Every second restaurant closes before its third year... What are the ratios to follow in order to react quickly in this inflationary context?
Chloé Géray
14
Jan 2025
A good management of your restaurant requires reliable monitoring tools and indicators. Having access to restaurant turnover is simple: all you have to do is check your cash register every day. But is that enough? A restaurant on two farms before its third year, often due to a lack of margin monitoring.
Inflationary pressures on food products will continue to weigh on restaurants in 2025, combined with soaring energy prices, difficulties in recruiting and accessing loans, it will be necessary to be very reactive to overcome the challenges that lie ahead.
What are the ratios to follow regularly in order to react quickly in this uncertain context?
Inpulse deciphers for you financial ratios and indicators you should definitely follow in 2025 to control the profitability of your restaurant.
The Cost of production ratio or Prime cost is calculated by adding the material cost ratio and the payroll ratio. The prime cost of a restaurant varies between 55% and 65%.
Prime cost = Material cost percentage + Staff load percentage
This is a major ratio that cannot be dispensed with because it is directly linked to operational performance, namely the good management of raw materials and human resources in the restaurant. The most fluctuating elements today and on which we can really act on a daily basis. As the operations manager at Pitaya recalls during a Webinar :
“Everything is expensive, gas, electricity, rent... it's difficult in the current context. We can only really act on the prime cost: the material cost and the cost of the payroll”.
Inès Gauthé PITAYA
Raw materials (food products, drinks, packaging, etc.) are generally the first source of expenses for a restaurant. The Material cost ratio or food cost is an indicator that measures the share of the cost of raw materials in the restaurant's turnover. This is the most important ratio to follow in catering! To calculate it, simply divide the material costs by the turnover and multiply the result by 100.
Material cost ratio = (Cost of purchasing raw materials excluding taxes/Sales excluding taxes) x 100
The ideal material cost of a restaurant is between 25% and 35%. However, it is difficult to define an optimal material cost since it is a ratio that depends on many factors such as the type of cuisine offered, the concept of the restaurant, the quality of the ingredients used and the dishes offered, the location of the restaurant, etc.
To manage your restaurant well, it is also interesting to break down material costs by expense category and to define target ratios for each category according to its concept. For example, for a fast food concept with a material cost of 30%:
In restoration, the gross margin (or commercial margin ratio) is a key indicator of the profitability of your establishment. It gives the same indication as the material cost ratio but, unlike the latter, it highlights the benefit achieved and not the cost. In other words, it is the difference between turnover excluding tax and material costs. It must therefore be between 65% and 75% .material.
For Calculate your gross margin in catering, you can perform:
Gross margin = Sales excluding taxes - Cost of purchasing raw materials excluding VAT
As told us during a interview the founder of Tacos Avenue, gross margin is the key indicator to know if you are profitable or not and if you need to adjust the prices of your dishes or look for ways to reduce costs:
“We are in a sector where most entrepreneurs only look at turnover, while the pillar of catering is margin. They wait for the first balance sheet to discover the reality of the margin they generated and it is sometimes too late. With Inpulse, I can monitor the real gross margin, optimize and understand why there are discrepancies with the theoretical.”
Theoretical material cost corresponds to the material cost that would be necessary to produce the dishes sold by the restaurant under ideal conditions, that is to say if the recipe sheets were perfectly respected, if there were no losses, no theft, etc...
When creating a dish, it is essential to calculate the theoretical material cost of the dish on a recipe sheet. This calculation is generally done on a portion.
To calculate the theoretical material cost of a restaurant over a defined period, you must multiply the theoretical material cost of each dish by the number of sales made on this dish over the period in question. This is a fairly tedious calculation to do yourself:
Theoretical material cost ratio = SUM (Theoretical material cost of each dish x quantity sold of each dish)/Sales excluding taxes) x 100
Use management software integrated into your cash register software, such as Inpulse, allows direct access to its total theoretical material cost without redoing calculations.
The real material cost of a restaurant over a defined period of time, corresponds to the total expenditure on raw materials plus stock change over the same period. Indeed, if my inventory increased over the period, it means that I consumed less than I spent. On the other hand, if my inventory has decreased over the period, it means that I consumed more than I spent. It is important to take into account this variation in stock to measure my real consumption.
Real material cost ratio = ((Cost of purchasing raw materials excluding VAT + Variation in raw material stock)/Sales excluding taxes) x 100
If there is no means of control, operational reality can be very different from the goals set in terms of expenditure on raw materials. Poor stock management, losses, exceeded DLC, sinking, theft, proportions not respected when generating recipes, breakage: the factors that widen the theoretical and real differences are numerous. Hence the importance of improving stock management and having access to accurate data for identify what impacts material costs and causes food waste
The solution proposed by Inpulse allows you to monitor the real material cost in real time according to orders placed with suppliers and stock variations measured during inventories. It also makes it possible to automatically calculate the total theoretical material cost for the restaurant, as well as the theoretical expenses per ingredient based on sales and recipe cards. The differences in consumption between theoretical and real are thus highlighted in no time at the mesh of the ingredient.
”Before, I waited several weeks before getting the food cost data for the previous month. Now, I can monitor the evolution of my material costs on a daily basis. We manage our margin much better with Inpulse.” Sébastien Medouze, Director of Operations at Gruppomimo.
Once differences have been identified, we can try to measure:
Use Inpulse allows you to report on a daily basis the loss of raw and finished products and to seize staff meals. It is thus easy to measure the “known” part of the markdown.
”I use Inpulse to do inventories, which allows me to have a comparison of theoretical and real stock states in order to be able to target my markdown.” Tiphaine Bourel, Director Gruppomimo Batignolles.
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The measure of Staff ratio will highlight the relationship between payroll (cost of hiring company employees) and sales. This ratio is particularly useful for any business that wants increase productivity and make sound more profitable restaurant. It allows you to monitor the cost of your labor and to plan their services more effectively. You can calculate it simply:
Staff ratio = Payroll/Turnover before tax
We note that fast food has bigger personnel expenses than the rest of the sector. They are due to a high turnover which represents almost 70%, while the average is 44% according to INSEE. These successive onboardings have a cost (uniform, time spent on training, etc.) and weigh heavily on the payroll ratio.
The productivity ratio (or profitability ratio) is an indicator that is used to assess the quantity of work that your employees will produce over a given working time. It is a very concrete way to assess their performance and effectiveness. So you will be able to improve your overall productivity as well as your gross margin.
The productivity ratio is calculated in this way:
Productivity ratio = Turnover/Number of employees
Improving your staff ratios and productivity, it is possible thanks to a few simple actions to put in place. It may be interesting:
Discover the wise advice that Pitaya operations managers gave us during of a round table on the management of their staff and their stock.
This ratio is intended to determine the weight of structural loads of your establishment. These charges are generally:
Here is its formula:
Operating Expense Ratio = Total Operating Expenses HT/Sales Excluding Tax
It can be divided into two types of expenses.
Occupancy costs are fixed expenses such as investments, interests, lease loans, etc., on which no action is possible in the short term. It is therefore not necessary to monitor them more than once a year. To calculate this ratio:
Occupancy cost ratio = Occupancy costs/Sales excluding VAT
It should not exceed 10 to 12% of your turnover. This ratio must be balanced if you own the walls of your establishment, without current credit.
Les overheads are for their part made up of all the variable expenses of your business. Variable expenses are mostly related to gas, electricity, water, advertising and communication expenses, taxes and taxes. These charges will depend on volume of activity of your restaurant and will therefore have to vary or evolve. You can calculate it this way:
Overhead ratio = Overheads/Sales
Like fixed expenses, variable expenses tend to increase every year. It is therefore necessary to find a way to monitor their increase in order to try to limit it.
The current inflationary context, accompanied by a significant increase in energy prices, is shaking up the operating expense ratio. It usually represents between 20% and 30% of turnover, but has tended to increase rapidly in recent months.
Here you will find some tips for reduce your restaurant's energy bill such as using the preferential rates provided by the State and Europe (tariff shield), but also limiting your use of lighting and heating by equipping your restaurants with LED bulbs or motion sensors.
The working capital requirement, or WFR, is the amount that a restaurant must finance to cover its cash flow (expenses and revenues). As part of the catering, you must be able to finance the stock. When you have just opened a restaurant, it is imperative to calculate the BFR in order to cope with the burdens at the start of activity. Properly estimating your working capital needs is important for the rest of your business, because a BFR negative is a sign of good financial health. It will allow you to develop while feeding your cash flow and it will then be easier to obtain a bank loan.
Here is his calculation:
Working capital requirement ratio = Stock + Receivables - Debts
If your working capital is positive, it means that your expenses are too heavy in the balance. For Lower your BFR, remember to monitor your stock in real time thanks to the real-time tracking solution offered by Inpulse. Also, be sure to avoid unnecessary financial assets so as not to slow your growth.
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