The convenience-store industry talks a lot about gross-profit dollars. Is there a metric I should follow that restaurant operators live and die by?
There are a lot of things that go into running a successful business, whether it be a convenience store or a restaurant. Knowing which key metrics to watch closely is critically important to ensuring that your business is heading in the right direction. Like c-stores, restaurants keep close tabs on their net and gross profits—both in terms of actual dollars, and as profit margin (the percentage of profit as it relates to sales).
Any good restaurateur also knows that there are other high-priority key metrics that demand constant vigilance. Restaurant owners/managers pay close attention to the food/beverage-cost percentage and labor-cost percentage. These are the two largest expenses on the books. But these still represent high-level calculations that, when tracked closely, can indicate positive or negative movement within the business.
Knowing what is behind these percentages is equally important. For instance, a good restaurateur will want to track the food costs of individual menu items, or will want to know which specific beverages deliver the best profits (again both real dollars and as a percentage). Keeping these costs within proper ranges is the first and biggest step toward profitability.
But restaurants are complicated operations. As a result, there are a number of other metrics that provide financial clarity. Current ratio helps us keep track of our ability to pay our debts if business softens. In the often fickle or seasonal foodservice business, this can be the difference between staying in business and going out of business.
Inventory turnover is also important as many raw products are perishable, which means we need to move them before they go bad. Additionally, there are a host of very specific metrics that can be employed based on the individual needs and challenges of a particular business. Some of these include:
- Sales per square foot
- Repeat business
- Check average
- Linen costs
- Turnover
The disciplined use of metrics illuminates your business. They are the headlights that show you where to go. Without following these metrics, you really have no idea where your business is going until you are already driving off the road.
Christopher Koetke is vice president of Kendall College School of Culinary Arts in Chicago. He is a certified executive chef and certified culinary educator by the American Culinary Federation. Have a question for him? Email awestra@winsightmedia.com, subject “Ask the Chef.”
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