April 17, 2025
Successful restaurant owners monitor key financial metrics daily to stay on track of their business goals. Tracking these numbers helps spot trends, fine-tune strategies, and avoid costly mistakes like overordering ingredients, high food costs, or staffing inefficiencies. A little daily attention to your finances can make a big difference in profitability and long-term success!
What Financial Metrics Are Important for Restaurants?
Financial metrics are key numbers showing how well your restaurant performs financially. They help track costs, profits, and overall efficiency. By monitoring these insights, you can spot trends, make smarter decisions, and keep your business running smoothly. Understanding financial metrics helps you control expenses, boost profits, and plan for growth.
6 Essential Finance Metrics for Restaurants
Tracking key financial metrics is crucial for growth and success. Here are six essential restaurant metrics, how to calculate them, and how they can guide smarter decision-making.
1. Sales and Revenue
Tracking daily sales provides insight into dining trends, peak hours, and customer preferences. It also helps restaurant owners gauge performance and adjust pricing, menu offerings, and marketing efforts. For instance, noticing a particular dish selling well during certain hours could increase profits by promoting it during those times.
2. Cost of Goods Sold (COGS)
COGS are the direct costs of ingredients and inventory used to create and serve dishes. Calculating this daily can prevent food waste and identify opportunities for strategic menu pricing. Most establishments aim for 30 percent of gross sales as a healthy percentage margin.
COGS Formula: Beginning Inventory + Purchased Inventory–Ending Inventory = Cost of Goods Sold
3. Labor Costs
Labor is one of the largest expenses in the restaurant industry, so it's essential to monitor labor costs. Doing so ensures efficient staff scheduling, controlled overtime, and profitability.
Keep in mind that labor costs go beyond just wages and salaries; they also include benefits like health insurance, retirement plans, paid time off, payroll taxes, overtime, bonuses, staff meals, uniforms, and training expenses. Accurately calculating labor costs requires factoring in all these expenses to get a clear picture of total spending.
To manage labor costs effectively, optimize staff scheduling based on peak hours, cross-train employees to improve efficiency, reduce unnecessary overtime, and invest in automation tools to streamline operations. Implementing technology, such as scheduling software and POS systems, can also help track labor trends and improve workforce management.
Labor Cost Percentage Formula: (Total Labor Costs / Total Sales) x 100
4. Prime Costs
A prime cost is the sum of COGS and labor costs. Since these two factors comprise the bulk of expenses, closely monitoring prime cost is key to balancing pricing and cost control. On average, most restaurants expect prime costs to represent about 60 percent of total sales.
A high prime cost means less profit to cover other expenses. A low prime cost might indicate understaffing or lower-quality ingredients, impacting service and customer satisfaction. To optimize margins, adjust menu pricing and portion sizes, streamline staffing schedules, and partner with cost-effective suppliers.
Prime Cost Formula: Cost of Goods Sold (COGS) + Total Labor Cost
5. Food Costs
Calculating food costs is essential for maintaining strong profit margins and financial health. A healthy food cost percentage typically falls between 28 and 35 percent to ensure that revenue covers not just ingredients but also expenses like rent, labor, and utilities. Adjust menu prices, optimize inventory, and reduce food waste to meet that percentage goal.
Food Cost Percentage Per Menu Item: Food Cost / Selling Price
6. Inventory Turnover Tracking inventory helps control food costs, reduce waste, and maintain profitability. Monitoring food purchases versus output prevents over-ordering and unnecessary spoilage, keeping cost of goods sold within a healthy range. A well-managed inventory system also improves customer satisfaction by ensuring popular menu items remain in stock.
Implementing strategies like scheduled inventory checks, food waste logs, and the “First In, First Out” method helps streamline operations. Assigning dedicated staff to track inventory further enhances accuracy, reducing financial losses and improving overall efficiency.
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DOWNLOAD OUR INFOGRAPHIC: Key Restaurant Financial Metric Calculations
