11 keys you need to know to be success in your restaurant(s)! How does your restaurant measure up to your competition?

The article has been simplified so it is more understandable to restaurateurs who do not have a financial specialization. The general rule has been used in many cases although there are many exceptions to the general rule. The Restaurateur of Arizona and Mr. Brooks are not responsible or liable for giving you specific advice for your specific situation.

1. Prime costs are defined as your cost of goods sold and labor costs. My experience is that prime costs should be around 60% to 65% of sales. Since labor costs are somewhat fixed, labor costs cannot be reduced enough to offset lower sales.

2. Labor costs in total should not exceed 1/3 of sales. Payroll tax expense and workmen’s compensation are included in labor costs.

3. Hourly labor costs must be less than 20%. When I see hourly labor costs getting up above 21%, I see a problem with scheduling and poor training.

4. I have seen management salaries be as low as 6.5% in a high revenue store. Management salaries should be less than 11% of sales.

5. Employee benefits generally run around 20% of total labor costs.

6. I have never found a good rule of thumb for Sales per square foot. I use the forecasted cash flow report.

7. Food cost percentages should never follow a rule of thumb. Following the rule of thumb is 28% to 32% can be dangerous. The key in all of these percentages is to prepare a Cash Flow forecast for your restaurant(s). The key is to produce more profitable loyal guests who will introduce you to other guests who will also be profitable.

8. Bar costs total percentage is based on the product mix. The specific bar cost areas seem to follow these percentages: wine is 35% to 40% of wine sales, liquor costs are under 20% of liquor sales. Bottled beer costs are between 23% to 27%. Wine cost of sales is not as consistent as it used to be because of the higher price points for fine wines results in higher percentages and higher dollar margins.

9. Occupancy costs should run around 10% of sales. Rent should be between 6.5% to 7.5% of sales. In a 2008 article I wrote about how to negotiate lower rent.

10. Average number that a guest comes back in a month (repeat visits) A casual fine dining restaurant should get 2.5 repeat visits per month. This number should be a number that you work on improving each year.

11. Repeat Percentage of profitable guests who are made to feel important and given exceptional service. The manager on duty should be reviewing he sales tickets to see what guests are the most profitable and become a friend with that guest. When I was obtaining my MBA degree, I remember a marketing professor who consulted businesses that worked with the public. He said a successful business must differentiate itself by finding what works to add value to the customer. In this day and age, people are rarely felt to be important. However, feeling important is a human need. My rule of thumb is 100%!

Please call me at 602-687-9900 x101 with any questions.

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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Address: 4647 N 32nd Street, Suite B245
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Phone: 602-292-2009
Email: jeff@jbrookswa.com