Together they should make up about 60% of a healthy restaurant’s total costs, with a healthy labor cost percentage of about 20%–35% of sales. This is great news for an inexpensive burger franchise like Wayback Burgers, where the buy-in costs are relatively low, and the restaurant sizes are reasonable. In most cases, full-service restaurants that don’t generate at least $150 of sales per square foot have very little chance of generating a profit. For example, a 4,000-square-foot restaurant with annual sales of anything less than $600,000 would find it very difficult to avoid losing money. With Vend + Afterpay, you can offer a “buy now pay later” service to customers, so they can pay for their purchases in four easy installments.
Restaurant Operating Costs: Key Expenses Every Owner Should Know in 2025
Tracking average headcount can help you make better scheduling, inventory, promotion, and spending decisions. Any profit is cause to celebrate, but 6% is the average restaurant profit. Inventory turnover ratio refers to the number of times your restaurant has sold out of its total inventory during a period of time.
Labor cost ratio
With about 1,400 retail stores, Murphy USA does $3,721 in sales per square foot. No matter your industry, there is an association you can join that can give you data specific to your retail store type. For example, the National Shoe Retailers Association publishes reports to its members of the key performance metrics of its member stores. After all, I didn’t know if my margins and sales were good or great until I compared them to similar stores. When calculating a store’s sales per square ft., don’t forget to exclude the non-selling areas of the shop, such as stock rooms or receiving areas. It tells you how efficient you are with your use of space and can give insights for improving store layout, merchandising, staff performance, and more.
Why Does Sales per Square Foot Matter?
Additionally, location affects delivery logistics, local taxes, and insurance premiums, all of which feed into the overall operating costs. David Burke, a world-renowned chef, says, “The No. 1 problem for us is controlling labor cost. There are employees out there, so many employees, they’re commanding top dollar, but not necessarily the top talent.
Restaurant Services
You can calculate your restaurant’s food cost percentage by dividing your total food costs by your total food sales in a given period of time, such as a month, quarter, or year. Generate reports for certain time periods (i.e., monthly, weekly, hourly), so you can figure out when customers are buying from you. From there, you can drill down on what they’re purchasing, and then stock up accordingly. One example of a retailer that effectively improved its layout is apparel store Express.
- Your sales figures might be impressive, but if you’re spending all of the revenue your restaurant brings in (or worse, spending beyond your means), you may not be in business very long.
- Calculating your employee turnover rate refers to the frequency at which employees leave your restaurant over a period of time, including resignations, dismissals, and retirement.
- Alongside licensing, insurance premiums are rising due to higher property valuations, labor-related risks, and insurer reassessments of the hospitality industry.
- When looking at COGS, it’s important to measure this number as a percentage of the income you’ve earned during a certain period (for example a month).
- Cash flow is arguably the most important KPI restaurant owners should track because it reflects the amount of money flowing through your business.
A growing trend towards health-conscious dining options, with a noteworthy demand for restaurants offering organic, vegan, and gluten-free menus. If on Wednesdays your RevPASH is $10.25, you’ll want to find a way to increase RevPASH on Tuesdays by increasing your turnover or getting more people in the door. Revenue per available seat hour (RevPASH) measures how each seat in your restaurant is performing. But if a high employee turnover occurs out of the blue, you should investigate. To calculate monthly, quarterly, or yearly turnover, simply adjust your figures to account for the period you wish to view.
Restaurant Revenue Per Square Foot
Your net profit margin represents the money your restaurant makes after accounting for all operating costs, including CoGS, labor, rent, equipment, hardware, and utilities. Cost of goods sold, or CoGS, is the cost required to make each menu item you sell. This number represents the total amount you need to spend on inventory and materials to produce your food and beverage (F&B) sales over a period of time. Quick-service restaurants (QSRs) or fast-casual formats often focus on streamlined menus and smaller teams, lowering labor and inventory costs.
It’s important to measure so you know which menu items drive the highest profits, and which items are lagging at the back of the pack. Restaurant benchmarks are key performance indicators (KPIs) that help you keep track of how your business is doing financially and operationally. Measuring and understanding these restaurant business KPIs enables you to make informed strategic decisions, so you can drive profitability and growth. For example, employees with restaurant revenue per square foot a strong knowledge of company products are in a better position to cross-sell and up-sell the company’s products. As such, providing employees with adequate training (product knowledge, up-selling and cross-selling tactics, etc.) goes a long way in improving sales per square foot.
In the hospitality industry, including hotels and restaurants, revenue per square foot is linked to occupancy rates and service offerings. Hotels focus on maximizing room revenue through dynamic pricing and upselling services like dining and spa treatments. Restaurants prioritize table turnover rates and menu design to enhance revenue.
In other words, you’ve used $20,000 worth of COGS (or inventory) to source the products you served to your customers in your restaurant. In other words, RevPASH helps you plan employee shifts and shop layout, purchase supplies, and enhance table turnover. It gives insight into how effective or efficient each seat generates revenue. Indeed, you must assess your business regularly against your targets and industry standards if you want to make sure your business is successful. KPIs will help you determine how your actions align with your objectives and areas that need improvement.
The growth in the per capita disposable income of consumers earning more than $100,000 annually has benefited the industry, enabling consumers to opt for premium dining. The numbers speak for their growth; they expect to generate larger revenue for the forecasted years. If you wanted, you could use data to measure how much each grain of rice contributes to your bottom line. Being a restaurant owner implies being involved in every aspect of the business.
By integrating financial data with visual insights, restaurant owners can gain a more comprehensive understanding of their business. This integration helps in identifying trends, monitoring staff performance, and ensuring compliance with operational procedures. Average table occupancy tracks the percentage of seats occupied over a given period.
A low current ratio might suggest liquidity problems or poor financial management. The metric measures cost versus sales to help you understand how to manage expenses. If you calculate costs properly, you will be able to identify areas where adjustments are necessary (for example times when you’re under or overstaffed).
- If you’re using a mobile POS, you can easily pull this information from your reporting and analytics dashboard.
- As such, providing employees with adequate training (product knowledge, up-selling and cross-selling tactics, etc.) goes a long way in improving sales per square foot.
- Hotels focus on maximizing room revenue through dynamic pricing and upselling services like dining and spa treatments.
- Square feet are also widely used in retailing in the United Kingdom, but there are signs of a trend towards use of square meters.
- It can also be helpful to calculate the sales brought in by the specific menu item compared to the total sales.
Table turnover rate
The number of new customers acquired is simply the number of new customers you’ve gained during a specific period. You can offer add-ons like appetizers and drink pairings to significantly increase the average order size. If you know that during lunch, your average would come up with $15/seat/hour, and then in the afternoon, it drops to $4/seat/hour, you’ve now identified a slow time. This means you’re earning $10 for every seat, every hour your restaurant is open. These establishments operate with the traditional brick-and-mortar model and leverage online ordering platforms to streamline their operations and optimize the delivery process. Verified Market Reports emphasized that the delivery-only dining concept has brought virtual and ghost kitchens to the forefront, with a market size estimated to be $ 71.4 billion in 2024.
Alongside licensing, insurance premiums are rising due to higher property valuations, labor-related risks, and insurer reassessments of the hospitality industry. If you fall into the lower category for your type of restaurant, you might want to look at your menu and overall plan for your restaurant in its first year and adjust accordingly. Accounting
However, they are also highly dependent on volume to maintain profitability. Bars or beverage-centric concepts have distinct costs, including liquor inventory, licensing fees, and potential loss due to spoilage. Knowing how many tables you’re turning over is a good start to optimizing business operations. Now, let’s find out how many customers you can expect to see walk through your doors during a given period of time.
This is the other kind of turnover you need to measure – except unlike your table turnover rate, lower is better when it comes to your staff turnover rate. Table turnover rate indicates how long you can expect customers to stick around. Generally speaking, the more tables you can serve per day, the greater your sales will be – especially if your revPASH is high.
Now that you have a basic understanding of sales per square footage and how to measure it, let’s talk about how you can maximize sales per square foot in your stores. The term “brick-and-mortar” refers to a traditional business that offers its products and services to its customers in an office or store, as opposed to an online-only business. The break-even point is the sales volume at which total revenues equal total costs, indicating no profit or loss. It’s a critical metric for understanding the minimum performance required for the restaurant to be financially viable. A lower break-even point is preferable, indicating that the restaurant can cover its costs with fewer sales.
It’s crucial to track this metric for a clear view of the restaurant’s profitability. Low net profit could be due to high expenses, inefficient operations, or poor sales. In the competitive hospitality industry, understanding and effectively utilizing restaurant finance metrics is crucial for success. Labor cost percentage is one of two key components of your prime costs (the other is cost of goods sold).
A low net profit margin might suggest high costs or inefficient operations. Financial health metrics offer a comprehensive view of a restaurant’s financial stability and profitability. These metrics are essential for making informed decisions about investments, operational changes, and long-term strategies. They provide valuable insights into the restaurant’s ability to generate profit, manage debt, and sustain growth. Regular monitoring of these metrics is crucial for identifying financial strengths and weaknesses, ensuring the restaurant remains financially viable and competitive. Therefore, the employee turnover rate is an important KPI to track for restaurant owners.
