Benchmarking is the process of calculating your restaurant’s key financial or operational metrics and comparing them to established standards. Those standards may be industry averages, the performance of “best-in-class” restaurants or even your own restaurant’s past performance. Benchmarking can be an effective tool for identifying areas in need of improvement, spotting dangerous trends while there is still time to address them and enhancing your restaurant’s profitability.
Below are some of the most useful benchmarks for restaurants. Keep in mind, however, that the right benchmarks for your restaurant depend on the type of restaurant, its size, its geographical location and other factors.
Net Profit Margin
Determining your restaurant’s profitability is a good place to start. According to Restaurant365, net profit margins (net income as a percentage of sales) average between 3% and 6% for full-service restaurants and between 6% and 9% for quick-service restaurants. Many different factors contribute to a restaurant’s net profit margins, but margins that are too low signal a need to investigate further to determine the cause.
This benchmark measures prime costs—that is, the cost of goods sold (food, beverages, etc.) plus labor costs—as a percentage of total sales. A general rule of thumb is that for a restaurant to be profitable, prime costs should not exceed 60–65% of sales for full-service restaurants and 55–60% for quick-service restaurants. Typical numbers for best-in-class restaurants are 55% for full-service and 50% for quick-service.
Sales Per Square Foot
This metric helps you determine how well you are leveraging your restaurant’s available space. A low number may indicate a need to reconfigure your space or add tables. Generally, to break even, a full-service restaurant’s sales per square foot should be at least $150 to $250 and a quick-service restaurant’s sales per square foot should be at least $200 to $300.
These include rent/mortgage payments plus related taxes, fees, insurance, or triple-net-lease charges. As a rule of thumb, these costs should range from 6–10% of sales, although the numbers can vary dramatically depending on a restaurant’s location and other factors.
Your restaurant’s table turnover rate can have a big impact on profitability. This metric measures how long customers occupy tables during a specified time (such as a certain day or meal). For example, if your restaurant has 30 tables and you serve 90 parties during the Saturday evening dinner service, then your table turnover rate during that time is 90/30 = 3, which happens to be the average rate for family restaurants. If your turnover rate is low, you may want to consider strategies for boosting it, such as limiting the menu size, declining to seat incomplete parties, setting a time limit or allowing customers to order in advance.
Staff Turnover Rate
Staff turnover is costly for restaurants, so it is a good idea to monitor your staff turnover rate. This rate is equal to the number of staffers who leave during a specified period (e.g., a month or quarter) as a percentage of the number of employees you need to fully staff your restaurant. For example, if a fully staffed restaurant has 25 employees and five quit during a particular month, then your staff turnover rate for that month is 20%, compared to an industry average for full-service restaurants of around 28%. If your rate is too high, consider strategies for retaining employees, such as improving pay and benefits or offering flexible scheduling.
Related Read: Nine Tips for Combating the Restaurant Labor Shortage
These are just a few examples of the many benchmarks available to gauge your restaurant’s performance. To make the most of benchmarking, you should consider your goals for your restaurant and choose benchmarks that measure your progress toward those goals.
For more information about benchmarking for restaurants, please contact Tom Pierce at [email protected]. Visit ORBA.com to learn more about our Restaurant Group.