Measuring Success – Financial Benchmarks for Restaurants

When evaluating the financial performance of a business it’s important to regularly review financial benchmarks to understand how operations compare against industry standards. This information can help Denver restaurants measure performance, identify areas of improvement, track progress/monitor performance and establish improvement goals. It lets owners know how the business is performing against established industry standards and can serve as a guide to financial improvement. When conducting an analysis there are several benchmarks to consider including table turnover ratio, sales per square foot, and revenue per seat. This is in addition to general business ratios such as profit margin and inventory turnover. Regularly evaluating performance against these benchmarks can provide important insight into operations. To help clients, prospects, and others, WhippleWood CPAs has provided a summary of the key details below.

Key Financial Metrics for Restaurants

• Profit Margin – This measures the amount of profit earned from each dollar of revenue generated. It is calculated by dividing net profit by total revenue and then multiplying the result by 100 to generate a percentage. Good profit margins vary between restaurant types with full service restaurants generating between 3%-5% and fast casual between 6%-9%.
• Revenue per Seat – This front of house benchmark measures how much revenue each seat in the restaurant contributes. It is calculated by dividing the total revenue by the number of available seats multiplied by the number of hours. Generally, a good revenue per seat is $25 but this will be influenced by the restaurant concept, operating hours, location and table turnover.
• Table Turnover Ratio – This ratio evaluates the number of times a table is occupied by different customers over a set period. It is calculated by dividing the number of dining parties seated by the available tables for a specific period. A good ratio depends on the type of restaurant. For fast casual 3-4 turns is typical. Family restaurants average 3 turns during dinner service, and fine dining establishments target 1-2 turns. The lower number of turns is due to the larger menu and additional offering typically available.
• Sales Per Square Foot – This ratio evaluates how efficiently the restaurant generates revenue based on size. It is calculated by dividing the annual sales by the total interior square footage. It is recommended that full-service restaurants should generate at least $150 per square foot while limited restaurants should generate $200 per square foot. 
• Average Cover – This ratio evaluates the average amount of revenue generated from each customer seated. It is calculated by dividing the total revenue earned by the total number of customers served for a specific period. The result will be influenced by several factors including restaurant type, menu pricing and available add-ons. Generally, fine dining locations have a higher cover than fast casual or casual dining establishments.
• Food/Beverage Expense to Sales – This ratio evaluates the percentage of revenue that goes towards the direct costs of food and beverages used in generating sales. It is calculated by dividing total food costs by total food sales and then multiplying by 100. Generally, a result between 28% – 35% is ideal, but it can vary based on the type of restaurant, locations, and menu offerings.

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Performance ratios are a valuable tool when attempting to understand how well a restaurant is performing. They can reveal important information about operations, costs, and revenue generated. The results can provide clues to management on where to focus efforts. If you have questions about the information outlined above or need assistance with a tax or accounting issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.