Key Financial Metrics for Restaurant Success

January 10, 2025 |Advisory

Running a restaurant includes more than cooking tasty food and creating an ambiance, it is also a strategic handling of finance for long-term success. QMK Consulting, based in New York City is open to educating you on controlling the financial aspect of the restaurant business. In this highly competitive restaurant industry, knowing the most crucial financial indicators and tracking them is vital for being profitable and fostering growth.

Why Financial Metrics Matter for Your Restaurant

You will want to use the financial metrics of your restaurant to see how healthy your restaurant is and how all the facets of it are performing. Recording them consistently allows you to:

Investigate areas for cost-cutting.
Maximize profits.
See cash flow troubles coming.
Make an informed decision on where to invest or expand.

Let's take a look at some of the most vital metrics to help in your efforts to run a financially healthy restaurant.

1. Prime Cost: The Profitability Indicator

The direct costs of selling with the costs for labor make up the prime cost. It normally forms 55%–65% of the total sales by a restaurant.

Why it matters: The parameter indicates the operational efficiency.

How to track it: Analyze food and beverage costs and labor costs in conjunction with sales on a weekly or monthly basis.

Pro Tip: At QMK Consulting, we use financial tools that will allow restaurant owners to reduce their prime costs without hurting quality to deliver a greater experience to the customers.

2. Food Cost Percentage

Food-related costs indicate the percentage of the revenue spent on ingredients. It should ideally be somewhere between 25% and 35%.

Formula: = (Cost of Goods Sold / Total Food Sales) x 100.
Importance: A high food cost percentage indicates possible overpricing or mismanagement of suppliers.

The Extra Tip: Create an efficient inventory and develop better rates for suppliers. Consult Mohamed Karmous, our restaurant accounting expert, on this.

Book your free consultation

3. Labor Cost Percentage

Labor cost typically makes out to be 25%–35% of a restaurant's revenue. Keeping a proper check on this metric is important for allowing you to manage working schedules according to proper payroll mechanics.

Formula: (Total Labor Costs/Total Sales) x 100.

The Red Flag: Overtime and wasted hours can make labor costs inflated.

QMK Solution: From QMK Consulting, our team is dedicated to managing payroll in compliance with labor laws and at the same time lowering your labor cost to an optimum percentage.

4. Average Check Size

Average check size is simply a measure of how much a customer spends with your business during any single visit.

This is done by dividing total sales by the number of transactions.

When the average check size goes up, revenue rises.

Pro Tip: Increase it with staff training for upselling and introducing high-margin items to the menu.

5. Gross Profit Margin

It refers to the remaining profit after the deduction of direct costs from it.

So the definition of gross profit margin relies on the gross profit margin formula:

(revenue - COGS)/revenue x 100.

Industry Benchmark: Generally, on average, 70% to 80% is for most restaurants.

Expert Advice: Contact QMK Consulting to assess your profit margin for hidden costs and increase the profitability further.

6. Cash Flow Forecast

Cash flow is oxygen for your restaurant. Knowing how money comes in and out, you'll be able to pay for rent, utilities, and payroll.

What to track: monthly inflows (sales, loans) and outflows (expenses, repayments).
Why it's essential: Poor cash flow management is one of the primary reasons restaurants end up folding.

Secret Tip: Have a very proper accounting system in place as well. Need assistance in integration? QMK Consulting provides tailored solutions to fit your needs.

7. Table Turnover Rate

This metric measures how efficiently seating capacity is utilized.

Formula: Total Number of Seated Guests / Total Number of Tables
Why it matters: A higher turnover means a greater chance of earning more income through it.

How QMK Consulting Can Help

QMK Consulting is well aware of the financial challenges faced by restaurants. Here's what we can do to help you:

All-Out Financial Reviews: Spotting issues related to your financial indicators including your inefficiencies.
Custom Fit Solutions: Menu designing, payroll optimization, or whatever might be into improving your restaurant performance.
Expert Advice: Thanks to our services led by Mohamed Karmous, you get that clear perspective that would allow you to expand your business without fear.

Take the Next Step Today

Don’t gamble on the financial health of your restaurant. Schedule an appointment for a free consultation with Mohamed Karmous, the CEO of QMK Consulting, so you understand how our expertise can change your revenue generation strategy for your restaurant.

Book your free consultation

FAQ

1. What is the most important financial metric for restaurants?

All the metrics mentioned are important, but they really need to keep their focus on both prime cost and cash flow for continued profitability and staying out of the financial slog.