime Cost
The prime cost is the sum of all its labor costs and the COGS. This makes up about 60% of the total sales. Also, since the prime costs represent most a restaurant’s controllable expenses, it provides an opportunity to decrease costs and increase profits. To find the profit cost:
Food Cost Percentage
This is the difference between the cost of a specific menu item and its selling price. Ideally, the food cost percentage should fall between 28% to 35% to keep profit margins high. It also allows restaurants to experiment with prices and upsell menu items. To determine the food cost percentage:
- COGS / Total Sales = Food Cost Percentage
Profit Margin and Rates
The two most important profit margins to account for are the gross profit and net income. Gross profit is the profits a restaurant makes after accounting for the cost of goods sold. It represents the money available to put toward paying off fixed expenses and profit. It is calculated by:
- (Total Sales – COGS) / Total Revenue x 100
Additionally, the net income is the percentage of total revenue left over once you account for all costs, such as payroll, rent, heat, utilities, etc. It is found by:
- (Total Sales – Total Costs) / Total Revenue x 100
Inventory Turnover Rate
Find the inventory turnover rate to indicate how often you sell the total quantity of your inventory at any given time. It is essential for maintaining consistent inventory and to reduce storage costs and waste. To calculate the inventory turnover rate:
- COGS / ((Beginning Inventory + Ending Inventory) / 2)
Employee Turnover Rate
This metric shows the proportion of your employees who quit or who you fired within a certain time. Employee turnover can cost time, money, and energy that you can use toward your establishment. To figure out the employee turnover rate:
- (Employees that Left / Average Number of Employees During the Time Period) x 100
Table Turnover Rate
Finally, the table turnover rate reveals how long guests stay on average within a certain time. Be sure you compare the table turnover rates for different times—such as day vs night, days of the week, seasons, etc.—to see which time periods have the best rates. The best way to measure the table turnover rate is:
- Number of Guests Served in that Time Period / Number of Seats Available
Fortunately, an easy way to track and quantify your expenses and profits is through our restaurant POS equipment. The functionality in our restaurant POS system, when compared to others, offers easy tracking for inventory, employee information, and accounting, so you can calculate these metrics to improve your business.
