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Are your restaurant costs eating up your profits?
Are your restaurant costs eating up your profits?
The most successful restaurants stick to key industry benchmarks to manage their expenses and maximize profits.
If your cost of goods sold (COGS), labor, or rent are out of range, you're either overspending—or missing growth opportunities. Use these benchmarks to assess where you stand.
Understanding your restaurant’s cost ratios is essential to making data-driven decisions that protect your bottom line.
Keeping expenses in check is the foundation of long-term profitability and growth, especially in a high-risk, high-turnover industry.
Restaurant Expense Benchmarks Every Owner Should Know
Restaurant Expense Benchmarks Every Owner Should Know
Whether you run a small bistro or a bustling multi-location brand, these are the general guidelines you should aim for when budgeting and reviewing your monthly restaurant P&L:
1. Cost of Goods Sold (COGS): 25–35% of Revenue
1. Cost of Goods Sold (COGS): 25–35% of Revenue
Your COGS includes all ingredients and beverages. While food costs typically fall around 28–32%, bars may see beverage costs closer to 20–25%. If you're consistently over 35%, it’s time to examine waste, theft, portion control, or supplier pricing.
Pro Tip: Consider a weekly COGS tracking system. This gives you the chance to pivot mid-month, not post-mortem.
2. Labor Costs: Under 30% of Revenue
2. Labor Costs: Under 30% of Revenue
This includes wages, overtime, taxes, and benefits for front- and back-of-house staff. Many successful restaurants aim for 25–30%, depending on service level and location. High labor costs may signal overstaffing, low productivity, or inefficiencies in scheduling.
Try This: Use POS-integrated labor scheduling to align staffing levels with sales trends.
3. Occupancy / Rent: Under 10%
3. Occupancy / Rent: Under 10%
Your monthly rent and occupancy costs (including CAM or property taxes) should not exceed 8–10% of your total sales. A great location is valuable, but if it’s driving up your rent ratio, your margins will feel the pressure.
Tip: Negotiate rent terms during slow seasons or lease renewals based on real-time sales performance.
4. Prime Cost: Target 55–65%
4. Prime Cost: Target 55–65%
Prime Cost = COGS + Labor. This is your most critical metric. If your prime cost exceeds 65%, profitability becomes difficult without high volume or unique pricing power.
Rule of Thumb: Every percentage point above 65% is a signal to review staffing, menu pricing, and supplier contracts.
How These Benchmarks Help You
How These Benchmarks Help You
They offer a roadmap to identify cost leaks or pricing gaps.
They help you plan menu changes, optimize staffing, and negotiate with vendors confidently.
If you're outperforming these ranges, you may be under-investing in people or ingredients—potentially hurting service or quality.
Let Us Help You Hit These Numbers
Let Us Help You Hit These Numbers
At OSR Bookkeeping Services, we specialize in helping restaurant owners like you understand and optimize key financial metrics. Whether it’s monthly reporting, COGS tracking, or labor analysis—we’re your back-office partner.
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