In this article:
- Types of benchmarking restaurants use
- How to develop a restaurant benchmarking framework
- Crucial restaurant metrics to benchmark
- Restaurant industry standards
What Is Restaurant Benchmarking?
Restaurant benchmarking is the process of evaluating a chain’s or single restaurant’s practices, products and services against industry standards. Benchmarks cover various aspects of a food service business. You measure benchmarks as statistics or ratios.
Business benchmarks provide the benefit of impartial, data-driven insight into a company’s strengths and weaknesses. Though benchmarks are numbers-based assessments, studying them doesn’t have to be dull. Especially in the restaurant industry, knowing how your establishment ranks against others can inspire creativity and increase ROI.
- Restaurant benchmarks provide an objective way to know where you are so you can plan where to go.
- Don’t look at only restaurant and hospitality metrics. Benchmarks from retail and other industries can help, too.
- Controlling expenses is crucial to your restaurant’s financial health. Use cost metrics to track your spending.
Types of Benchmarking Used in Restaurant Benchmarking
For restaurants, experts use four main types of benchmarking: internal, process, competitive and industry. A combination of these will reveal strengths and weaknesses and help you build a culture focused on continuous improvement.
Internal benchmarking compares similar metrics for related processes in different areas of a company. Departments can adopt successful practices used by other business units. Internal benchmarking also provides a method for sharing ideas and information.
As you identify which processes to benchmark, consider organizing projects around each improvement area. Creating projects with timelines and deliverables provides a framework for implementing new best practices. You can then track your progress.
Process benchmarking helps you examine in depth your company’s policies and procedures. You can use process benchmarking to review internal or external processes and evaluate practices from the same industry, or compare methods used in other verticals.
For example, say communications between your back-of-house food preparation staff and your servers often breaks down, resulting in dissatisfied diners. Staff meals, where cooks debut potential new menu items and get feedback, and shadowing or cross-training programs can build better rapport. These are process improvements that pay off.
Competitive benchmarking explores best practices among companies with very similar products or services. This benchmarking type is challenging because businesses rarely disclose metrics that could reveal their strengths and weaknesses to rivals.
A good practice with competitive benchmarking is to focus on your own KPIs and priorities. When you define what is important to your restaurant’s success, you can track your own improvements. Then, start looking to see what competitor organizations are up to.
Industry benchmarking enables you to review broader competitor standards. For restaurants, this practice involves tracking metrics from a range of restaurant types, sizes and cuisines. Such benchmarks often reveal cost, time and quality metrics.
Many restaurant benchmarks appear on profit and loss (P&L) statements. A P&L statement provides an overview of costs and income for a given period and usually includes benchmarks such as COGS, food cost percentage, gross profit and net profit/loss for restaurants. Businesses can research competitors independently, or they can employ consultants or agencies that specialize in benchmarking. Studying a competitor’s results can reveal their best practices and procedures.
A business can benefit from studying benchmarks outside its industry, too. For restaurants, retail and manufacturing processes can offer insights. For example, omnichannel marketing and loyalty rewards programs popular with retailers offer restaurants a data-driven approach to increasing sales. Manufacturers closely track throughput, the production capabilities of a machine, line or plant:
Throughput = # of Units Produced / Time (hour or day)
Restaurants also need to know how many drinks or dinners their staffs can produce over a specified time period.
How to Develop a Restaurant Benchmarking Framework
When you develop a restaurant benchmarking framework, you build a structure for continual improvement. A measurement framework helps you understand where you are so that you can map a path to success. We recommend a standard five-step process:
- Decide on areas for improvement. Review competitor experiences, and define key performance indicators (KPIs) for your company. See our guide on the restaurant KPIs every owner should measure to learn more.
- Determine what internal and external benchmarks you need.
- Share goals with your employees. When staff understands the targets, you can all work together to achieve results.
- Measure your performance. Dashboards provide a helpful way to track and share KPI results as you collect data.
- Use data to improve performance. Regularly review your metrics and create improvement plans when needed.
Crucial Restaurant Metrics to Benchmark
Crucial restaurant metrics include those involving operations, financials, customer behavior and industry standards. These can help you identify the best practices of other restaurants and your own. Tracking too many metrics complicates benchmarking, but a good balance of indicators provides a complete picture of business health.
Consider continuously tracking metrics to stay abreast of changes in restaurant performance. Managers can use dashboards to monitor critical metrics and quickly make improvements.
Restaurant Operations Benchmarks
Restaurant operations benchmarks consider how customers respond to a restaurant’s ambiance, food and service. Some key restaurant operations benchmarks include cost of goods sold (COGS), inventory turnover and employee turnover.
These metrics show how well a business attracts new diners and keeps customers returning. Operations benchmarks also help you avoid problems, such as illness from spoiled food and poor service driven by excessive staff churn.
Inventory Turnover Ratio
The inventory turnover ratio shows how quickly a restaurant sells and refills its inventory. Calculate this metric for a specific timeframe, such as a day, week or month.
Managing food stock well is key for a restaurant’s financial health. Food is perishable and, as such, waste is a significant restaurant expense. Good restaurant inventory management reduces loss and over-portioning.
Inventory turnover ratio = sales / average inventory
Days in Inventory
The days-in-inventory metric calculates how long it takes a restaurant to turn its supplies into sales. It shows how much extra food a restaurant is carrying. Use this calculation if your inventory turnover ratio is high.
Days-in-inventory = ending food inventory / average daily food cost
Cost of Goods or Cost of Sales
Cost of goods or cost of sales are used interchangeably in accounting. Generally, the smaller your COGS, the greater your profit margin.
For example, average COGS should be 30% or less, with 30% for food sales, 15% or less for nonalcoholic beverages and a cost range of between 18% and 40% for liquor, beer and wine.
Cost of goods sold (COGS) = beginning inventory + purchased inventory – ending inventory
The per-guest or per-person average is a server benchmark that gauges sales volume. You may want to study servers who generate high sales to understand their best practices. You can then share these practices with other staff.
Per-guest average = total server sales / total number of guests
Employee Turnover Ratio
Employee turnover ratio measures how often employees join a restaurant and later quit. A high turnover rate incurs extra training expenses. It also adds friction as hires adjust to a new workplace and coworkers. Friction can reduce service quality.
High turnover rates can also reduce service levels. Turnover, therefore, presents one of the biggest challenges to restaurateurs. Learn more about how you can reduce restaurant staff turnover.
Employee turnover ratio = (# of employees who left / average number of employees) X 100
Financial Restaurant Benchmarks
Financial restaurant benchmarks show the fiscal health of your business. Track financial benchmarks on balance sheets, income statements and cash flow statements and review them often — at least weekly.
Financial restaurant benchmarks cover such areas as COGs, operating costs, labor costs and profitability. Ratios may vary according to restaurant type, location and other economic factors. Benchmarks can also help you track your improvements. NetSuite’s Brainyard publishes restaurant industry benchmarks that include four progress levels.
- Foundational: You may have just started tracking this metric for your restaurant or discovered it’s a problem area. Prioritize performance improvements.
- Competitive: Your restaurant is performing well, but you could improve. More effort in this area can take your business to the next level.
- Best in Class: For this metric, your restaurant is best in class. As such, your performance is better than that of similar restaurants. All you need now is to continue improving.
- Transformative: Your restaurant’s results in this area are of the highest quality. You are efficient and an example to others. Keep up the good work!
Here are the top restaurant benchmarks, according to Brainyard.
Visit Brainyard’s Restaurant Industry KPI page to learn more about these benchmarks.
Prime cost measures total sales costs and total labor costs. Sales costs include the total cost of a food and beverage inventory. Prime cost can also count paper products and merchandise. Some people consider this the most important restaurant metric.
When you add up sales costs, include the cost of inventory on hand and the value of new stock purchases. Do this by subtracting the stock value at the end of the period from the beginning. Total labor costs combine any staff expenses, such as wages, taxes, benefits and insurance. Working only with wages does not provide a complete view of labor costs.
Prime cost = cost of goods sold (COGS) + total labor cost
Percentage of Free Cash Flow
Free cash flow shows how well a business can pay its bills and still have cash available to fund growth. Percentage of free cash flow indicates how much money a business has after subtracting operating costs and expenses.
A common formula for calculating free cash flow is to calculate operating cash flow. You can find the figures for operating cash flow and capital expenditures on a company’s balance sheet.
Percentage of free cash flow = operating cash flow – capital expenses
How Much Should a Restaurant Make Per Square Foot?
How much a restaurant earns in sales per square foot depends on size and location. Break-even sales per square foot for full-service restaurants range between $150 and $250. Counter service returns must be slightly higher, in the $200 to $300 range.
Sales per square foot is an important profitability measure. In the restaurant industry, the size calculation includes square footage for restrooms and storage in addition to kitchens and dining areas.
What Is a Good Occupancy Cost for a Restaurant?
A restaurant’s total occupancy cost includes rent or mortgage plus associated property taxes, fees and insurance. Experts say that occupancy costs should be around 6% to 10% of gross sales, though this ratio varies depending on the business’s unique circumstances.
Many options exist to control occupancy costs, but they require preplanning. As an example, a sublet or long-term lease can lower rental costs. A property manager specializing in food service businesses can help restaurants looking to move or expand locate the right property for a given price point, in a city or town that doesn’t charge excessive fees or taxes. Restaurant owners and managers can also work to keep insurance costs low.
Restaurant Customer Behavior Benchmarks
Restaurant customer behavior benchmarks are all about diner likes and dislikes. You can then implement best practices or make improvements to improve scores. Today, you can track customer satisfaction online.
Examples of customer behavior benchmarks include Net Promoter Score, acquisition cost, retention rate and customer dwell times.
Net Promoter Score (NPS)
The Net Promoter Score (NPS) tracks how likely customers are to recommend your restaurant or services. The score uses a scale of -100 to 100 to measure brand loyalty. A score above 0 is acceptable, while 50 and above are excellent.
Tactics to improve NPS are key takeaways restaurants can learn from retailers.
Customer Acquisition Cost
Customer acquisition cost gauges how much you spend to attract new diners. This metric uncovers which marketing approaches work well. Compare different customer acquisition costs to determine which strategies offer the best return on investment.
Customer acquisition cost = marketing expenses / total new customers acquired
Customer Retention Costs
Customer retention costs reveal how much it costs to keep diners returning to your restaurant. Retention is important because acquiring new clients costs up to five times more than keeping existing customers. Measure this metric by week, month or year.
Customer retention efforts can yield considerable returns. Today, many retention efforts operate online. Examples include business- and user-generated social media posts. Another popular retention method is a loyalty rewards program.
Customer retention rate = [(total customers – total new customers) / total customers] X 100
Customer Dwell Times
Dwell times measure how long a customer spends in a restaurant. Most restaurants want a longer dwell time — though not so long that tables don’t turn over as expected. Dwell time can highlight customer satisfaction with the dining experience. Longer dwell times can boost sales volume from, for example, dessert or additional alcohol sales.
Customers shorten their dwell times when they feel uncomfortable. For example, if other diners are loud or disrespectful, or service is poor or slow, customers will eat and run and likely avoid returning. You can gauge customer satisfaction through surveys and monitoring social media. Analytic devices measure dwell time more precisely through such means as heat maps connected to POS systems.
Restaurant Industry Standards
Restaurant industry standards often focus on reducing spending, and cost management is certainly a crucial metric for eateries. However, because every restaurant is different, there is a range of acceptable costs.
For the restaurant industry, costs are calculated as a percentage of total sales.
- Food: 28% to 35%
- Liquor: 18% to 20%
- Bottled Beer: 24% to 28%
- Draft Beer: 15% to 18%
- Wine: 35% to 45%
Once you know your food and liquor costs, you can calculate your prime cost, which includes the average of your food and beverage COGS plus your staff costs, including salary and benefits. Generally, prime costs should be in the 60% to 65% range.
Read our post on restaurant KPIs to learn more.
Restaurant Benchmarking Examples
Examples are a good way to see how other establishments use benchmarks to improve and refine their operations.
Example: A restauranteur notices that her prime costs went up — and profits went down — after rolling out a new menu, so she decides to dig into COGS. For a month, she tracks all ingredients, condiments and garnishes for the new menu offerings and discovers that COGS has risen to about 36% of gross revenue, where previously that number was closer to 30%. This data reveals that the kitchen team should review ingredients to see if they can find any cost savings; if not, she needs to either eliminate some unprofitable menu items or raise prices.
Example: A new medieval-themed restaurant, meanwhile, thinks it’s managing inventory well. The business model is to serve large portions and expect that customers will arrive ready to feast. After tracking the inventory turnover ratio weekly for a month, the team discovers they use up inventory nine times. Optimal turnover in restaurants is between four and eight times. They decide to scale back their portion size. The result: reduced food waste and inventory turnover scaled back to seven times per month.
How Owners and Managers of Fast-Food Chains Can Use Benchmarking
Fast-food chain owners and managers can also benefit from learning industry benchmark ratios. When stakeholders know how competitors are profiting, they can borrow best practices. Large national chains often publish data relevant to benchmarks.
Fast-food chains benefit from the same metrics that support all restaurants. Key examples include COGS, customer retention rate, employee turnover rate and Net Promoter Score.
And owners of single restaurants should not overlook the benefits of small-business benchmarking.
Benefits of Restaurant Benchmarking
The benefits of restaurant benchmarking include understanding how your eatery compares with rivals. The process can also help you gain insight into how customers feel about your business.
In addition, benchmarking can:
Help you project the results of proposed changes before you implement them. For example, menu benchmarking offers a means to test portion sizes and ingredient costs before adding new items.
Assist in comparing your assets and liabilities to restaurants of similar size during a specific period to see how well your business is performing against competitors.
Identify what is and isn’t working in your business. For example, a menu item may be both infrequently ordered and require expensive, perishable ingredients. Or maybe a new line of on-tap craft beer is selling well and driving customers to order profitable appetizers. Longer term, adding more premium draft offerings could reduce the need for refrigerated space for bottles.
Labor costs are one of the biggest expenses of running a restaurant. By using benchmarking to keep an eye on costs and customer service, you’ll be able to see if there is an over- or under-staffing issue in the front or back of the house.
Restaurant benchmarking can help highlight processes that need to change as well. By presenting staff with data that supports new ways of working, you gain buy-in and promote an environment of continuous improvement.
Read our article on how to improve restaurant service for more insights.
Challenges of Restaurant Benchmarking
Competitive benchmarking can reveal best practices that restaurateurs should follow. The difficulty, however, is that an apples-to-apples comparison can be challenging. Individual restaurants, even within chains, can differ in menus, concepts, target customers, occupancy costs, average check totals and more. Before performing benchmarking — and especially before opening a new restaurant — identify competitors that are as similar to you as possible. Then, continue to study the market and stay on top of new trends.
Some benchmarks are always worth tracking. Both new and seasoned owners face the challenges of employee turnover. High turnover incurs costs to recruit and train new staff and decreases morale as experienced or popular employees move on. Likewise, restaurateurs should know the COGS for all their menu items so they can adjust portions and prices accordingly.
Successful restaurants also excel at rigorous inventory management. An optimized inventory turnover ratio means cooks understand that every overcooked steak that ends up in the trash erodes profitability. Benchmark inventory turnover ratio to understand how other restaurants manage supply costs and how you can become more profitable.
Best Practices in Restaurant Benchmarking
To improve and stay relevant, a best practice is to compare your business to a variety of types of restaurants, not just the competitor next door. Here’s how:
Restaurants have many attributes. Each type and facility will differ in such factors as concept, menu, size, average check, décor, staff skill level and more. Identify what you’re trying to learn from the benchmarks, so you can focus on factors that matter to you.
It’s important to understand your restaurant and how it differs from others before applying what you learn from benchmarking.
Review the competitive “comp set” — in other words, understand exactly who your competitors are when looking at the benchmarking data. Remember, a pub or steakhouse is not just competing with like eateries for diners’ dollars. You also need to watch for new concepts coming online in your area to capitalize on emerging trends like farm-to-table cooking.
Consider that standalone restaurants and chain outlets in different locales may face various local regulations that affect alcohol service and entertainment options.
Focus on benchmarking metrics that can help you improve operations. Looking at the flow of inventory through your restaurant and operating expenses can tell you if you’re running efficiently and cost-effectively.
Some experts suggest that you first pick internal KPIs to track and then look at the performance of other businesses. In any case, stick to a handful of key metrics so that you aren’t overwhelmed with data.
Why Invest in an Integrated Restaurant and Hospitality Platform?
Effective benchmarking means consistently tracking key metrics. Metrics mean volumes of data. You need an integrated back-of-house platform to help you see problems and trends at a glance.
Such platforms aid inventory management, a critical focus in the restaurant business. Good inventory management means you never run out of customer favorites or throw away money as you toss wasted food. Integrated platforms also help with staff scheduling. Above all, they provide the objective, big-picture data you need to increase customer satisfaction and boost ROI.
Improve Your Benchmarking With NetSuite for Restaurants
Restaurants have a lot of moving parts to track for benchmarking, that’s why it’s imperative they have a tool they can use that brings all these data points into a single, cohesive view. NetSuite helps increase transparency and operational efficiencies with a single unified restaurant and hospitality management system that connects all data sources. See how the NetSuite Restaurant edition provides integrated inventory management, ERP, CRM, guest services, POS and HCM.