Top Restaurant Financial MetricsSadaf Abbas
Top Restaurant Financial Metrics
With restaurant finance as tight as it is, knowing how to get the most from your food and beverage assets is the difference between success and failure. While many restaurants operate on thin margins, this guide will help you to measure whether you are hitting those numbers or falling behind. We bring you all the important restaurant financial metrics and break down exactly what each one means.
But before diving into the details of these financial analysis metrics, let’s have an overview of the restaurant industry.
Restaurant Industry Overview
The restaurant industry is a $726 billion business in the U.S. alone. This figure includes all kinds, such as full service and fast-casual establishments, etc. While this industry is growing at a strong pace, it’s also extremely competitive. This means that restaurant owners are constantly looking for ways to increase their profits.
Oak Business Consultant has helped various restaurant businesses with their financial analysis. We have provided them with restaurant financial models, which help to identify key areas of improvement and necessary changes. Our financial modeling services have helped them to make informed decisions about their businesses and take corrective measures on time. Along with these financial models, we also have helped restaurant owners with our meticulous restaurant business plans and pitch decks.
This guide will focus on the financial aspects of running a restaurant business and what metrics you should be monitoring to ensure your business is on track.
Now let’s take a look at some of the most important restaurant financial metrics and what they mean for your business.
What are these Restaurant Financial Metrics?
So, basically, these are the financial analysis KPIs for those in the restaurant business. You can also consider these KPIs or restaurant financial metrics if you are willing to step into this lucrative industry. We have broken down these metrics into four main categories:
3. Customer Acquisition
4. Customer Service
Let’s begin with our first category, which is also one of the most important of all four categories.
1. Restaurant Financial Metrics – Revenue
Revenue is the lifeblood of any business, and the restaurant businesses are no different. The revenue metrics measure how much money your restaurant brings in from sales. This number is important because it shows you whether your restaurant is growing or shrinking. It’s also a good indicator of how well your marketing and sales efforts are paying off.
From CoGS to labor and other overhead expenses, there are a lot of moving parts that affect your bottom line. That’s why it’s important to track your revenue on a regular basis and compare it to your expenses. This will help you to see where your restaurant is leaking money and take corrective measures to improve your profitability.
Cost of Goods Sold (CoGS)
It is the cost incurred by a restaurant to purchase, prepare and serve the food that is sold to customers. This includes labor costs, inventory, and utilities. You can track this cost by month. But it is often easier to break it down by week or even daily. When pricing your menu items, you should include the CoGS in your calculations.
A relevant metric to CoGS is the Net Cost of Goods Sold (NCOS). You can consider this as the cost of purchasing the ingredients and supplies to prepare each menu item. It is calculated as a percentage of the total CoGS. If you sell more than one type of food (which is obvious), you should allocate the CoGS to the type of food.
For example, if you have pizza, you should allocate the cost of the ingredients used to make pizza to the CoGS. The CoGS and NCOS are closely related. When you change one, you can often see a change in the other. This relationship also makes it easy to calculate the amount of inventory needed to meet demand.
How to Calculate CoGS?
Here is the formula to calculate the Cost of Goods Sold:
CoGS for the period = (Beginning Inventory) + (Purchases) – (Ending Inventory)
Revenue Per Available Seat Hour (RevPASH)
Essentially, this is a measure of how much revenue your restaurant earns per available seat hour. You can include all different types of seating options available at your restaurant such as dining and bar seating.
To calculate this metric, you need to divide your sales per hour by the number of available seats in those hours.
For example, if your restaurant has made $1000 in an hour with 10 seats, your RevPASH would be $100. This number can vary greatly from one restaurant to another. But it’s a good benchmark to use when comparing your performance to similar businesses.
If you want to increase your RevPASH, you can do so by increasing your prices or adding more high-priced items to your menu. You can also try to increase the number of the dining room and bar seats.
You can also use this information to identify the top-selling time intervals and examine the effectiveness of your seating arrangements.
Revenue Per Available Square Meter (RevPAM)
This is a very similar metric to RevPASH. The only difference is that it measures revenue per available square meter instead of per seat hour.
To calculate this metric, you need to divide your total sales by the total number of square meters in your restaurant.
For example, if your restaurant has made $1000 in an hour and occupies 100 square meters, your RevPAM would be $10. This metric can be useful for restaurants with limited seating capacity but a large floor space such as buffet restaurants.
Labor Cost Percentage
A restaurant’s labor cost percentage is the percentage of total revenue that you spend on labor. This includes all wages paid to employees, as well as payroll taxes and other benefits. You can calculate the Labor Cost Percentage by dividing your total labor cost by your total revenue.
For example, your restaurant brings in a revenue of $25,000 in a certain period. For the same period, you make $6250 worth of total payments to your all employees.
Then according to the formula,
Labor Cost Percentage = 6250/25000 * 100% = 25%
However, this number can vary greatly depending on the type of restaurant. For example, fast food restaurants have a lower labor cost percentage because they rely heavily on automated systems. Fine dining restaurants have a higher labor cost percentage because they need more employees to provide a high level of service.
A good rule of thumb is that your labor cost percentage should be between 20% and 30%. But you should aim for the lower end if possible.
If your labor cost percentage is too high, it means that you are spending too much on labor relative to your sales. This can be a sign that you need to cut costs or increase prices.
The break-even point is the point at which your revenue equals your expenses. This is the point at which you are neither making a profit nor a loss.
You can calculate your break-even point by dividing your total fixed costs by your contribution margin per unit. Or in your restaurant’s case, it would be the contribution margin per average serving.
For example, if your restaurant’s total fixed costs are $100,000 and your contribution margin per unit is $100, then your break-even point would be 100,000/100 = 1,000 servings.
This means that you need to serve 1000 customers in order to cover all of your costs. Your break-even point can be a useful tool for decision making. Like in the example above, you can use it to decide how many customers you need to serve in order to start making profits.
It can also help you to decide whether or not to accept any special orders. If the special order is for more than your break-even point, then it is likely to be profitable.
Menu Item Profitability
This metric measures the profitability of each menu item. To calculate it, you need to divide the contribution margin of an item by its selling price.
For example, if an item has a selling price of $10 and a contribution margin of $5, then its menu item profitability would be 50%.
This metric can be useful for making decisions about which items to keep on your menu and which ones to remove.
If you have a lot of items with low menu item profitability, then it might be time to consider removing some of them. On the other hand, if you have a few items with high menu item profitability, then you might want to add more variety of them to your menu.
Average Check Size
The average check size is a metric that measures the average amount spent per customer at a restaurant. This number is important because it can give you an indication of how much revenue your restaurant is generating per customer. A higher average check size means that your customers are spending more money, which can be a good sign for your business. There are a few ways to increase your average check size, such as offering larger portion sizes or adding more expensive items to your menu.
In practice, it’s not that simple though. You need to take into account things like promotions, discounts, and seasonality when calculating your average check size. For example, if you offer a discount for large parties, that will lower your average check size. And if you have a lot of customers during the summer months, but fewer in the winter, that will also impact your average check size.
To calculate your average check size, simply take your total revenue for a given period of time and divide it by the number of customer checks during that same period.
2. Restaurant Financial Metrics – Occupancy
Now, we come to the second category of restaurant financial metrics, which is occupancy. This metric measures how full your restaurant is and is usually expressed as a percentage.
From the number of reservations to the number of canceled reservations, there are a few things that can impact your occupancy rate.
It’s important to keep an eye on your occupancy rate because it can be a good indicator of how well your business is doing. If you see a sudden drop in your occupancy rate, it could be an indication that something is wrong. For example, if you see a sharp decline in the number of reservations, it could be an indication that customers are not happy with your service or food.
There are a few ways to increase your occupancy rate, such as increasing your marketing efforts or offering discounts for large parties.
Let’s have a closer look at some of the sub-KPIs of Occupancy metrics.
Number of Reservations
The number of reservations is a metric that measures the number of customers who have made a reservation to dine at your restaurant. This number is important because it can give you an indication of how popular your restaurant is and how well your marketing efforts are working.
To calculate the number of reservations, simply take the total number of customers who have made a reservation and divide it by the total number of days in the period you are measuring.
Number of Canceled Reservations
The number of canceled reservations is a metric that measures the number of customers who have canceled their reservations to dine at your restaurant. This number is important because it can give you an indication of how satisfied your customers are with your restaurant. If you see a high number of canceled reservations, it could be an indication that customers are not happy with your service or food.
To calculate the number of canceled reservations, simply take the total number of customers who have canceled their reservation and divide it by the total number of days in the period you are measuring.
Number of No-Shows
The number of no-shows is a metric that measures the number of customers who have made a reservation but did not show up to dine at your restaurant. This number is important because it can give you an indication of how reliable your customers are. If you see a high number of no-shows, it could be an indication that customers are preferring some other restaurant nearby.
To calculate the number of no-shows, simply take the total number of customers who have made a reservation but did not show up and divide it by the total number of days in the period you are measuring.
Foodservice Strike Rate
If any customers leave your restaurant without ordering any food, your foodservice strike rate goes down. It is also possible that some customers are only inside because they want to kill some time. They might order a cup of coffee or any other beverage. But if they aren’t ordering any real food, it decreases the foodservice strike rate.
A higher foodservice strike rate is an indication that customers are happy with the food options available at your restaurant.
3. Restaurant Financial Metrics – Customer Acquisition
The third category of restaurant financial metrics is customer acquisition. This metric measures how much it costs to acquire new customers.
There are a few things that can impact your customer acquisition costs, such as your marketing budget or the effectiveness of your marketing campaigns.
It’s important to keep an eye on your customer acquisition costs because they can be a good indicator of how well your business is doing. If you see a sudden increase in your customer acquisition costs, it could be an indication that something is wrong.
Customer Acquisition Cost – CAC
To calculate the customer acquisition cost, simply take your total marketing budget for the period you are measuring and divide it by the number of new customers you acquired during that period.
But again, it may sound simple enough. However, there are a number of factors that can impact your customer acquisition cost.
To get an accurate picture of your customer acquisition cost, you need to track it over time so that you can see if there are any trends. And the best way to track such complicated metrics is to hire professionals. When you hire Oak Business Consultant’s expert financial analysts, you can be sure that all of your restaurant financial metrics are being tracked accurately.
Customer Retention Rate – CRR
Similarly, the customer retention rate is a metric that measures how many of your customers return to dine at your restaurant.
This number is important because it can give you an indication of how satisfied your customers are with your restaurant. If you see a high customer retention rate, it means that customers are happy with your service and are likely to return in the future.
To calculate the customer retention rate, simply take the total number of customers who have returned to dine at your restaurant and divide it by the total number of customers you acquired during that period.
Customer Lifetime Value – LTV
Another important customer acquisition metric is lifetime value. Lifetime value is a metric that measures how much revenue a customer will generate for your business over their lifetime.
This number is important because it can give you an indication of how valuable your customers are. If you see a high lifetime value, it means that your customers are likely to generate a lot of revenue for your business over their lifetime.
To calculate the lifetime value of a customer, simply take the total amount of revenue that a customer has generated for your business and divide it by the period they have been a customer.
4. Restaurant Financial Metrics – Customer Service
And finally, the fourth category of restaurant financial metrics is customer service. There are a few things that can impact customer satisfaction, such as the quality of your food or the friendliness of your staff. We have collected various indicators, including, Front of House Labor (FoH), tables served per waiter, and availability of menu items, to give you a good idea of how you are serving your customers.
Tables Served Per Waiter
The tables served per waiter metric measures how many tables each waiter is serving. This number is important because it can give you an indication of how efficiently your waitstaff is working. If you see a lower number of tables served per waiter, it means that your waitstaff is not working as efficiently as they could be.
Availability of Menu Items
The availability of menu items metric measures how often a menu item is unavailable when a customer orders it. This number is important because it can give you an indication of how well you are managing your inventory. If you see a high number of menu items unavailable, it means that you are not managing your inventory as well as you could be.
This restaurant financial analysis KPI can directly affect the customer service. And in return, it affects the finances of your restaurant.
Front of House (FoH) Labor
There are two types of labor in a restaurant, FoH, and back of house (BoH) labor. Here, we are more interested in the former. The front of house labor metric measures the percentage of your total labor costs that are attributable to FoH staff.
It’s the number of staff that is directly involved with the customer service. Or you can say, at the face of your restaurant. Depending on the needs of your restaurant, this number can range from 30% to 60%.
The Bottom Line
The restaurant industry is a tough business. With margins as tight as they are, it is important to track the right financial metrics to ensure that your business is on the path to success. In this guide, we have covered the top restaurant industry financial metrics that you need to track.
If you need professional help, Oak Business Consultant’s team has got you covered. We offer a full range of financial services, from financial analysis to financial planning and more.
We hope that this guide has given you a better understanding of the different restaurant KPIs and how to use them to manage your finances effectively. If you have any questions, please feel free to reach out to us.