July 26, 2022

Restaurant Metrics: The Complete Glossary

Average cover

Average cover measures the dollar amount an average customer spends at your restaurant. The metric is calculated by dividing the total sales by the number of covers and gives you a good indication of how well your servers are at maximizing sales, no matter their section size or customer turnover.

Example: Server Shauna made $700 in sales and served 18 guests. $700 (sales) / 18 (guests) =  $38.88 average cover. 

Average order value

Average order value (AOV) measures the amount of money each customer spends with your restaurant in one transaction and is an indicator of consumer purchasing habits. Analyzing this metric will help you strategize upselling and cross-selling. Calculate AOV by dividing your total revenue by number of orders

Example: In one week, Pizza-a-Go-Go made $19,000 in revenue from 500 orders. $19,000 (revenue) / 500 (orders) = $47.50 AOV.

Break-even point

Break-even point tells you how much revenue you need to make to cover your costs before you start making a profit. Calculate break-even point by analyzing total costs (fixed and variable) and compare this to your total revenue.

Example: Pizza-a-Go-Go’s total costs are $750,000 and revenue is $900,000. The company has broken even and passed its break-even point ($750,000), netting $150,000 in profit. 

Contribution margin 

Contribution margin shows you how much profit you make on one individual menu item, helps you understand the amount each dish contributes to restaurant revenue (minus the costs of ingredients) and price menu items. Calculate contribution margin by subtracting the cost of ingredients from your selling price.

Example: Pizza-a-Go-Go sells a pepperoni pizza for $20, and each pizza costs $7 to produce. $20 (selling price) - $7 (costs of ingredients) = $13 contribution margin to support overhead costs (rent, labor, etc.)

Customer acquisition costs 

Customer acquisition costs (CAC) measure how much you’re spending to gain a new customer, telling you whether your marketing campaigns are cost-effective, and helping you strategically understand the campaigns that generate the greatest return on investment (ROI). Calculate CAC by dividing your marketing costs by the total number of new customers

Example: You run a paid advertising campaign with a coupon code on social media that costs you $500. A total of 30 people used the coupon. $500 (marketing expense) / 30 (new customers) = $16.66 CAC. 

Customer retention rate

Customer retention rate measures whether customers retain their business with your restaurant and is calculated by subtracting total customers from total new customers, then dividing that number by your total customers and multiplying it by 100

Example: In June, you had 2,345 total customers, and 876 were new customers. 2,345 (total customers) - 929 (new customers) = 1,416 / 2,345 (total customers) = 0.60 * 100 = 60% customer retention rate (which is super high, so that’s great!)

Cost of goods sold (COGS)

Cost of goods sold measures the total cost of the ingredients and products that go toward making items on a menu, including condiments and garnishes. One-third of a restaurant’s gross revenue will go toward COGS, and COGS is subtracted from your gross revenue to calculate your net profit.

Employee turnover rate

Employee turnover rate measures how often employees leave employment with your restaurant. The metric takes into account resignations, dismissals, layoffs, and retirement and is an indicator of how well your restaurant is at retaining employees. Often, a high employee turnover rate is indicative of internal issues such as poor workplace culture. Calculate employee turnover by dividing the number of employees departed by the number of current employees and multiply that number by 100. 

Example: In 2022, Pizza-a-Go-Go lost 5 employees leaving the team total to 32. 5 / 32 = 0.15 * 100 = 15% employee turnover rate.

(On Point surveyed 91 pizzerias from across North America and found that 38% of pizzerias reported employee turnover rates of 10-25%; 29% of pizzerias reported rates between 25-50%, and only 19% of respondents reported a turnover rate of less than 10%.)

Fixed costs

Fixed costs refer to the costs and expenses your business incurs during its operation. Fixed costs include things such as rent, mortgage repayments, salaries, license fees, and insurance, i.e., costs that are typically fixed or have little to no fluctuation. 

Food cost percentage

Food cost percentage shows the difference between how much it costs to produce a menu item and its actual price on the menu. Calculate food cost percentage by dividing the item cost by selling price multiplied by 100.

Example: Pizza-a-Go-Go’s mushroom pizza costs $6 to make and is on their menu for $18. $6 (item cost) / 18 (selling price) = 0.33 * 100 = 33%.

Gross profit / gross profit margin

Gross profit tells you the total amount of money your restaurant makes minus cost of goods sold (COGS) and is represented by a number or a percentage (gross profit margin). Calculating gross profit tells you how much money you have to pay for fixed costs and other overheads. Calculate gross profit by subtracting your COGS from your restaurant revenue.

Example: In September, Pizza-a-Go-Go made $50,000 in revenue and spent $20,000 on COGS. $50,000 (total revenue) - $20,000 (COGS) = $30,000 (gross profit). To calculate gross profit margin, divide gross profit ($30,000) by total revenue ($50,000) and multiply by 100 = 60% gross profit margin. 

Labor cost percentage

Labor cost is the total dollar amount your restaurant spends on labor or labor-related items. This includes salaries, hourly employee wages, taxes, employee benefits, bonuses, sick and vacation days, and healthcare. When expressed as a percentage, labor cost is one of your prime costs (the other being COGS, cost of goods sold). Calculate labor cost percentage by adding together your labor costs, dividing them by sales, and multiplying the amount by 100.

Example: In one week, Pizza-a-Go-Go paid $7,500 in labor costs and generated $17,850 in revenue. $4,500 (labor costs) / $17,850 (revenue) = 0.25 * 100 = 25% labor cost percentage.

Menu item profitability

Menu item profitability indicates the items on your menu that generate high profits vs. those that aren’t. Understanding menu item profitability helps you see the performance of individual items on your menu. Calculate menu item profitability by adding the number of items sold multiplied by the menu price and then subtracting the number of items sold multiplied by the item portion cost.

Example: Pizza-a-Go-Go sold 37 meat feast pizzas on a Saturday night for $22, with each pizza costing $10 to make. 37 (number of items sold) x $22 (item menu price) = $814 minus 37 (number of items sold) x $10 (item portion cost) = $444 menu item profitability. 

Net profit / net profit margin

Net profit is the amount of money your business makes after subtracting all operating costs (fixed and variable). Net profit is an indicator of whether your restaurant is profitable or not. Calculate net profit by subtracting your operating expenses from your total revenue. Calculate net profit margin by dividing your net profit by total revenue and multiplying that number by 100.

Example: In February, Pizza-a-Go-Go made $44,500 in total revenue and spent $16,000 on operating expenses. $44,500 (total revenue) - $16,000 (operating expenses) = $28,500 net profit. To calculate net profit margin: $28,500 (net profit) / $44,500 total revenue) = 64%.

Overhead rate

Overhead rate measures the amount of money that you’re paying for fixed costs over a specific time period. Calculate overhead rate by dividing total fixed costs by the number of hours open.

Example: Throughout May, Pizza-a-Go-Go spent $22,000 on fixed costs and was open 288 hours. $22,000 (fixed costs) / 288 (hours open) = $76.38 (overhead rate).

Prime cost

Prime cost is calculated by adding together the total sum of your labor costs and cost of goods sold (COGS) and is a key performance indicator for your restaurant. Prime costs include inventory (food and liquor), labor, taxes, medical insurance, employee benefits, and worker’s compensation. Measuring prime cost helps you understand how much you need to charge to make a profit and how much you can spend. 

Example: Your new restaurant’s COGS is $18,000 and labor costs equal $7,500. $18,000 (COGS) + $7,500 (labor) = $25,500 prime costs.

Revenue per square foot

Revenue per square foot tells you how quickly you’re making sales and is a key performance indicator to assess your restaurant’s ability to scale. Calculate revenue per square foot by dividing annual sales by square footage. 

Example: Pizza-a-Go-Go’s primary location occupies 2,000 square feet, and in 2022, they sold $650,000 worth of pizzas. $650,000 (sales) / 2,000 (square feet) = $325 revenue per square foot.

Seating capacity

Seating capacity measures the number of customers that can be seated in your restaurant at any one time and is used as an indicator of the maximum revenue your restaurant can generate in a specific period. Calculate seating capacity by measuring the total square footage of your front-of-house areas, then subtract the total non-dining space square footage, and multiply that by 15 (assuming 15 square feet per customer). 

Example: Pizza-a-Go-Go’s front-of-house area is 1,500 square feet and the non-dining area (waiting area, cash register, bar, etc.) is 500 square feet. 1,500 - 500 = 1,000 / 15 = 66 seating capacity.

Table turnover rate

Table turnover rate measures how many customers and tables you serve in a specific period and is used to indicate the number of servers or staff you’ll need during certain hours. Calculator table turnover rate by dividing the number of parties seated by the number of available tables.

Example: Pizza-a-Go-Go has 23 tables and seated 100 parties during dinner service. 100 (parties) / 23 (tables) = 4.34 table turnover rate.

Variable costs

Variable costs measure the amount of money spent on costs that vary from month to month. For example, wages, utilities, and cost of goods. 

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