As a restaurant owner, it’s important to keep an eye on benchmarks in order to improve your business and operations. However, with so many different metrics out there, it can be hard to know which ones are the most important for your business specifically. This can be especially detrimental in the food industry where margins are often tight and it’s crucial to have a handle on the inventory in order to avoid wastage.
This article covers the essential benchmarks you should be tracking to increase your profitability and identify potential areas of improvement. By understanding these trends, you’ll be in a better position to make informed decisions about your business in 2023 and beyond.
The Main Challenges in the Restaurant Industry in 2023
The restaurant industry is notoriously challenging. With tight margins and intense competition, it’s essential for restaurateurs to be on top of their game at all times. Unfortunately, this can be difficult to do when there are so many different things to keep track of.
Let’s show you some of the main issues that restaurant business owners face below.
Not knowing how much to charge for products or services
As a result of not knowing their business expenses, many entrepreneurs don’t know how to price their products or services. They may end up charging too little and not making a profit, or too much and driving customers away.
Keep in mind that relative pricing exists when you’re determining how much to charge for your goods or services. This means that customers will pay more for something if they believe it’s of higher quality. They would, for example, be willing to spend more on a steak at a posh eatery than a hamburger from McDonalds. With this in mind, research your target market and what prices they’d be open to before setting anything in stone.
Not being able to track or control expenses
Not being able to track or control their expenses is another of the biggest problems entrepreneurs face when managing a food business. This can lead to big problems down the road, as it becomes difficult to make informed decisions about where to cut costs and how to increase profits.
The rising cost of living is one main reason why keeping your expenses under control will have a major impact on food businesses in 2023. If restranteurs don’t keep tabs on their costs, they’ll find it increasingly difficult to stay afloat in this market.
To avoid these problems, it is vital for entrepreneurs to keep a close eye on their expenses and make sure they are getting value for their money. Work with your accountant to keep a close eye on your P&L statement each month and adapt as necessary. Understand the types of expenses you can cut if necessary and look to improve efficiency in your purchasing and processes.
Not understanding margins
Without a strong understanding of the margins on your menu, it’s difficult to make sound decisions about pricing, inventory, and other areas that impact the bottom line.
What do you sell the most of? What are the high profit items on your menu? What can you do to boost sales of those high profit items?If you don’t have a clear understanding of the food and drinks that bring you the most profit, you’re probably leaving a lot of money on the table. As expenses continue to rise, this problem will only get worse as low profit options can eventually start to cost you money.
Even worse, this can lead to problems with inventory management because if you don’t know how much profit you’re making on each item, it’s difficult to make decisions about what to stock and how much to order. This can lead to lost sales or excess inventory, both of which eat into your bottom line.
Key Restaurant Benchmark Trends for 2023
To help you out with those challenges, we’ve compiled a list of key restaurant benchmark trends for 2023. These trends will give you a good idea of what to focus on in the coming year so you can stay ahead of the curve and continue growing your business successfully.
Food Cost Percentage
Food cost percentage will give you an idea of how much you’re spending on ingredients relative to your overall sales. This number will fluctuate depending on the seasonality of certain ingredients or the price of goods in your area, but knowing your baseline food cost percentage is crucial in order to make informed decisions about menu prices and portion sizes.
While there is no magic number that all restaurants should aim for, a general rule of thumb is that your food cost percentage should be between 28-35%. Anything above 35% may mean that you’re overspending on ingredients or that your portions are too small, while a food cost percentage below 28% could indicate that it’s time to reassess the prices on your menu. By tracking this metric on a regular basis, you can make sure that you’re keeping your costs in line and running a profitable business.
Labor Cost Percentage
Another important metric to track is your labor cost percentage. By examining this number, you can determine what percentage of your sales currently goes towards wages. Just like with food cost percentage, there is no magic number that all restaurants should aim for, but a general rule of thumb is that your labor cost percentage should be between 20-30%.
Tracking your labor cost percentage can help you to ensure that you’re not overspending on wages and that you’re able to maintain a healthy profit margin. If this metric starts to creep up above 30%, it may be time to reevaluate your staffing levels or find ways to increase efficiency in your restaurant. By keeping a close eye on this figure, you can ensure that you’re running a lean and profitable operation.
Sales per Square Foot
Sales per square foot is a metric that can be used to evaluate the efficiency of a retail business. This number represents the sales generated by a store divided by the total square footage. For example, if a store generates $100,000 in sales and has 1,000 square feet of space, its sales per square foot would be $100.
The average sales per square foot for restaurants is between $200 and $300. However, this number can vary depending on the type of restaurant and its location. Fine dining restaurants tend to have lower sales per square foot than fast food or casual dining establishments. Moreover, restaurants located in high-traffic areas such as tourist destinations or major cities will typically have higher sales per square foot than restaurants in more suburban or rural locations.
By tracking your sales in this way, you can get an idea of how efficient your business is and compare it to other businesses in your industry.
The turnover rate is the percentage of employees that leave a company within a certain period of time. For restaurants, high turnover rates can be especially costly, as it can take time and money to train new employees. Plus, when experienced staff members leave, it can disrupt the day-to-day operations of the restaurant.
A good turnover rate for restaurants is between 30-40%. However, this number will vary depending on the type of restaurant and its location. Fine dining restaurants tend to have lower turnover rates than fast food or casual dining establishments. On top of that, restaurants located in high-traffic areas such as tourist destinations or major cities will typically have higher turnover than those in more suburban or rural locations.
Revenue per Employee
Revenue per employee is a metric that can be used to evaluate the efficiency of a business. This number represents the sales generated by a company divided by the number of employees. For example, if a company generates $1 million in sales and has 100 employees, its revenue per employee would be $10,000.
The average revenue per employee for restaurants is between $250,000 and $500,000. However, this number can vary depending on the type of restaurant and its location.Restaurants in densely populated areas or tourist hotspots generally make more money per employee than those in more secluded places. By tracking your average revenue per employee, you can get an idea of how efficient your business is and compare it to other businesses in your industry.
The key to a successful restaurant in 2023 is tracking these important metrics and making decisions based on the numbers that matter.. Monitor your labor cost percentage, sales per square foot, turnover rate, and revenue per employee closely to make sure you’re running an effective operation. If you focus on these areas, you will be able to conquer obstacles and have a thriving business in the next year.