Restaurant Profitability Metrics: What to Track and Why It Matters
Running a successful restaurant means staying on top of your numbers—not just your sales, but the metrics that show how efficiently and profitably your operation runs. From what’s on your P&L to what lives on your balance sheet, tracking the right data helps you make smarter decisions, stay ahead of issues, and grow with confidence.
Below, we break down the most important restaurant profitability metrics, including what they are, why they matter, how to calculate them, and where your numbers should fall.
Prime Cost
Target: 55% or lower
What it is:
Your combined labor and cost of goods sold (COGS)—your two biggest controllable expenses.
Why it matters:
Prime Cost is the most telling metric of operational efficiency. High labor or food waste can eat up your margins fast.
How to calculate:
(COGS + Labor Costs) ÷ Total Sales
Example:
COGS: $15,000
Labor Costs: $10,000
Total Sales: $50,000
Prime Cost: ($15,000 + $10,000) ÷ $50,000 = 50%
Net Profit Margin
Target: 5% or higher
What it is:
The percentage of revenue your restaurant keeps after all expenses.
Why it matters:
This is your bottom line. A healthy margin means you’re not just breaking even—you’re building long-term sustainability.
How to calculate:
Net Profit ÷ Total Sales
Example:
Net Profit: $6,000
Total Sales: $50,000
Net Profit Margin: $6,000 ÷ $50,000 = 12%
Net Profit Margin greater than 15%? Maybe it's time to open an additional location.
Read more →
Break-Even Point
What it is:
The sales level you need to hit to cover all expenses, with zero profit or loss.
Why it matters:
Knowing this number helps you understand how much you need to sell to stay afloat—and how price changes or cost increases impact your business.
How to calculate:
Fixed Costs ÷ (1 – Variable Costs %)
Example:
Fixed Costs: $20,000
Variable Costs %: 50%
Break-Even Point: $20,000 ÷ (1 – 0.50) = $40,000
Want to dive deeper? Check out our blog on calculating your restaurant’s break-even point.
Read more →
Contribution Margin
Target: 40% or higher
What it is:
The amount a menu item contributes to covering fixed costs and generating profit.
Why it matters:
Focus your marketing and menu engineering on items with high contribution margins—they’re your profit drivers.
How to calculate:
Item Price – Variable Costs
Example:
Item Price: $25
Variable Costs: $10
Contribution Margin: $25 – $10 = $15
Contribution Margin %: 15/25 x 100 = 60%
Stuck crafting a profitable menu? Get ideas on how to optimize your menu engineering.
Read more →
Revenue per Labor Hour
Target: $50 or more
What it is:
The amount of revenue earned for every labor hour worked.
Why it matters:
This tells you how efficiently your team is generating sales—especially useful for scheduling and labor planning.
How to calculate:
Total Revenue ÷ Total Labor Hours
Example:
Total Revenue: $50,000
Total Labor Hours: 1,000
Revenue per Labor Hour: $50,000 ÷ 1,000 = $50
Need ideas to drive up your RPLH?
Read more →
Cost of Goods Sold (COGS)
Targets:
Food: 27%–32%
Beer: 20%–25%
Wine: 30%–35%
Liquor: 16%–20%
Retail: Typically under 50%
What it is:
The cost of all ingredients and products sold during a given period.
Why it matters:
Keeping COGS in check directly boosts your margins. Variances here often point to waste, theft, or over-portioning.
How to calculate:
(Beginning Inventory + Purchases – Ending Inventory) ÷ Sales
Example:
Beginning Inventory: $5,000
Purchases: $10,000
Ending Inventory: $4,000
Sales: $50,000
COGS: ($5,000 + $10,000 – $4,000) ÷ $50,000 = 22%
COGS stuck in the mud? It might be time to revisit your pricing strategy.
Read more →
Sales per Square Foot
Target: $500 or more
What it is:
The amount of revenue generated per square foot of space.
Why it matters:
This measures how effectively you're using your space. It’s also a common metric landlords and investors look at.
How to calculate:
Total Sales ÷ Square Footage of Restaurant
Example:
Total Sales: $1,500,000
Square Footage: 2,000
Sales per Square Foot: $1,500,000 ÷ 2,000 = $750
Average Check Size
Target: $20 or more
What it is:
The average amount spent per customer or ticket.
Why it matters:
Tracking this helps you spot upsell opportunities and evaluate pricing effectiveness.
How to calculate:
Total Sales ÷ Number of Checks or Guests
Example:
Total Sales: $25,000
Number of Checks: 1,000
Average Check Size: $25,000 ÷ 1,000 = $25
Current Ratio
Target: 1.2 or higher
What it is:
A liquidity ratio that compares your short-term assets to your short-term liabilities.
Why it matters:
It shows your ability to pay your bills. Below 1.0 may signal a looming cash crunch.
How to calculate:
Current Assets ÷ Current Liabilities
Example:
Current Assets: $50,000
Current Liabilities: $40,000
Current Ratio: $50,000 ÷ $40,000 = 1.25
Debt-to-Equity Ratio
Target: 1.0–2.0
What it is:
A measure of your restaurant’s financial leverage.
Why it matters:
Too much debt increases risk, especially in a downturn. A balanced ratio reflects responsible growth.
How to calculate:
Total Liabilities ÷ Owner’s Equity
Example:
Total Liabilities: $100,000
Owner’s Equity: $50,000
Debt-to-Equity Ratio: $100,000 ÷ $50,000 = 2.0
Debt-to-Equity Ratio under 1.0? Maybe it’s time to reinvest into your restaurant.
Read more →
Working Capital
Target: Enough to cover 2 payrolls + 1 week of key expenses
What it is:
The cash buffer available to cover near-term obligations.
Why it matters:
This ensures you can pay staff and vendors even when revenue is delayed or variable.
How to calculate:
Current Assets – Current Liabilities
Example:
Current Assets: $250,000
Current Liabilities: $150,000
Working Capital: $250,000 – $150,000 = $100,000
Working Capital missing the mark? Time to tighten up your cash flow forecast.
View an example →
Inventory Turnover
Target: Inventory turns every 5 days
What it is:
How often you sell through your inventory.
Why it matters:
Too slow, and you risk spoilage and waste. Too fast, and you may run out of key items.
How to calculate:
COGS ÷ Average Inventory Value
Example:
COGS: $30,000
Average Inventory: $6,000
Inventory Turnover: $30,000 ÷ $6,000 = 5 days
Wrapping It Up
These metrics aren’t just for accountants—they’re essential tools for operators. Knowing where your numbers stand lets you course-correct before small issues become major ones. And when you track these consistently, you get a clear roadmap to profitability.
Need help tracking and interpreting these numbers for your restaurant? That’s what we do at ACE’d Accounting Solutions. Contact us today to boost your restaurant’s profitability!
