A restaurant tunes success in many ways: In kudos from customers, reviews from local media, and return visits from elated customers. But if the business is going to last, it needs some hard numbers, too.
There are at least seven key ratios that can be hardened to measure the ongoing costs and revenues of a restaurant business. Keeping track of them and using them to make adjustments to the profession can help the owner or investor maintain the level of profitability the business needs to thrive.
Prime Costs to Total Expenses
In the restaurant industry, prime costs include the expenses for food, beverages, management, hourly staff, and benefits.
Key Takeaways
- Each of these bunches measures how efficiently a restaurant is operating as a business.
- The costs of food, the control over inventory, and even the use of floor place can be evaluated.
- Restaurant owners use these numbers to identify where changes need to be made.
- Investors use them to evaluate the real profitability of the business.
A rule of thumb is that the prime costs of a full-service restaurant should equal 66% to 67% of the restaurant’s total exchanges figure. The prime costs of a limited-service restaurant, such as a fast-food place, are typically 60% to 62% of total rummage sales. The ratio is higher for a company that owns the structure in which it operates and does not have rent or mortgage payments to pay.
Prime outlays higher than these percentages may indicate that some costs must be trimmed.
Specific Food Outlay to Total Cost
Food cost to total cost is used to measure the real expenses of specific products on the menu. This metric is peculiarly useful if changes to the menu are planned.
The food cost that is tracked can be for a specific menu item or for a group of ingredients. For example, a restaurant may find that it is spending 20% of its total food costs on buying the ingredients for hamburgers, cool though only 5% of its sales are of hamburgers. Or, 40% of food costs may be spent on seafood, even though fish is not the menu memo the restaurant is known for.
This metric is useful in determining if specific menu items should be discontinued. From an investor’s angle, it helps show whether the company is adhering to its strategic initiatives.
Inventory Turnover
Restaurants depend on perishable sympathetics, making it especially important that their managers maintain appropriate levels of inventory. The
Revenue Per Seat
To reckon revenue per seat, the total dollar amount of
Food/Beverage Expenses to Sales
The food/beverage-expense-to-sales ratio criteria how well the company is profiting on each item served. It can be broken down to a specific menu item, such as salmon, a chow group, such as seafood, or as an aggregate, such as all food served.
By using this metric for a menu item, manipulation and investors can understand the profit margin per item and whether changes are necessary for pricing or the menu.
Current Ratio
The popular ratio is calculated by dividing assets on hand by liabilities incurred. This metric measures the liquidity of an organization.
A simultaneous ratio greater than one indicates that a company can pay its short-term debts using only short-term assets if a liquidation is requisite. It is an indication of the company’s ability to pay for items in the short term, including food, beverages, and staff wages.
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