Restaurant Ratios and How to Use Them to Increase Profitability
Curious about what’s going on “under the hood” of your restaurant and want to make your business more profitable? Learn how to use restaurant ratios.
In this article, we discuss some of the key performance indicators that all restaurant managers should know, how to calculate these important restaurant ratios, and what to do with the numbers when you’re done.
Table of Contents
What are Restaurant Ratios?
Restaurant ratios are key performance indicators (KPIs) that provide insight into everything from profit and loss to average customer spending and menu item profitability.
For instance, Customer Acquisition Cost (CAC) can help you see how much it costs to get a new customer in the door. But CAC may be less important than fundamental restaurant ratios such as prime cost, labor cost, and cost of goods sold.
Important Restaurant Ratios to Know
1) Cost of Goods Sold Percentage
To calculate the cost of goods sold (CoGS) percentage, first tally the value of your inventory, new inventory purchased, and ending inventory.
Use the formula:
CoGS = (Beginning Inventory + Purchased Inventory) - Ending Inventory
For example,
CoGS = ($2,000 + $9,000) - $1,000
CoGS = $10,000
Divide CoGS by total sales for a snapshot of financial health.
2) Labor Cost Percentage
Calculate labor cost percentage using:
Labor Cost Percentage = (Total Labor Cost / Total Income) x 100
For example,
Labor Cost Percentage = ($12,500 / $42,000) x 100
Labor Cost Percentage = 29.7%
3) Food Cost Percentage
Calculate food cost percentage using:
Food Cost Percentage = (CoGS / Total Income) x 100
For example,
Food Cost Percentage = ($10,000 / $42,000) x 100
Food Cost Percentage = 24%
4) Prime Cost Percentage
Prime cost percentage gives insight into food and labor costs. Use the formula:
Prime Cost Percentage = ((CoGS + Total Labor Cost) / Total Income) x 100
For example,
Prime Cost Percentage = (($10,000 + $12,500) / $42,000) x 100
Prime Cost Percentage = 54%
5) Overhead Restaurant Ratios
To calculate overhead percentage and rate:
Overhead Percentage = (Overhead Costs / Total Income) x 100
For example,
Overhead Percentage = ($9,000 / $42,000) x 100
Overhead Percentage = 21%
Overhead Rate = Overhead Costs / Total Number Of Hours Open
For example,
Overhead Rate = $9,000 / 340
Overhead Rate = $26.47
Control Labor Cost Restaurant Ratios with Sling
Labor costs can be one of the largest expenses. Sling helps manage this with its labor costs feature, allowing you to set wages and see shift costs while scheduling.
Visit GetSling.com for more resources and to start managing your labor costs efficiently.
