Target Percentages

QUESTION From: Mihran in NJ

“What are the benchmark financials everyone goes by? As in food %, rent %, liquor / beer?, labor % etc…?”

HH ANSWER:

This is one of the most common questions I get on a monthly basis and, not to be difficult, but the answer is “It depends”.

It depends upon several factors namely; concept, location, covers, contiguous uses, menu, market draw, etc...

While many may tell you to shoot for the common benchmarks of 20-25% food cost, 5-9% rent, 18-20% labor, wine 18-40%, liquor 15%, beer 20-23%, etc.. one size does not fit all.

I’ve seen more failures and/or money left on the table due to operators ignoring their MARGINS and/or opportunities to sustain their business on more available volume while remaining inflexible in being tied to unobtainable percentages for their particular concept.

E.G.- I have clients that are paying almost 15 to 20% rent but, knowing that we were going to face that, we developed the concept in this high traffic location to support and justify that #.

I really do prefer a more holistic approach to financials...and that requires a deep dive into any existing or planned project so really can’t say what’s best for you.

Average Prime Cost is usually 55-60% with:

Total labor at 30-35% (w/ mgmnt at 10%)

Total cost of goods sold at (23-30%)

(Divided by sales)

When starting fresh or establishing a baseline for an outlet whose financial reporting needs correction / adjustment; I usually start with:

10% controllables

10% noncontrollables

3-6% marketing

10-13% profit

Just remember- Fica requires you pay wage tax on all tips so if you’re not spreading that around be sure to account for that as well. (More on tip management in this article: https://www.hospitalityhelpline.com/labor/2021/2/16/tip-pooling-amp-paying-tips-out-in-paychecks)

I often see operators trying to back into the numbers (i.e., Start with desired profit margin and build in everything else around that) which sometimes works for fast & fast casual concepts but is not a reliable method in my opinion.

That being said, I’ve never seen any venture succeed with a 50% average food cost or 40+ labor.

Hope that’s helpful,

Josh Sapienza | UbiquityAdvisors.com

See more on restaurant finance in the Hospitality Helpline Library.