Restaurant margins and ratios: a guide 

Are you about to open a restaurant? Or looking to take stock of your finances? You've come to the right place!

Keeping a close eye on the profitability of your business is essential if you want to remain profitable over the long term. In this article, discover all the essential indicators (margins, figures, ratios) that a restaurateur needs to know, and what they are used for.

Why are margins and ratios important in the restaurant business?

A restaurateur is often a jack-of-all-trades. He is also responsible for the restaurant's financial health. Even with the support of a chartered accountant, they need to master a number of financial and accounting concepts in order to manage their restaurant.

In this article we discuss : 

• Restaurant margins, which enable you to monitor your profitability, check that your prices are correctly set, that your expenses are covered by your revenues, etc.
• The average ticket allows you to adjust your offers and maximize your revenues;
• Personnel costs, essential for keeping track of your largest expense item: salaries;
• The cost of raw materials (production cost) , which allows you to set the price of your dishes and control your expenses;
• Operating expenses that can quickly eat into your profits;
• Table rotation (especially for high-volume restaurateurs) to boost sales without increasing fixed costs.

What is a restaurant margin?

It's not uncommon to hear the expressions "marger"orincrease margins in the restaurant business. They simply mean making a profit (not selling at a loss), whether on the costs of a dish or via a more global strategy to maximize sales. 

👉 Find out what the the ideal margin for a profitable restaurant business.

In practical terms, there are two types of margin, which are both indicators of profitability.

Gross margin

Gross margin corresponds to sales less raw materials. 

It measures the immediate profitability of products sold. It is used more often in France (unlike in the United States).

Gross margin = (Sales - Cost of raw materials) / Sales x 100

Example: your restaurant generates sales of €300,000. 

The cost of the ingredients is €90,000. 

Gross margin = (€300,000 - €90,000) / €300,000 x 100 = 70%.

A gross margin of 60% to 70% is often a good average target for a restaurant. 

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💡A margin that's too low may indicate raw material costs that are too high, or selling prices that are too low. In this case, negotiate with your suppliers or adjust your prices to increase your sales.

Net margin 

The net margin is equal to sales minus all restaurant expenses.

More global, it measures the percentage of profit generated after deducting all costs and expenses such as salaries, rent, raw materials... 

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Net margin = (Net profit / Sales) x 100

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Example: your restaurant generates annual sales of €400,000.

Net profit is €40,000

Net margin = (€40,000 / €400,000) x 100 = 10%.

An "ideal" net margin is around 5% to 10%.

Please note: this varies greatly depending on the type of restaurant! The higher your expenses (often wages and rent), the lower your net margin. A foodtruck or an open-air snack can have a net margin of 20%. 

💡Ifyour net margin is less than 5%, you can :

• Increase your average ticket (your prices);
• Try to reduce your costs (negotiate the rent, review your energy bills);
• Improve table rotation (last part of this article)

👉Bestrategic and progressive when raising your prices. For example, take advantage of the approaching summer or the festive season to increase your sales.

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You've now mastered the two most important profitability indicators.

Let's move on to the ratios!

What are the key figures (ratios) you need to know in the foodservice industry?

1. Average ticket

Average bill is the indicator that measures the average amount spent per customer during a restaurant visit. Simple, isn't it?

Average ticket = Sales / Number of customers served

Example: your restaurant generates monthly sales of €50,000.

Last month, you served 1,250 customers.

Average ticket = €50,000 / 1,250 = €40

On average, each customer spends €40 in your restaurant. 

💡To increase your average ticket (your prices), you can: 

• Menu engineering (offering formulas, pushing the most profitable dishes);
• Encourage your teams to push complementary dishes, drinks or desserts;
• Combination packages at attractive prices;
• Propose a more premium offer (evening bookings, experiences, events, exclusive products, collaborations, etc.).

2. Personnel costs (payroll)

This is generally the first or second expense item for a restaurateur (before or after raw materials).

Payroll costs measure the percentage of sales devoted to employee wages and social security contributions .

Payroll costs = (Payroll costs / Sales) x 100

Example: your restaurant generates annual sales of €250,000

Salaries and charges represent €75,000.

Personnel ratio = (€75,000 / €250,000) x 100 = 30%.

In the restaurant business, a staff cost ratio of 25% to 35% is considered reasonable. Once again, it all depends on the type of restaurant: a snack bar will have lower expenses than a large brasserie with a team of 10. 

Too high a ratio can significantly reduce your profits, while too low a ratio can adversely affect the quality of your service.

It makes sense: when staff are short, service suffers (and so does morale)!

Conversely, there's nothing more frustrating than seeing a large team in an empty restaurant.

💡Tofind the right balance, you can also : 

• Automate repetitive tasks (using artificial intelligence, for example);
• Analyze team productivity (how many sales are made by a server, for example) 
• Optimize the distribution of tasks (capitalize on the strengths of each employee, prefer extra work to permanent contracts when necessary);
• Improve productivity through good organization (restaurant ergonomics to reduce return trips, team communication processes, etc.).
• Improve productivity by investing in staff training (e.g. offer a waiter mixology training to sell premium cocktails, or barista training for quality coffees).

Recruiting qualified catering staff takes time and investment. So watch out for turnover and pamper your employees.

3. Cost of raw materials (production cost)

The cost of raw materials, also known as production cost, corresponds to the proportion of sales devoted to the purchase of ingredients.

cost price = (total price of raw materials / Sales) x 100

Example: your restaurant generates sales of €200,000 a year.

The total cost of the ingredients is €60,000 per year.

Cost price = (€60,000 / €200,000) x 100 = 30%.

The average cost is between 25% and 35%. This is logical, since the average gross margin is 65-75%. 

Once again, it all depends on the type of restaurant you run. The raw materials used in a pizzeria are obviously less expensive than those used in a gourmet restaurant. 

💡Ifyour cost price is too high, you can : 

• Negotiate with your suppliers, or even change suppliers to get better prices on your ingredients (especially if you order them in bulk);
• Find less expensive ingredients (short circuits, seasonal produce);
• Reduce food waste by optimizing your raw materials (use 100% of products, preserve peels for broths, etc.).

4. Operating expenses

Operating expenses correspond to sales minus all your expenses. 

This includes fixed and variable costs such as rent, insurance, energy bills, supplies, maintenance of the premises, etc.

Operating expense ratio = (Total operating expenses / Sales) x 100

Example : your restaurant generates sales of €500,000.

Operating expenses (rent, electricity, supplies, equipment maintenance) amount to €150,000.

Operating expenses = (€150,000 / €500,000) x 100 = 30%.

This ratio varies considerably from one establishment to another. Our advice: once you've calculated it, factor this percentage into the price of your dishes to preserve your margins! 

💡Tooptimize your operating costs, you can : 

• Renegotiate your rent (or optimize your space!);
• Renegotiate your energy contract every quarter;
• Look for cheaper suppliers (or green energy suppliers that you can deduct) or equipment that consumes less energy;
• Plan and monitor your daily expenses (plan more for the holidays, for example).

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5. Table rotation

A final ratio worth knowing: table rotation.

Table rotation estimates how often a table is used during a service. 

This ratio is particularly useful for optimizing customer flow and maximizing sales.

Table turnover ratio = Number of customers served / Number of tables available

This is a key indicator for high-volume restaurants, because the faster your tables turn, the more customers you can serve and therefore increase your sales without increasing your fixed costs!

Case in point: your restaurant has 20 tables.

You serve an average of 80 customers per shift.

Table rotation = 80 / 20 = 4

This means that each table was used 4 times during the service.

💡Lowtable turnover may indicate poor room organization. In this case, you can:

• Reduce waiting time for dishes;
• Reorganize the space (but don't forget customer comfort);
• Boost online bookings to avoid half-empty rooms.

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That's all there is to it: you now have all the keys you need to control the profitability of your business. Go for it!

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