Restaurant ratios: how to achieve profitability?

Achieving profitability in the foodservice industry is a daily challenge. To achieve it, it's essential to rely on reliable tools and indicators. Ratios play this key role: they offer a simple, effective method for assessing your restaurant's financial health, identifying areas for improvement and reacting quickly if necessary. To use them, you don't need to be an accounting expert: ratios are there to simplify your life. Find out about the different ratios used in the restaurant business, how they are calculated and how they can be used to maximize profitability.

‍

Definition: what is a food service ratio?

Although the word "ratio" may sound technical or intimidating, these indicators are actually simple to understand and use. Ratios are figures that help you monitor and evaluate your restaurant's financial health. 

What's the point of calculating ratios? 

In the foodservice sector, ratios help you to understand exactly where your main expenses lie, and how they impact the profitability of your outlet. In particular, ratios help to answer key questions: where are the main expenses? Are margins sufficient? What aspects of management need to be optimized? Etc.

Why is it important to have a good ratio?

Good ratios mean that costs are under control and in line with your restaurant's financial objectives. Conversely, unbalanced ratios signal problems, such as overspending or low productivity. For example, a raw materials ratio that's too high may indicate high food waste or poor purchasing management.

👉 Also read: Margin and profitability in the restaurant business: everything you need to know

‍

7 essential restaurant ratios

To boost your restaurant's profitability, it's crucial to rely on reliable ratios. Each type of ratio focuses on a specific aspect of your business, providing a clear, quantified analysis of your performance.

1. Raw material ratio

Also known as "food cost", the raw material ratio is used to calculate the proportion of sales devoted to the purchase of ingredients needed to prepare dishes.

• Formula:
  (Cost of ingredients / Sales) x 100
• Example: If your restaurant spends €4,000 on ingredients on sales of €12,000, the ratio is 33%.
• Ideal ratio: An ideal raw material ratio is between 25% and 35%, depending on the type of catering. This figure reflects the proportion of sales devoted to ingredients. In addition, a margin rate on solids close to 70% and on liquids around 85% is generally considered favorable to guarantee optimum profitability (source: Sermorens.com).

2. Workforce ratio

It measures the proportion of payroll costs in sales. The "wage cost ratio" or "personnel expense ratio" is particularly crucial in the foodservice sector, where personnel expenses often account for a large proportion of expenditure.

• Formula:
  (Labor costs / Sales) x 100
• Example: A food truck with a payroll of €3,000 and sales of €9,000 has a ratio of 33%.
• Optimization: Hire multi-skilled employees, adjust schedules to accommodate peaks in activity and use management tools to plan effectively.

3. Productivity ratio

This ratio measures staff efficiency by comparing sales generated with the number of hours worked.

• Formula:
  (Sales / Number of hours worked)
• Example: A restaurant generating €15,000 for 600 hours worked has a productivity of €25 per hour.
• Optimization: Improve team training, reduce downtime and automate certain repetitive tasks, such as order management.

4. Casting ratio

It measures losses due to waste, theft or preparation errors.

• Formula:
  (Value of losses / Total cost of raw materials) x 100
• Importance: A high ratio may indicate storage problems, poor inventory management or badly calibrated recipes.

5. EBITDA ratio

EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) reflects the company's economic performance after deduction of operating expenses, but before tax.

• Formula:
  (Operating income + Financial expenses - Financial income)
• Utility: This indicator helps assess operating profitability and identify room for maneuver.

6. Restaurant overhead ratio

This ratio includes fixed and variable costs such as rent, electricity and insurance.

• Formula:
  (Overheads / Sales) x 100
• Tip: Reduce fixed costs by negotiating contracts or investing in energy-efficient equipment.

7. Payroll ratio or "expense ratio

This indicator measures payroll as a percentage of sales.

• Formula:
  (Payroll / Sales)
• Example: A ratio of 30% is often considered optimal for maintaining a good financial balance.

👉 To find out more: 5 tips to boost fast-food profitability

‍

Management tools for monitoring ratios

By 2023, the number of independent restaurants has risen by 4%, i.e. around 4,600 additional openings, mainly in the fast-food sector (Source: Le Figaro). In such a context, having good ratios gives you a strategic advantage in guaranteeing the survival and profitability of your outlet. For example, a restaurant able to reduce its raw materials ratio while maintaining the quality of its dishes can offer attractive prices without cutting into its profitability.

To achieve this goal, management tools are essential. They allow you toautomate calculations,analyze discrepancies and quickly make the right decisions. For example, the Innovorder backoffice enables you to collect the data you need to calculate these ratios, and export them very easily. You can also create monthly reports with over 40 indicators and graphs (hourly income, profitability by product, sales ranking, footfall, etc.).

Restaurants able to optimize their costs can not only stabilize their cash flow but also invest in differentiation, for example in digital tools, to attract an increasingly demanding clientele.

-

Are you a restaurant owner who wants to improve the performance of your business? Contact an Innovorder expert now and receive personalized advice!