The restaurant industry is notoriously difficult. Long-term restaurant success and profitability can be hard to achieve, making it vital to be aware of the day-to-day performance of the business. To make that easier, PointofSale.com recently published an article highlighting seven key restaurant performance metrics, with advice on how to evaluate them. We’ll share those tips below.
- Break-Even Point
This number – which is the amount that a restaurant must make in sales to earn back an investment – should be calculated first. Then, additional projections can be made based on that number. It can be used for the opening of a new restaurant or when a big purchase or improvement is made.
- Cost of Goods Sold
This refers to the cost required to create each of the items sold to customers. Because this is usually one of the largest expenses for restaurants, this will allow owners to identify ways to minimize these costs.
- Overhead Rate
This is a way to look at a restaurant’s fixed costs (rent, utilities, etc.), broken down to an hour-by-hour or day-by-day basis, allowing for a more incremental view of how much it costs to run the restaurant.
- Prime Cost
This is the sum of the cost of goods sold (detailed earlier here) and the total labor costs, including wages, benefits and any others. This is a good summary number of all of a restaurant’s controllable expenses, and shows how careful labor management could lower costs and increase profit.
- Food Cost Percentage
This is the difference between the cost of the ingredients in a specific menu item and that item’s selling price.
- Gross Profit
After accounting for the cost of the goods sold, this number shows the profit made by the restaurant, which represents the money available for paying expenses and for profit.
- Employee Turnover Rate
Because the restaurant industry has a high turnover rate, it’s important to track employee turnover – the percentage of employees that quit or are fired – for maximum operational efficiency.
Experts recommend that owners calculate these restaurant performance metrics regularly – monthly or weekly – and identify trends in order to identify and fix problem areas and improve performance and profits.
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