This is a guest post by Toast Restaurant Management blogger Allison Tetreault.
As a restaurant owner, there are so many restaurant metrics and reports to track, such as labor efficiency, online ordering frequency, and employee turnover rate. You see numbers fly by all day on your POS dashboard.
Don’t get bogged down by the many, many figures you could be tracking. There are only a few restaurant finance metrics that really stand out to your account and those are the ones you should be paying close attention to.
Whether you have a CPA or just a calculator, it’s important to calculate how your restaurant is faring financially with these four metrics.
1. Average Monthly Revenue
Total Yearly Revenue / 12 = Average Monthly Revenue
(Tip: Many point-of-sale systems track revenue and sales automatically).
Start with the top line first. Look at total yearly revenue and total monthly revenue to see the big picture of your restaurant sales. Then, you can calculate average monthly revenue as a benchmark. How have revenues changed? If there’s a significant change, say 15% higher or lower, what would you attribute that change to? Seasonality, new menu, new staff?
With an idea of your average monthly revenue, you have a concrete measure of success. From there, you can create targeted campaigns and promotions to increase your average monthly revenue and predict future monthly revenue.
2. Gross Margin
Total Revenue – Cost of Goods Sold = Gross Margin
(Tip: Learn to calculate cost of goods sold by clicking here)
Gross margin is a metric that is often overlooked by restaurant owners, even though it measures efficiency and determines your breakeven point. A key calculation for restaurants when measuring profitability, gross margin is essentially the money left over after paying all the variable costs associated with the sale of your food items, including ordering, shipping, and storage.
If gross margin is not in line with last year, you’d have to consider if buying practices changed since last year, or if something else could be the cause. From there, you can determine whether your prices are too low or your costs are too high, and how that’s affecting your bottom line.
3. Labor Cost Percentage
Cost of Labor (with payroll taxes & benefits) / Revenues = Labor Cost Percentage
(Tip: Always use a consistent time period — weekly, monthly, yearly — to guarantee accurate results.)
It’s important to track the percentage of revenue your restaurant spends on employees through salaries and wages. The benchmark for this percentage varies based on whether you’re a full-service or limited-service restaurant, but in general, somewhere between 25% and 35% is average.
Additionally, if revenues rise, labor cost would be expected to rise too. Keep track of exactly how much you’re paying your managers, servers, busboys, chefs, and other employees with labor cost percentage.
4. Credit Card Processing Rate
Total Fees Charged / Total Revenues = Credit Card Processing Rate
(Tip: Learn to delineate American Express vs. Visa/Mastercard/Discover fees by clicking here.)
Finally, take a look at your credit card processing rate. Credit card processing is a confusing industry. Many restaurants don’t realize that, when more and more people are using credit cards instead of cash, that puts a giant dent into your restaurant’s cash flow, mainly because you’re paying processing charges.
Compare credit card processing charges and credit card sales to the previous year. If it seems like a lot of your revenue is going toward credit card processing, you may need to respond by increasing advertising or raising prices.
With these restaurant finance metrics calculated, or better yet displayed front and center on your POS system, you’ll be better prepared to reflect on the past year’s successes and predict future successes. With these numbers prepared ahead of time, you’ll also be putting a big smile on your accountant’s face.
What are your favorite restaurant finance metrics to calculate? Let us know in the comments below!
Allison Tetreault is the Content Strategist for Toast, the All-in-One POS System. She manages the Toast Restaurant Management blog and also creates valuable content for restaurateurs. Follow her on Twitter or LinkedIn.