Restaurant margins are thin, and the businesses that stay healthy are the ones that treat their numbers as a monthly habit, not a year-end scramble. The good news is that the restaurant industry has well-established benchmarks, so instead of guessing whether a number is good, owners can measure themselves against a known standard and catch problems early.
Here’s what should be on every restaurant owner’s monthly financial review.
Food Cost Percentage
Take your total food cost for the month and divide it by your food income. That ratio, your food cost percentage, is one of the most important numbers in the business, and it should be tracked month over month and year over year to spot trends before they become real problems.
A single bad month can be a fluke, such as a supplier price spike or a big catering order with unusual ingredient costs. But a food cost percentage that’s steadily climbing over several months is telling you something: portion sizes have crept up, waste is increasing, pricing hasn’t kept pace with supplier costs, or theft may be occurring.
Beverage Cost Percentage
The same math applies to beverage: total beverage cost divided by beverage income. Because bar and beverage programs typically carry much higher margins than food, tracking this ratio separately, rather than folding it into a blended food-and-beverage number, makes it easier to see whether the bar program is performing the way it should.
Overall Cost of Goods Sold (COGS)
Food cost and beverage cost together make up your Cost of Goods Sold, and the widely accepted industry standard is to keep COGS below 65% of revenue. Staying under that threshold isn’t arbitrary. It’s what leaves enough margin to cover labor, overhead, and a reasonable profit. If COGS is creeping above that line, it’s a signal to dig into pricing, portioning, waste, or supplier costs before it erodes profitability further.
True Labor Cost, Not Just Payroll
Labor cost review needs two important adjustments most owners miss.
First, separate administrative labor from front- and back-of-house labor. Only the labor directly tied to producing and serving food and drink, meaning kitchen and service staff, belongs in the Cost of Goods Sold section. Administrative and management labor that isn’t part of day-to-day production belongs in overhead. Blending the two makes it impossible to accurately assess either your COGS or your true overhead burden.
Second, labor cost is more than the hourly wage or salary. A complete labor cost includes:
- Employee benefits
- Payroll taxes
- Workers’ compensation insurance
Leaving these out understates true labor cost significantly, and it’s a common reason a restaurant looks profitable on paper but struggles with cash flow in reality. When these are properly included, labor cost as a percentage of revenue becomes a number owners can actually trust for decision-making.
Prime Cost
Once food cost, beverage cost, and true labor cost (including benefits, taxes, and workers’ comp) are all captured accurately, add COGS and labor together to get your prime cost, arguably the single most important number in restaurant financial management. Industry benchmarks generally put a healthy prime cost in the 60 to 65% range of total revenue. Above that, and there’s often very little room left for rent, utilities, and profit.
A Few Other Numbers Worth Reviewing Monthly
- Comps, voids, and discounts. Tracked as a percentage of sales, this category can reveal training issues, POS errors, or in some cases theft, and it’s often overlooked entirely.
- Inventory variance. Comparing what your theoretical food cost should be, based on recipes and sales, against actual usage highlights waste, over-portioning, or shrinkage that a straight cost-of-goods number won’t show on its own.
- Sales mix. Knowing which menu items are actually selling, and at what margin, helps guide menu pricing and engineering decisions rather than relying on gut feel about what’s popular.
- Overhead as a percentage of revenue. Rent, utilities, insurance, and administrative costs should be reviewed together to make sure fixed costs are staying proportionate as sales fluctuate seasonally.
- Break-even sales volume. Knowing the sales number needed each month just to cover fixed and variable costs gives owners a clear target and an early warning system for slow periods.
Why This Monthly Habit Matters
None of these numbers are complicated in isolation. What makes them powerful is consistency, reviewing them every month in the same format, so trends become visible long before they show up as a cash crunch. A restaurant that tracks food cost, beverage cost, true labor cost, and prime cost monthly isn’t just keeping cleaner books. It’s giving itself the information needed to make confident pricing, staffing, and menu decisions all year long.
Want help building a monthly financial review process for your restaurant? Reach out to get started.