If you’re new in the restaurant business, your reports probably contain only three main indicators of restaurant performance within any given period: sales, costs, and profit.
While they are indeed the most important particulars in your financial statements, you need to monitor other, more specific restaurant metrics as your business continues to grow.
There’s your inventory, various turnover rates and ratios, and cost and profit percentages. These restaurant metrics help you analyze your business’s performance down to the nitty-gritty and allow you to interpret your reports and data analytics.
What’s more, you can justify your business decisions and set realistic goals.
We’ve rounded up and organized 14 important restaurant metric formulas below, using examples to help you with the calculations.
Turnover and Retention Rates
Calculating turnover rates shows how many times you “start over” to keep your operations going. Retention rates, on the other hand, show the percentage of customers you can retain per a given period. Calculating these metrics lets you know how you can hit your targets faster, or whether you need to adjust your targets.
Here are the formulas for these restaurant metrics:
1. Inventory Turnover
Inventory turnover ratio is the number of times your restaurant exhausts its inventory over a specified period. Calculating this restaurant metric helps you avoid overstocking or understocking.
To calculate inventory turnover ratio, you can use:
CoGs / [(Beginning Inventory + Ending Inventory) / 2]
That would be,
$11,000 / [($15,000 + $12,000) / 2]
Inventory Turnover = $11,000 / ($3,000 / 2)
Inventory Turnover = $11,000 / $1,500
Your inventory turnover is 7, which means that you get a ratio of 1:7. Every month, you turn over your inventory 7 times on average.
2. Table Turnover
The table turnover rate refers to the number of times your tables get cleared over a given period. You should aim for a high table turnover rate because it indicates that you accept many dine-in customers per, let’s say, hour.
You can use this formula to calculate your table turnover:
Table Turnover = Number of customers served over a period / Number of tables
If 60 customers ate at your restaurant within an hour, and you have a total of 20 tables, your table turnover is 3 (60 / 20), which means you clear all your tables three times over the course of an hour.
3. Employee Turnover Rate
Employee turnover rate shows how frequently talents leave your business over a period. It covers resignations, dismissals, contract expirations, and retirements.
A high employee turnover rate may indicate that you need to assess your workplace culture and policies. People leave their jobs not always because of low pay, but more often because of lack of growth and development opportunities. A problem in the workplace culture can also be the cause.
To find out your employee turnover rate, use:
Employee Turnover Rate = (Employees Departed / Number of Employees) * 100
If you 5 employees resigned within a month, and you have 20 employees overall, your calculation would be:
Employee Turnover Rate = (5 / 20) * 100
Employee Turnover Rate = 25%
A 25% employee turnover rate in a month doesn’t look like a good sign. If most of the 5 employees who left were simply under a contract that expired at the same time, that would not be a problem. But if they were all full-time employees who turned in their resignations, you may need to improve your human resources management to prevent another high employee turnover rate.
4. Customer Retention Rate
The customer retention rate shows how many customers your restaurant retains within a period. Retaining customers should be cheaper than acquiring new ones, so determining this restaurant metric is crucial to see if your marketing budget is off.
You can calculate your customer retention rate with this formula:
Customer Retention Rate = [ ( Total Customers – Total New Customers) / Total Customers] * 100
If you have a total of 500 customers and 250 new ones, your customer retention rate is 50% (500 – 250 / 500 * 100). That means you can retain at least 50% of your new customers.
Remember, aim to increase your retention and turnover rates, except for employee turnover. Replenishing your stocks often optimizes your inventory management system since you can deal with fewer spoiled or underutilized items. Clearing your tables many times over lets you maximize your revenue per seat. And lastly, a high customer retention rate proves that your marketing strategy is working.
Now that you can calculate these metrics, let’s see how to calculate your costs.
Cost and Cost Percentages
These restaurant metrics help you determine how much money from your sales goes to your costs and profit. The formulas in this category are as follows:
1. Cost of Goods Sold (CoGS)
CoGS or food cost is the cost to make each menu item. It’s also the total amount you need to cover the inventory items necessary for making dishes over a specified period.
The formula for calculating CoGS is:
CoGS = (Beginning inventory) + (Purchases) – (Ending inventory)
Say your beginning inventory for the month is $15,000. You spent $6,000 on purchases, and your ending inventory is $12,000.
That would be,
CoGS = ($15,000) + ($8,000) – ($12,000)
Therefore, your CoGS is $11,000.
Determining the CoGS helps you ensure that your menu pricing strategy is right, or find out if your food costs are too high. If your CoGS prevents you from earning high profits, you may have to find cheaper suppliers or increase your profit margin, which may also elevate your menu prices.
2. Food Cost Percentage
Food cost percentage is the portion of sales spent on food. If you have a food cost percentage of 28%, it means 28% of a menu item’s sales go toward its cost.
Like CoGS, calculating this restaurant metric helps you determine if you’re selling your menu items at a profitable price.
To determine if you’re on the right track, this formula can help you:
Food Cost Percentage = CoGS / Total Sales * 100
Using the same example above, your CoGS is $11,000. Let’s say your total sales for the month is $35,000.
That would be:
Food Cost Percentage = $11,000 / $35,000 * 100
Your food cost percentage is therefore 31%. When you sell a menu item, 31% of its sales go to its cost.
3. Labor Cost Percentage
There are two ways to calculate labor cost percentage; one is as a percentage of sales, and the other is as a percentage of operating costs.
Labor is usually your highest or second-highest expense next to food costs. It’s important to keep it low to generate more profit. But of course, you need to pay your employees fairly.
The formula for calculating labor cost percentage off sales is:
Labor Cost Percentage = Labor Costs / Sales * 100
If you paid a total of $15,000 on labor, and your sales is $35,000, your labor cost percentage would be 43%.
As a percentage of operating costs, you can use this formula to determine your labor cost percentage:
Labor Cost Percentage = Labor Costs / Operating Costs * 100
Say your operating costs for the month is $23,000. Your calculation should then be:
Labor Cost Percentage = $15,000 / $23,000 * 100
Therefore, 65% of your operating costs go toward labor.
4. Customer Acquisition Cost
As its name states, this restaurant metric calculates the cost of acquiring a customer. It can prove if your marketing strategy is effective. Hence, its formula is:
Customer Acquisition Cost = Marketing Expenses / Total New Customers Acquired
If you spent $5,000 on marketing, and you managed to gain 100 new customers, the acquisition cost would be $50 ($5,000 / 100). You have spent $50 for every customer your restaurant gained.
Costs frequently fluctuate, so it’s crucial to keep track of your restaurant’s spending. They also affect your profit margins; you could be earning a lot this month and then earn less the next. By calculating these restaurant metrics, you can ensure that your costs won’t hurt your profits.
To see if all cash coming in is enough to generate profit and budget for expenditure, let’s see how to calculate restaurant metrics on the sales, break-even and profit category.
Sales, Break-even and Profits
These restaurant metrics show the opposite of costs, helping you realize if you’re maximizing your profits or just making enough to cover your costs. It also helps you determine the average sales your restaurant makes per table.
The formulas you need to know in this category are:
1. Revenue Per Seat
This restaurant metric determines the average amount a customer spends in your restaurant. It can tell if your front-of-house staff help maximize your sales. You can also use this calculation to make a sales forecast.
Revenue Per Seat = Total Sales / Number of Covers
So if you have a total sales of $35,000, and the number of customers (covers) at a given table is 6, your average revenue per seat is, therefore, $5,833 ($35,000 / 6).
2. Break-Even Point
If you’re breaking even, it means your total cost and revenue are equal, leaving you without profit but without losses either. Knowing your restaurant’s break-even point helps you determine when you’ve covered your cost and started earning profit.
The formula for calculating break-even point is:
Break-even Point = Total fixed cost / [(Total Sales – Total Variable Cost) / Total Sales]
Let’s say your fixed cost for the month is $1,500, and your variable cost is $1,200. With $35,000 in sales, your calculation should be:
Break-even Point = $1,500 / [($35,000 – $1,200) / $35,000]
Break-even Point = $1,500 / [$33,800 / $35,000]
Break-even Point = $1,500 / 0.97
That makes your break-even point $1,547. Your revenue should be more than this to allow you to earn profit.
3. Gross Profit
Gross profit refers to your profit before paying off operating expenses like rent, utilities, and software subscriptions. You can calculate it using this formula:
Gross Profit = Total Sales – CoGs
Using the same sample figures from above, your gross profit would be $24,000 ($35,000 – $11,000). Once you deduct all expenses from it, you’ll have your net profit, or profit after deductions.
4. Gross Profit Margin
The percentage of profit from each of your dishes is your gross profit margin. For example, if your gross profit margin for Cafe Latte is 35%, it means 35% of its sales go toward your profit sans deductions.
Here’s the formula for calculating gross profit margin:
Gross Profit Margin = (Menu Price – Raw Food Cost) / Menu Price * 100
Say Cafe Latte is $15 on the menu, and its ingredients cost $7. To calculate its gross profit margin, the formula should be:
Gross Profit Margin = ($15 – $7) / $15 * 100
Gross Profit Margin = ($8 / $15) * 100
Your gross profit margin for Cafe Latte is 53% if you priced it at $15 on the menu.
5. Net Profit Margin
As mentioned, net profit is your profit after deductions. It’s important to know your net profit margin to ensure that your restaurant is profiting enough to be headed for growth.
The formula for net profit margin is:
Net Profit Margin = (Gross Sales – Operating Expense) / Gross Sales * 100
So if you have $35,000 in gross sales and $32,000 in operating expenses, your calculation should be:
Net Profit Margin = ($35,000 – $32,000) / $35,000 * 100
Net Profit Margin = $3,000 / $35,000 * 100
Your net profit margin is 9%, meaning your sales can generate 9% in net income or profit.
6. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
EBITDA is a restaurant metric that results from operations. It can help you determine if you need to make investments, sell assets, or encourage investors to invest in your restaurant. If you want to get a working capital loan, the EBITDA also helps financiers confirm if your operations are profitable.
There are two ways to calculate EBITDA. You can base it on your operating profit or net income. The formulas for either are:
EBITDA = Operating Profit + Amortization Expense + Depreciation Expense
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Amortization is an accounting practice that spreads the costs of intangible assets. In a restaurant, intangible assets can be franchise agreements, copyrights, and trademarks. Depreciation, on the other hand, is the value a fixed asset loses over its useful life. Your equipment, furniture, and kitchen appliances are subject to depreciation.
In this scenario, let’s assume your operating profit is $30,000, your amortization expense $1,000, and your depreciation expense $800. All in all, that makes your EBITDA $31,800.
Now, let’s find out what your EBITDA is based on your net income.
Suppose your net income is $25,000, your interest expense $1,200, and your taxes $2,000. That makes your EBITDA $26,400 based on net income.
With these metrics calculated, you can always ensure that your restaurant is profitable. You can also monitor the value of your assets, helping you secure your restaurant’s liquidity.
It can be challenging, however, to calculate all of these restaurant metrics without a system that helps you streamline the process. You can use an accounting software, but should you be alternating between tabs on your device just to record restaurant metrics?
Determine Restaurant Metrics With an All-in-One POS
Calculating each restaurant metric manually can be time-consuming: instead of dedicating your time to setting new goals, like expanding your menu or opening an outlet in a new location, you’re left crunching numbers and gathering data points from various aspects of your restaurant.
Thankfully, you can skip manual calculations by investing in an all-in-one cloud POS for restaurants.
With a POS like such, you can look up real-time business analytics in just a few taps, and even remotely. It can also come with an automated inventory management system, which updates your stock levels each time they are used for an order. In turn, you can determine your food costs without having to count your stocks manually.
So if you’re just about to open a restaurant, set your sights on a POS system that can generate important restaurant metrics, and you’ll immediately set your business for success.