In the vibrant realm of restaurants and cafes, the recipe for success extends beyond tantalising taste buds and aromatic brews. It encompasses the art of financial finesse. Financial Key Performance Indicators (KPIs) and benchmarks can serve as trusty sous chefs, aiding in the assessment of biz health and prosperity.
So let's embark on a delectable journey through what financial metrics you should be focused on together with the benchmarks you can aspire to reach.
1. Gross Profit Margin (GPM):
What is it? Just like the perfect blend of spices in a signature dish, GPM measures the portion of revenue that surpasses the cost of goods sold. It reveals the savoury surplus left after accounting for the direct expenses of crafting your menu delights.
Benchmark: Aim for a delectable GPM of 65% to 70%. This culinary sweet spot indicates that for every dollar of sales, you're savouring 65 to 70 cents in profit, post-ingredient indulgence.
2. Labor Cost Percentage:
What is it? Picture your dedicated kitchen crew and friendly baristas as the essential ingredients of your culinary masterpiece. The labor cost percentage mirrors the portion of revenue dedicated to compensating these vital team members.
Benchmark: Keep this culinary equation in balance, aiming for a labor cost percentage between 25% to 35% of total revenue. This ensures that your team is generously rewarded while still leaving room for financial seasoning.
3. Cost of Goods Sold (COGS) Percentage:
What is it? COGS shines a spotlight on the direct expenses incurred in crafting your culinary creations. From prime ingredients for sumptuous meals to the finest coffee beans for that perfect cup, COGS captures the essence of your menu costs.
Benchmark: Aim for a COGS percentage of 25% to 35%, showcasing your culinary prowess in effective procurement and pricing strategies, ensuring both quality and profitability.
4. Rent and Utilities Ratio:
What is it? Imagine your cozy bistro or bustling cafe as the heart of your culinary kingdom. The rent and utilities ratio offers a glimpse into how much of your revenue is devoted to sustaining this flavorful domain, encompassing rent and essential utilities.
Benchmark: Keep this savory slice between 10% to 15% of your total revenue, ensuring that your operational costs don't overpower the delightful aroma of profitability.
5. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA):
What is it? Now this is a mouthful to swallow! EBITDA serves as the compass guiding your culinary voyage, showcasing your business's operating profitability before navigating through the realms of interest, taxes, depreciation, and amortization.
Benchmark: Aim for a delectable EBITDA margin of 15% to 20%, indicating a satisfying blend of earnings to cover operational expenses while leaving room for culinary innovation and growth.
So at the end of the day, what's left for you we hear you say?? Well, when we do the math it's approx 15%. Check out the below pic for where we estimate each piece of the pie should land.
With these financial flavours in your culinary arsenal, you can craft a recipe for prosperity and sustainability. And remember while benchmarks offer a delightful guideline, remember that the true taste of success may vary based on the unique flavors of your establishment (ie, location, size, you get it).
And hey we know it's hard ... it's a tight margin industry and customers can be fickle BUT there are strategies you can put in place to hit your benchmarks, but you have to be prepared to make tough calls with your menu and people. Don't tinker around the edges, hit your top 5 expenses and price right and you'll get there. By continuously savouring and adjusting these KPIs it will ensure a journey filled with culinary triumphs and financial delights. We pinky promise ... Bon appétit!
And wouldn't you know it, when it comes to the hospitality industry we’re serving up platefuls of experience. So if you've got questions on the above you know who to call? 😉 Why not make contact with us today and we'll guide you through this maze like pros.
Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice