Bar and restaurant owners have it so much easier than other business professionals because they so rarely have to do math and calculate key metrics.
End sarcasm.
Truth is, the success of any great restaurant or bar is contingent on leadership’s thorough understanding, and regular tracking, of key kitchen metrics. The numbers indicate the health of your operation and point to improvements that can save your business.
Restaurant profit margins sit at a slim 5% or lower—so any business in the hospitality industry knows how important it is to track kitchen metrics. Inventory waste and kitchen inefficiency can quickly result in a less-than-healthy bottom line for the business. The average lifespan of a bar is only around two years, so healthy cash flow and profit are imperative to making it to a third.
That said, it’s easy to understand why tracking these metrics often goes by the wayside. There’s staff to schedule, guests to delight, and orders to fulfill. While this might explain why many restaurateurs and bar professionals do not track key metrics, it does not excuse it.
Below are nine kitchen metrics you should track, how to calculate them, and what to aim for when it comes to peak performance.
It’s a best practice to check these numbers regularly. In fact, 78% of restaurateurs check their metrics and finances every day according to the Restaurant Technology Industry Report, so carve out scheduled time to review the numbers, and make sure you have systems in place to make this analysis as easy as possible.
Cost of goods sold, or COGS, is the direct cost required to produce goods that are sold by a company. In other words, COGS is the cost needed to produce each of the menu items you sell. In essence, it’s a representation of your restaurant’s inventory during a specific period of time.
It’s important to track COGS because it’s often one of the biggest expenses for a restaurant. Minimizing your COGS (by taking regular inventory, lowering sitting inventory, negotiating better distributor pricing, and controlling food waste) will help increase profit margins.
How to Calculate Cost of Goods Sold
Cost of Goods Sold (COGS) = Beginning Inventory + Purchased Inventory – Ending Inventory
What is a Good COGS to Aim For?
Because every restaurant’s concept, sales, and inventory vary greatly, there is no universal COGS amount that is ideal for all restaurants. Fine dining establishments will have a higher COGS than fast casual. The goal should be to continually try to lower costs without sacrificing the quality of your establishment and the guest experience.
Food cost, always expressed as a percentage, is the cost to create food compared to the revenue generated off that food—or the cost of your inventory (COGS) vs. your food sales. This is absolutely essential to understanding the effectiveness of your food program. Keeping a close eye on your inventory costs and pricing items wisely is core to having a successful business.
You can calculate this metric per-dish or program-wide depending on the information you want. The food cost percentage for each menu item helps illuminate where pricing adjustments should be made to keep dishes in line with an ideal food cost. The food cost percentage for your entire program tells you about the overall profitability of the kitchen.
How to Calculate Food Cost Percentage
Food Cost Percentage = COGS (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
Item Food Cost Percentage = Recipe Cost / Recipe Sales
What is a Good Food Cost Percentage to Aim For?
Overall food cost percentages hover around 28%-35% with many restaurants aiming for even lower than 28%.
Labor is another enormous (and growing) cost for restaurant kitchens—often the single highest operating expense. Kitchen labor cost represents the total amount you spend on labor—including paychecks as well as taxes, healthcare, and employee benefits, etc.
This is most frequently factored, in coordination with COGS, as a percentage of food sales to measure how effective your restaurant is at using labor to generate revenue.
How to Calculate Kitchen Labor Cost
Choose a particular period of time for which you will calculate kitchen labor cost (a month, a quarter, a year). Use the below equation for every employee in the kitchen.
Employee Labor Cost = Wage of Kitchen Worker x Amount of Time Worked
Kitchen Labor Cost = sum of all Employee Labor Costs
How to Calculate Kitchen Labor Cost Percentage
Use the same time period as above for food sales to determine kitchen labor cost percentage.
Kitchen Labor Cost Percentage = Kitchen Labor Cost / Food Sales
With the complexity of a large staff that may work both hourly and salaried, a workforce management software can help you keep track of time worked.
What is a Good Labor Cost to Aim For?
This will vary restaurant to restaurant, but as a general rule, kitchen labor cost and food COGS combined should be 55-60% of total food sales. The exact breakdown between COGS and labor cost is entirely dependent on your concept and can fluctuate up and down as needed. More on the relationship between COGS and labor cost in the next very important metric.
Prime cost is a comprehensive picture of the money you spend to create something to sell. It’s the sum of your COGS and labor cost. These are the two biggest expenses that are always changing but also under your control—making prime cost all the more important to track closely. Prime Cost Percentage puts your direct costs in context of your sales to help you get a beat on the health of your business.
Note: Prime cost is typically figured at the restaurant level—meaning both food and beverage.
How to Calculate Prime Cost
Choose a particular period of time for which you will calculate prime cost (a month, a quarter, a year).
Prime Cost = Labor Cost + COGS
How to Calculate Prime Cost Percentage
Use the same time period as above for total sales to determine prime cost percentage.
Prime Cost Percentage = Prime Cost / Total Sales
Good Prime Cost?
An ideal prime cost percentage should be 55-60% of your restaurant’s total sales.
Inventory usage refers to the rate at which you work through a given product or ingredient over an allotted period of time, whether that be weekly, monthly, etc. The word “usage” here equals how much usable inventory you have divided by your depletion rate.
How to Calculate Inventory Usage
Inventory Usage = Sitting inventory / Average Inventory Depletion
For example, if you have twenty dozen eggs from a recent inventory order and use ten dozen per week, you have two weeks of usage for eggs.
What is a Good Inventory Usage Goal to Aim For?
As with COGS, there’s no one-size-fits-all inventory metric every restaurant should strive to hit; this goal should be set based on your restaurants past performance and metrics. Make it a goal to consistently examine how long your ingredients last and compare those numbers over time. This can give you insights into how your sales are going and if your restaurant is growing.
Your kitchen could be bleeding profit if you don’t know how much you’re making on each item. This metric is the inverse of food cost—instead of telling you how much you’re spending on each dish, it’s telling you how much you’re making on each dish to pay your bills and reinvest in your business.
How to Calculate Menu Profit Margin
Profit Margin = Item’s Sale Price / Total Cost for Item
What is a Good Profit Margin to Aim For?
Average food cost ranges between 28%-35%, so your profit margin for a menu item should fall between 65% and 72%.
Additionally, here are three more important kitchen metrics to watch.
Knowing your predicted sales for the day, week, month, long weekend, or holiday is a crucial metric. When you’re confident and informed about how much you are expected to sell, you can accurately decide how many people to staff and how much inventory to order.
Sales forecasting can be a bit complicated, but it’s a lot easier with a restaurant POS that lets you review reports from your restaurant’s history.
Some simple menu engineering tactics in conjunction with data from your restaurant’s POS can help you identify your best seller and most popular menu item. This knowledge helps make inventory ordering easy, because you know you’ll need a steady supply of the ingredients to make the dish.
You can pass this information off to your restaurant’s marketers who can feature the menu item prominently on social media to boost engagement and bring in new and old customers.
Conversely, you should be able to readily identify your worst performer on the menu—either in terms of profitability or popularity. A highly popular but low-grossing menu item might mean it’s time to raise the price, since the demand is clearly there.
An item that isn’t selling well or making much money might warrant being cut from the menu.
If your restaurant’s kitchen metrics aren’t shining as brightly as you might hope, this doesn’t mean you’re done for. Identify the metrics that are underperforming, find the root cause of the problem, and begin a course of correction. For example, if COGS is higher than you might expect, start taking regular inventory on key items and observe the kitchen when it’s in action. Holding BOH accountable for accurate measurements could turn things around in a matter of days.
Ultimately tracking these metrics consistently will help you make smart choices, spot problems, and solve them ASAP. And your business will thrive.
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