Every year in France, around 1 in 2 restaurants goes out of business before its third year. The reason? Poor financial management.
To minimize these risks and understand where you're losing money, you need to analyze several key indicators. Tracking these indicators or ratios will enable you to react quickly and boost the profitability of your restaurants.
What ratios are essential in 2024? How should they be analyzed and interpreted? What management methods should be adopted to improve them?
Gross margin is the key indicator for assessing the profitability of your business and determining whether you're making a real profit. It's your sales figure minus the cost of raw materials.
Good to know: To avoid having to calculate your material cost, you can use the total of your raw materials purchase invoices.
The gross margin is then calculated theoretically, and does not take into account losses on ingredients used (expired use-by dates, breakage, missed portions, theft).
👉 Calculate the theoretical gross margin rate = ((Sales excluding VAT - Cost of raw materials) / Sales excluding VAT) x 100.
To determine the actual gross margin, you need to take into account the change in inventory. In other words, the difference between the initial stock level and the final stock level.
It is also crucial to calculate the gross margin over a well-defined period in order to assess actual consumption. The calculation corresponds to the sum of raw materials expenditure, inventory variation, actual sales, as well as losses, breakage etc...
👉 Calculate actual gross margin = ((Sales excluding VAT - (value of initial inventory + value of purchases - value of final inventory) / Sales excluding VAT) x 100
As you know, as a restaurant professional, raw materials are the main source of expenditure for a restaurant. This ratio will help you determine where you're losing money and where you're making it.
By regularly monitoring your material costs, you can identify which dishes are the most profitable. You can also pinpoint those that require adjustments to optimize your establishment's overall profitability.
High material costs indicate inefficient management of ingredients and costs. This inevitably leads to a reduction in the restaurant's profit margins. That's why you need to act quickly when material costs are high.
👉 Material ratio = (Cost of materials / Sales excluding VAT) x 100
By analyzing your material costs, you'll be able to make informed choices about the ingredients you use, and adjust the prices of your dishes. You'll improve your profitability and boost your competitiveness.
It includes all expenses related to the production of a dish and the consumption of raw materials. If sales are lower than the cost of materials per day, the restaurant will make a loss. On the other hand, if sales are higher, the restaurant will make a profit.
To calculate it, simply add up the cost of materials and payroll, divided by sales. This enables you to assess the profitability of your business, and to cover both fixed and variable costs.
👉 Costing: (cost of materials + personnel costs) / Sales excl. tax
It is used to determine the selling price of a dish based on its raw material cost. For solids, a coefficient of between 3 and 4 is generally applied to the purchase price. So how do you calculate the multiplier? For liquids, the coefficient varies widely, from 3 to 5 depending on the beverage, and up to 8 for spirits.
👉 Multiplier = Sales price / Cost of raw materials
This is the index that measures the effect that a loss of raw material could have on your business, and to define the cause (expired shelf life, portions not respected...). :
👉 Loss rate = material cost of what was thrown away / over material cost of everything purchased over the period x 100
Example: If I have thrown away 50€ worth of meat and bought 2000€ worth of material, my loss rate will be : 50 / 2000 x 100 = 2.5%
To ensure your restaurant's equilibrium, a good loss rate is below 5%.
Your margin of safety is the difference between sales and your break-even point. A restaurant's break-even point is reached when the company's revenues cover its restaurant expenses. In other words, the minimum sales required to break even.
👉 Break-even calculation = Fixed costs / Contribution margin rate
The margin of safety measures the drop in sales that your company can withstand without incurring losses.
👉 Safety margin calculation = (safety margin/sales) x 100
The operating margin shows your restaurant's economic performance before expenses, taxes and exceptional events. As such, it can be used to assess the profitability of your sales and the long-term viability of your business.
Operating margin is calculated by deducting all operating expenses from sales. Operating expenses represent the cost of raw materials, labor, taxes and overheads.)
👉 Operating margin = sales - operating expenses
The payroll ratio measures a company's payroll costs in relation to its sales. If your payroll is too high, this will obviously impact your profitability. This approach is frequently used to optimize the cost of a dish by incorporating personnel costs, in particular gross salaries.
The calculation of the associated key indicator is as follows:
👉 Payroll ratio = (gross salaries + expenses) / sales
As a guide, the ratio of personnel costs is generally around 30% to 40% in the catering sector.
The average amount per customer is a measure often used by restaurateurs to obtain the average expenditure made by each customer.
Average ticket calculation:
Simply divide the sales figure by the number of covers (corresponding to the number of customers visiting your establishment):
👉 Average amount per customer = Sales / number of covers
This indicator is particularly useful for benchmarking against competitors.
Knowing your ratios and analyzing them is good, but knowing how to optimize them is even better! Here are the different aspects you can take action on to ensure the profitability of your business as a restaurateur, caterer or baker:
At Yokitup, we've designed a fully customizable dash board that centralizes all your data in real time.
By tracking key ratios for each facility in real time, you can quickly identify areas where savings can be made. This flexibility enables you not only to optimize your bottom line, but also to build customer loyalty.
Would you like to find out more? Make an make an appointmentus to optimize your restaurant inventory management.
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