“The economics of setting up a new restaurant are scary in good times and terrifying in bad ones.” John Lanchester
Managing daily financials is one of the toughest responsibilities of owning a full service restaurant (FSR). Inventory, staff, and overhead must all be closely monitored while keeping the unique details of each in mind. Many business owners use financial ratios to understand the relationships between the different numbers of their company’s financial statements.
While standard ratios are a good start, they simply aren’t enough to help restaurant owners understand the overall health of their FSR and identify trends. Here are a few restaurant metrics to keep in mind the next time you review your financials.
Prime Costs to Total Food and Beverage Revenue
Prime Costs = Hourly Labor + COGS
Prime costs are costs that can be directly attributed to the creation of a product. For restaurants that would mean inventory, beverages, management, hourly wages and benefits. The FSR industry standard for prime costs is 65% or less of your total food and beverage revenue.
If your calculations show a percentage above the average, this could mean your minimum sale price is too low. Try reevaluating the pricing of your menu. But be careful how you increase prices so your customers remain happy.
Carefully tracking and managing inventory will also help you stay at or under the target benchmark for FSRs. For example, Recipe Keeper will automatically adjust ingredients in your inventory based on the number of dishes your customers order. Bottle Keeper will do the same for your bar by tracking the ingredients of cocktails.
Food or Beverage Costs to Sales
Food Cost = Cost of Ingredients ÷ Price of the Meal
Beverage Cost = Cost of Beverage ÷ Price of Beverage
The industry standard for the ratio spent on food ingredients is 30%, but could go as high as 40% for finer FSRs. Beverages could range from 15% for non-alcoholic drinks to 40% for wine. It’s important to take the time to regularly calculate actual food costs and compare them with your ideal costs. Staying on top of these numbers allows you to quickly spot changes and devise a plan of action.
If you find a discrepancy that makes you uncomfortable, dig deeper and see if your employees have increased portions or are comping their friends. If the ingredients of your most popular dishes have become more expensive, it may be time to negotiate a better deal with your suppliers.
Overhead Rate = Total Monthly Overhead ÷ Total Monthly Sales
Prime costs cover the costs it takes to prepare and serve the meal. Overhead costs have to do with the money you spend while actually running the business. Operational expenses like rent, taxes, utilities, salaries, equipment, repairs and maintenance, as well as advertising and marketing all fall under this category.
Efficient restaurants usually run between a 30% and 35% overhead rate. If your rate is higher, that doesn’t mean you’re stuck with these fixed costs. For example, why not decrease the expense of rent by offering space for a pop-up shop? Explore reducing your advertising costs by moving away from purchasing ads and focusing on developing deeper relationships with your existing customers.
The amount of time from when a diner is first seated to when she leaves is known as “table turn.” The key is to lower this number while protecting the dining experience. The best way to do this is by making sure service—from taking the order to paying the check—runs as efficiently as possible.
Clover Dining offers FSRs all the features they need to ensure a smooth experience for their patrons. Combined with Clover Flex, it allows servers to create and manage orders throughout the meal. When it’s time to settle up, it can even split checks and take payments at the table.
Average Cover = Total Sales During a Shift ÷ Number of Covers
Identify your strongest servers by calculating the size of the average check during their shift. Clover Dining makes it easy by reporting sales by employee. Increase the overall average cover of your staff by setting up an effective performance management process. You can also make increasing the average check fun for your employees through gamification.
Clover is sold by leading U.S. banks including Bank of America, BBVA, Citi, PNC, SunTrust and Wells Fargo. You’ll also find Clover at our trusted partners including CardConnect, Restaurant Depot, and Sam’s Club. For more information, visit us at clover.com.