Whether you’re just starting to price out your dream restaurant or checking on the overall health of your business, there are several metrics you should continually keep track of, to optimize your restaurant’s efficiency.

These metrics represent different ways of looking at the health of a business, allowing you to set goals, identify trends both positive and negative, and accurately gauge results of the operational tweaks you may make to your restaurant.

Metric #1: Break-Even Point

What it is:

Simply put, your “break-even point” is the point at which your business revenue is equal to your restaurant’s expenses and operating costs.

Why it’s important:

This calculation takes into account all the costs you’ll incur while running your business, then outlines your sales threshold.

A sales threshold is the amount of monthly sales you’ll have to make in order to turn a profit.

How to calculate:

1. Say your restaurant sells $20,000 worth of products for the month of July.
2. If you paid $5,000 in variable costs, and $7,000 in fixed costs, your break-even point for the month would be $9,333.33.
3. This means that your restaurant begins turning a profit after selling $9,333.33 worth of goods or services.

Equation:

Break Even Point = Total Fixed Costs ÷ [(Total Sales  - Total Variable Costs) / Total Sales]

Example:

• In this example, $20,000 - $5,000 (Sales minus Variable Cost) equals $15,000.
• $15,000 divided by $20,000 equals 0.75.
• $7,000 (fixed costs) divided by 0.75 gives you a break-even point of $9,333.33.

When to calculate:

Calculate your break-even point before you open your business, then adjust accordingly as you accrue various business expenses. Use this figure to quickly justify a big new purchase or launch a marketing campaign.

Good to know:

• Variable Costs = Costs that may change due to business or environmental factors. These could include food and labor costs based on how busy your restaurant is, heating and cooling in winter and summer months, or advertising and marketing.
• Fixed Costs = Costs which typically do not change, such as rent, utilities, and salary, also known as ‘overhead’ as outlined below.

Metric #2: Overhead Rate

What it is:

Fixed costs (or overhead) are just that—repeating, expected business expenses that typically do not change in cost, which are invoiced then paid on a periodic basis. These could include rent, insurance, property taxes, equipment rentals, utilities, and monthly or non-rate driven employee salaries. When calculated as a rate, this tells you how much you are spending each day, week, month, or year just to keep the doors open.

Why it’s important:

Calculating an overhead rate helps you understand just how much it costs just to keep your doors open on a day-to-day, or even hourly basis.

How to calculate:

1. Go through all the monthly bills your prospective restaurant may receive and total the cost for these expenses. This gives you a total fixed cost.
2. Determine a fiscal period-—many restaurants use 13, 28-day periods.
3. Calculate how many total hours your business will be open for the specified month.
4. *Be sure to pay attention to the number of days in each month to accurately calculate your overhead rate. “Thirty days hath September, April, June, and November; all the rest have thirty-one, except for February alone.”
5. Divide the total fixed cost by the total number of hours your business will be open for the month to determine an overhead rate.

Equation:

Total Hours Open For Month = Total Hours Open Per Day X Total Days in Month

(If your restaurant has hours that differ from day to day, be sure to account for this)

Overhead Rate = Total Fixed Costs / Total Hours Open for Month

Example:

Say your total fixed costs for the month are $7,000 and your restaurant is open 8 hours a day, 7 days a week.

• For a 31-day month, 8 (hours) x 31 (days) means your business is open for a total of 248 hours.
• For a 28-day month, 8 (hours) x 28 (days) means your business is open for a total of 224 hours.

Take the total fixed costs and divide by the total number of hours your restaurant will be open for the month.

• $7,000 (fixed costs) divided by 248 (hours) gives an overhead of $1,580.88 per week, $225.84 per day, and $28.23 per hour.
• $7,000 (fixed costs) divided by 224 (hours) gives an overhead of $1750.00 per week, $250.00 per day, and $31.25 per hour.

When to calculate:

One’s overhead can be calculated using actual figures (from past bills and receipts) or projected figures (by making an educated guess). Using projected figures is a great way to determine a forecasted overhead rate, which can be useful when mapping out operational processes before opening your business. Using actual figures shows how the operational tweaks you make impact your day-to-day business.

Metric #3: Food Costs

What it is:

Your food cost is the amount you spend on food per month, taking into account inventory at the beginning of the month, purchases made within the month and any goods left over at the end of the month.

Food costs are one aspect of the total cost of goods sold (CoGS), but may not include all of the costs that go into the equation.

Why it’s important:

Use this calculation to continuously monitor your supply of ingredients and inventory.

How to calculate:

1. Determine a period to measure—a good way to go about this is once each month, or each time you purchase goods.
2. Determine the value of the inventory you have left over from the previous period.
3. Calculate the sum of your total purchases for the period. This is typically the food you’ve purchased for the month.
4. Determine the value of the inventory you have left over at the end of the period.
5. Subtract the total you have left over at the end of the period, from the total you had left over at the beginning of the period.
6. Add this new number (the difference) to your total purchases to determine your Cost of Goods Sold.

Equation:

Food Cost = Total Purchases + (Total Leftover Inventory From Previous Month - Total Ending Inventory)

Example:

• At the beginning of July, your inventory was worth $1,500 (leftover from June’s inventory).
• At the end of July, your inventory was worth $500 (meaning you used up $1,000 worth of inventory goods during July).
• During this same period, you also purchased $2,000 worth of goods for your business.
• $2,000 [Total Purchases] + ($1500 [Starting Inventory] - $500 [Ending Inventory]) = $3,000, meaning your total food costs or cost of goods sold during the month of July would be $3,000.

When to calculate:

At least once per month, or each time you purchase a large amount of goods.

Metric #4: Food Cost Percentage (Theoretical)

What it is:

The percentage of a dish’s selling price that it costs to create it. Said differently, the percentage of your dishes’ prices that are taken up by the cost of the food used in that dish.

Eventually you’ll want to compare your business’ food costs with industry standards, so the way in which you calculate these figures should be consistent with industry practices.

Industry averages are based on the Uniform System of Accounts for Restaurants: A Guide to Standardized Restaurant Accounting, Financial Controls, Record-Keeping and Relevant Tax Matters, a standard textbook for North American restaurant accounting since the late 50’s.

Why it’s important:

Determining a food cost percentage allows you to know how much you’re spending on the food used in your meals and use that to determine or update pricing. Generally speaking, food cost percentages should account for 25%-35% of an individual dish. For example, if it costs $1 to create a taco, it’s wise to sell this item for around $2.90 (35%) to $4.00 (25%). Food costs and labor costs combined should account for 50%-65% of total sales.

How to calculate:  

1. Determine a period—one way to go about this is to collect all the elements which will be included in your food cost calculations (gross sales, inventories, and purchases) and create your period based on this timeframe. For example, if you purchase goods and do inventory twice per month, check your food cost percentage on a bi-weekly basis.
2. Determine your total gross sales--for this period let’s say you sold $20,000 worth of food and beverages.
3. Determine your food cost (COGS) using the calculation above.
4. Calculate your food cost % using the calculation below.
5. Multiple by 100 to get a percentage.

Equation:

Estimated Food Cost / Menu Price = Food Cost %

Example:

For the month of July, let’s say your gross food sales were $20,000 and your food costs (COGS) was $3,000.

• $3,000 (food costs) / $20,000 (total gross sales) = .15
• Multiply by 100 to get a food cost percentage of 15%

When to calculate:

Before you open your business, then routinely as your costs fluctuate.

Metric #5: Labour Cost Percentage

What it is:

‍Similar to food cost percentage, labour cost and its percentage is the amount you spend on labour relative to the total sales for a given period. Minimum wage and tip amounts, beverage sales, quality of food and service, pricing, and hours of operation all greatly impact your food and labour costs.

Why it’s important:

Much like food costs, labour costs, when analyzed month-over-month, can quickly help you identify operational issues within your business.

How to calculate:  

1. Determine a period—a good way to go about this is once each month, or each time you pay your employees.
2. Determine your total labour costs, taking into account your company’s payroll, taxes, and benefits.
3. Determine your total sales - for this period let’s say you sold $20,000.
4. Calculate your labour cost % using the calculation below.
5. Move the decimal 2 places to the right to get a percentage.

Equation:

Labour Cost / Total Gross Sales = Labour Cost %

Example:

Let’s continue using the month of July where your total gross food sales were $20,000. For this same period, you determined your labour costs were $2,000.

• $2,000 (labour costs) / $20,000 (total gross sales) = .10
• Move the decimal 2 places to the right to get a labour cost percentage of 10%

When to calculate:

At least once per month, or each time you pay your employees.

Good to know:

Neither food nor labour costs alone will give you an accurate measurement of success. To determine this figure, combine both your food and labour costs to get what’s known as your “prime costs” for the month.

Metric #6: “Prime” Costs

What it is:

Combined, your food and labour costs are often referred to as Prime Costs.

Why it’s important:

This combined total displays all the money and manpower necessary to run your business. When maintained, this figure can quickly inform future buying or operational decisions by letting you know your expected spend for the month.

*The industry consensus is that prime costs should make up around 60% of your total restaurant costs in order to be consistently profitable.  

How to calculate:  

1. Determine a period—it’s wise to sync this up to your existing food and labour cost periods.
2. Determine your total food costs (COGS) using the calculation above.
3. Determine your total labour costs, taking into account your company’s payroll, taxes, and benefits.
4. Calculate your prime cost % using the calculation below.
5. Move the decimal 2 places to the right to get a percentage.

Equation:

Cost of Goods Sold (COGS) + Labour Cost = Prime Cost

Example:

As determined above, for the month of July, your food costs totalled $3,000, and your labour costs totalled $2,000.

• $3,000 (CoGS) + $2,000 (Labour Costs) = $5,000 (Prime Costs)
• $5,000 / $20,000 = .25
• Move the decimal 2 places to the right to get a labour cost percentage of 25%

Prime costs should hover around 60% or lower to be consistently profitable.

When to calculate:

At least once per month, or each time you need to make a crucial purchase for your business.  

Metric #7: Gross Margin

What it is:

Gross margin is your total gross sales minus your total cost of goods sold.

Why it’s important:

Gross margin is another way of measuring your CoGS percentage and gives you insight about changes you may need to make in purchasing or pricing your dishes. Keep in mind that this is not your profit, because it does not include additional costs like labour and overhead.

How to calculate:

1. Determine a period—it’s wise to sync this up to an existing fiscal period such as inventory, accounting, or delivery dates.
2. Determine your total gross monthly sales by collecting receipts and figures from the sale of all goods for the month (food, beverages, merchandise).  
3. Determine your total food costs (COGS) using the calculation above.
4. Subtract your COGS from your total gross sales to determine a gross margin.

Equation:

Total Gross Sales - COGS = Gross Margin

Example:

• During the month of July, let’s say your restaurant sold $20,000 in total gross sales.
• We’ve already determined that our COGS is $3,000.
• $20,000 (total gross sales) - $3,000 (COGS) = $17,000 (gross margin)
• Expressed as a percentage: $17,000 / $20,000 = .85
• Multiply by 100 to get a percentage. Gross margin is 85% of your gross sales. Your expenses (in this case food costs) would make up 15% of your gross sales.

When to calculate:

At the end of each fiscal period, or whenever you’d like a pulse on your business’ finances.

Metric#8: Net Profit

What it is:

Your net profit is the total revenue earned for the fiscal period after deducting all expenses. This is the amount you’ll have left in your pocket once all is said and done.

Why it’s important:

Net profit tells you how much money you have left after you account for all expenses.

How to calculate:

1. Determine a period—it’s wise to sync this up to your prime cost period.
2. Determine your total gross monthly sales by collecting receipts and figures from the sale of all goods for the month (food, beverages, merchandise).  
3. Determine your prime costs using the calculation above.
4. Determine your overhead costs using the calculation above.
5. Subtract your total costs from your total gross sales to determine a net profit.  

Equation:

Total Gross Sales - Prime Costs - Overhead = Net Profit

Example:

• Let’s use this same $20,000, and the prime cost of $5,000 listed above for the month of July to determine our net profit.
• $20,000 (total gross sales) - $5,000 (prime costs) - $7,000 (overhead) = $8,000 (net profit)
• Expressed as a percentage: $8,000 (net profit) / $20,000 (total gross sales) = .40
• Multiply by 100 to get a percentage. Net profit is 40% of your gross sales. Your total expenses (prime costs plus overhead) would make up 60% of your gross sales.

When to calculate:

At the end of each fiscal period, or whenever you’d like a pulse on your business’ finances.

Metric #9: Profit Margin

What it is:

Your profit margin is the percentage of your gross sales that then become net profit.

Why it’s important:

‍This is a final tally on what portion of your restaurant’s revenue is left over after accounting for all of the costs that go into making the food and running the business.

How to calculate:

1. To express your net profits as a profit margin percentage, divide your net profit by your total gross monthly sales.
2. Multiply by 100 to get a percentage.

Equation:

Net Profit / Total Gross Sales = Profit Margin %

Example:

1. $8,000 (net profit) / $20,000 (gross sales) = .40
2. Multiply by 100 to get a percentage—net profit margin of 40%
3. Notice that profit margin and net profit percentage is the same calculation.

When to check it:

At the end of each fiscal period, or whenever you’d like a pulse on your business’ finances.

Metric #10: Table Turnover Rate

What it is:

Table turnover rate is a measure of how many dining parties are served within a specified period.

Why it’s important:

Based on the type of restaurant you’re running turnover rates will be different. Fast casual restaurants with a lower price point will have a higher turnover rate, where a more laid back, but higher-in price establishment will have a lower one, often making the number of sales / time in drinks or desserts.

Keeping an eye on this metric can help you determine how much staff you’ll need during certain periods

How to calculate:

• For a given time period, count the number of dining parties served at a given table, for several tables.
• Add the number of parties served together and divide by the number of tables.

Metric #11: Employee Turnover Rate

What it is:

The percentage of employees that leave (quit or fired) within a given time period.

Why it’s important:

This figure gives you insight into how quickly employees are coming and going from your restaurant and allow you to plan for future hiring based on estimated turnover.

How to calculate:

• Choose a time period (1 month, 3 months, 6 months, etc).
• Determine the number of employees at the beginning of the period.
• Add the number of employees hired within that period.
• Subtract the number of employees remaining at the end of the period.
• Divide by the number of employees from the beginning of the period.
• Multiply by 100 to get a percentage.

Metric #12: Guest Check Average

What it is:

‍This number gives you the average amount spent per guest in your restaurant.

Why it’s important:

With your guest check average, you can forecast future revenues based on changes like increased traffic or larger tables. This allows you to decide the relative value of investments like marketing and advertising based on their estimated effect in total diner traffic.

How to calculate:

• Choose a time period.
• Calculate your gross sales over that time period.
• Divide your gross sales by the total number of seats/tickets within that same time period.

Metric #13: Seating Capacity

What it is:

An estimate of the number of diners that can be seated in your restaurant at the same time.

Why it’s important:

Taken together with your table turnover rate and average ticket size, this number will tell you the maximum revenue your restaurant can possibly generate within a given time period. This is also a valuable way to compare your restaurant’s actual seating versus the theoretical capacity in order to maximize the space.

How to calculate:

• Measure the total square footage of your restaurant’s front of house area.
• Measure and subtract the square footage of any non-dining space (e.g., waiting area, beverage station, cash register, etc).
• Divide the total amount of space by 15 (assuming 15 square feet of space per average diner).

Metric #14: Percentage of Repeat Customers

What it is:

The proportion of customers that come back to your restaurant within a certain time period.

Why it’s important:

Measures the loyalty of your patrons and how likely individual diners are to come back to your restaurant after dining there once.

This is a great metric for restaurants that’ve been keeping diligent records. If you haven't, that's alright, but keep it in mind when it comes time to upgrade your technology so you don't miss the opportunity.

How to calculate:

• Choose a time period (3 months, 6 months, 12 months).
• Calculate the total number of customers served within that time period.
• Use your POS, CRM, or other technology to calculate the number of unique customers within that time period.
• Subtract the number of unique customers from the number of total customers to calculate the number of repeat customers.
• Divide the number of unique customers by the number of total customers within that time period.

How to Measure & Use These Metrics

Numbers are great, but how you use them is what ultimately matters.

When you measure these metrics, they give you some kind of insight into your restaurant business and how it’s running. But you need to know how to use that data in order to learn and improve.

Here are some general rules to follow.

Always use apples to apples comparisons

In most cases, it’s wise to establish a period that you’d like to analyze, and keep it consistent across all metrics. This could be a weekly period, 28-day cycle, or quarterly basis usually determined by the fiscal demands of your business. This allows you to set a baseline for your calculations, sync goals and achievements, and ensures you’re always comparing apples to apples when discussing different metrics.

Take a full view of restaurant operations

Don’t use singular metrics, but instead analyze several aspects of your business at once. One metric alone won’t give you an overall picture of your business’ health but using several in conjunction will give further insight.

Measure from the bottom up

When it comes to calculating metrics, begin with the more specific calculations first. Once that’s completed it’s easy to use these figures to do your high-level equations next. Most restaurant accounting software will help you make these calculations in real time.

For example, when calculating break-even point, one would start by subtracting variable costs from sales, then dividing this by your total sales to get a percentage. Carry this percentage further into the equation to easily determine your break-even point!

Stay diligent!

Your metrics will only be as accurate as you are disciplined and diligent when creating them. The more effort you put into these calculations from the get-go, the easier they will be to update and maintain in the future. Carefully gather data and try to account for the wide array of variable costs and factors that may affect the overall health of your business.

A seasoned restaurateur can tell you that keeping your analytical house in order is the most crucial step to having a full understanding of your business.

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