Catering ratio to follow: Methods and formulas
What is the definition of the restaurant ratio? What are the main indicators to monitor in a restaurant?
And, when we talk about restaurant management, the question quickly arises: what are the important ratios and what financial indicators should be put in place to manage one's establishment properly? Indeed, in order to develop your business, you need to make a lot of effort and have the best levers at your disposal. Thanks to Koust, discover how to focus on your indicators and increase your profitability and turnover through the actions that result from them.
The elements presented here aim to help restaurant owners in their management through ratios and margin calculations. The Koust software makes these calculations easy.
First of all, a ratio is a percentage used to analyse data on the activity, costs and results of a company. There are different types of ratios, in the restaurant industry we mainly talk about the margin ratio.
Activity control indicators
Firstly, the main key management indicators in restoration are :
- Tracking turnover
- gross margin
- the ratio of material costs to turnover
- number of cover
- averagebasket or ticket
- multiplying factor
This restaurant ratio is evaluated over predefined periods: month, week, year. They allow the degree of activity and productivity of the restaurant to be assessed.
The average number of covers per service is the total number of customers in a period divided by the number of services in the same period.
Average number of covers per service = Total number of customers / number of services
The average ticket is the average expenditure per customer on a service
Average ticket = Turnover including VAT / number of customers
Gross margin: the main restoration ratio
The margin can be calculated at the level of each recipe or globally over a given period. In this case, the purchases of raw materials and the turnover over the period are added together. It is this overall management indicator that interests us here in order to monitor the evolution of profitability over time.
Gross margin = (Turnover before tax - Cost of raw materials) / Turnover before tax
Usually, the calculation is divided into solids and liquids to obtain more accurate results:
- Foodstuffs: approximately 72%.
- Alcoholic beverages: more than 75%.
- Non-alcoholic beverages: more than 75%.
Technical data sheets have long been used to calculate this margin. They also guarantee quality and consistency in the kitchen by defining the exact recipe. These recipes also help the cooks in their daily work, in the training of new staff and in the preservation of the restaurant's know-how.
Quick margin application method
Applying the target gross margin percentage is not simple enough to estimate the selling price of a dish or to estimate the material cost to consume for a daily special. The value of foodstuffs fluctuates rapidly, so these margin calculations need to be constantly revisited to ensure a consistent result. Restaurant professionals are looking for simple methods to save time. This is why the multiplier is more widely used in the restaurant sector.
Multiplier coefficients: essential restoration ratio
The multiplier coefficient (Cm) is the equivalent of the gross margin by a simple multiplication.
Cm = Turnover before tax / Material cost
It can therefore be calculated on the basis of the gross margin:
Cm = 1/ (1- gross margin)
Example of costing :
Gross margin 70%
Cm = 1/ (1- 0.70) =3.33
It is rather used at the level of the recipe:
Cm = Sales price of the dish before tax / Material cost
To further simplify the calculations, the VAT rate can be included.
For a targeted gross margin of 72% with 10% VAT:
coef = 1/(1- 0.72) x (1+10%) =3.57 x 1.1 = 3.93
For a targeted gross margin of 75% with VAT at 20%:
coef = 1/(1- 0.75)x (1+20%) =4x 1.2= 4.8
In general, a lower coefficient is applied to the most expensive products and a higher coefficient to the least expensive products. Stronger or weaker coefficients can also be applied to certain product ranges depending on the commercial policy and the differentiation chosen by the restaurant.
Assessing the material cost based on a target cost per kilo
Another approach can be to estimate the purchase cost of raw materials per kilo. Here, we take the problem in the other direction, we determine the purchase cost according to the selling price:
- Start from the selling price of the recipe (example: 15€)
- Then, remove the VAT (15€ - 10%VAT = 13,64€).
- Then, apply the ratio by dividing the selling price by the ratio or coefficient (example: 13.64€/5 = 2.73€)
- Finally, divide this target value by an average quantity which is applied to obtain the value per kilo of the raw material (e.g. 200 grams to obtain a target purchase price of 2.73/.20= €13.65)
In the example, the result is a price per kilo of €13.65. This is a target value that must not be exceeded to guarantee the gross margin. For example, this could be the price per kilo of meat.
Here a higher coefficient (5) has been applied in relation to the fact that the main ingredient does not make up the whole price of the dish. Thus, this method can be applied to daily specials, slate menus.
Assessing the rate of wasted raw materials
In addition to calculating the margin, it is possible for restaurateurs to calculate the losses. This is known as the "run-off" ratio.
Run-off ratio = value of losses / turnover
Another important indicator is the personnel costs ratio. This is the percentage of payroll to turnover.
Personnel expenses = Wages and salaries / Turnover
Prime cost = personnel costs + Material cost
gross margin 70%
therefore material cost = 30%
personnel costs = 37,000 / 100,000 = 37%.
Prime cost = 30%+ 37% = 67% = 67%.
These expenses represent all other expenses such as
- Water, electricity, gas and other energies
- Insurance, miscellaneous subscriptions, consumables and royalties
- Rents, maintenance and upkeep of property
However, the most important expenses such as rent or energy can represent a very important part of the expenses.
These costs may be fixed, such as rent, and other variable costs, which fluctuate according to the activity and management. Also, part of the electricity consumption may be fixed and another part is linked to the activity of the restaurant. A dashboard can therefore help to visualise and monitor the evolution of these costs more easily. It also provides a visual of the company's net result.
Summary table of restoration ratio
|Restoration ratio||Calculation method||Example|
|Consumption of raw materials||(Raw material purchases over period + inventory at beginning of period - inventory at end of period) / Sales over period||30 %|
|Gross margin||Turnover - material consumption||70%.|
|Multiplier Coefficient||Turnover / material consumption||3,5|
|Personnel expenses||(Wages + social security charges) / sales||35%|
|Prime cost||(Personnel costs + Material consumption)/Turnover||70%|
|Operating expense ratio||Operating Expense / Revenue||15%|