Restaurant ratios: how to achieve profitability?

Achieving profitability in the restaurant industry is a daily challenge. To succeed, it’s essential to rely on reliable tools and metrics. Ratios play this key role: they offer a simple and effective way to assess your restaurant’s financial health, identify areas for improvement, and take swift action when necessary. You don’t need to be an accounting expert to use them—ratios are designed to make your life easier. Discover the different ratios used in the restaurant industry, how to calculate them, and how they can help you maximize your business’s profitability.

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Definition: What is a ratio in the restaurant industry?

Although the word "ratio" may sound technical or intimidating, these metrics are actually easy to understand and use. Ratios are numerical figures that help you track and assess the financial health of your restaurant. 

What's the point of calculating ratios? 

In the foodservice sector, ratios are used to understand exactly where your main expenses lie, and how they impact your outlet's profitability . In particular, these KPIs 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?

Having good ratios means that costs are under control and aligned with your restaurant’s financial goals. Conversely, unbalanced metrics signal problems, such as excessive spending or low productivity. For example, an excessively high food cost ratio may indicate significant food waste or poor purchasing management.

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

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7 essential restaurant ratios

To boost your restaurant's profitability, it's crucial to rely on reliable KPIs. Each type of ratio focuses on a specific aspect of your business, providing a clear, data-driven 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 versatile employees, adjust schedules based on peak periods, and use management tools to plan effectively.

3. Productivity ratio

This ratio measures staff efficiency by comparing revenue generated to the number of hours worked.

• Formula:
  (Revenue / 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, minimize downtime, and automate certain repetitive tasks, such as order management. Solutions like Combo also allow you to continuously track and analyze your productivity metrics.

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

Gross operating profit (GOP) reflects the business's economic performance after deducting operating expenses but before taxes.

• 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 both fixed and variable expenses, 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

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Management tools for monitoring ratios

By 2023, the number of independent restaurants has risen by 4%, i.e. an additional 4,600 openings, mainly in the fast-food sector (Source: Le Figaro). In such a context, having good ratios and KPIs 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 allies. They allow youto automate calculations,analyze variances, and quickly make the right decisions. For example, the Innovorder point-of-sale software lets you collect the data needed to calculate these ratios and export it very easily. You can also create monthly reports featuring over 40 metrics and charts (hourly revenue, profitability by product, sales rankings, foot traffic, etc.).

Restaurants that are able to optimize their costs can not only stabilize their cash flow but also invest in ways to set themselves apart—such as digital tools—in order to attract an increasingly discerning clientele.

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