To operate a profitable restaurant, testing and making small changes seems to be a constant until you find the best way to run your business. And over the last few months, it feels like we all have been tinkering and testing new ideas WAY more than normal. Adding new business ventures such as carry out or takeout, online ordering, or outdoor dining have become the new norm. To ensure the success of these new ventures, there are some performance metrics you can track to help secure your restaurant’s financial footing.
It is important to remember that overhead costs don’t just refer to the cost of materials, food, or other components related to running your establishment. Overhead costs also include ongoing expenses such as utilities, rent, payroll, and advertising/marketing. Calculating your overhead rate can help you understand how much it costs to run your restaurant by looking only at fixed costs.
Food cost percentage is the difference between what it costs to produce an item and its price on the menu. The price of ingredients changes regularly, particularly in recent months due to rising prices and limited availability of ingredients. A quick way to evaluate your ingredient costs is add them together and assess the sum as a percentage of your gross sales. Divide total food costs by total revenue from food to calculate your food cost percentage. Depending on the restaurant and the guest expectations, a restaurant’s food cost percentage should be between 28-35%.
The Break-Even Point
The break-even point will help your establishment understand how many people your restaurant needs to serve in order for the business to make money. Break-even evaluation focuses on making sense of your fixed and fluctuating costs in your establishment. Learn more about the break-even point here. Once you calculate your break-even point, everything else will be profit for your establishment. When opening—or re-opening—your establishment to the public, the break-even point is critical.
Calculating your metrics during, or after, a period of economic crisis is especially important because it will allow you to identify negative trends that require immediate attention. Increasing a restaurant's efficiency and profitability doesn't happen overnight, especially with operation restrictions and the challenges that come with keeping your guests and staff safe according to state and federal restrictions. Taking the time now to understand your numbers and what impacts them will help ensure your success down the line.
Many POS systems for restaurants calculate these metrics automatically so you don’t have to. Accel’s Digital Marketing and Credit Card processing might be able to help your business today. To learn more, reply to this post or email us at firstname.lastname@example.org.