Restaurant Financial Formulas & Definitions

1. Total Revenue

The complete income generated from all restaurant operations before expenses are deducted. This is the starting point for all profitability calculations.

Total Revenue = (Average Check × Number of Covers) + Ancillary Income
  • Average Check: The mean amount spent per customer (Total Sales ÷ Number of Guests)
  • Covers: The total number of customers served during a specific period
  • Ancillary Income: Revenue from non-core sources (catering, merchandise, events)
Example: (£25.80 avg check × 150 covers) + £420 (private event) = £4,290 daily revenue

2. Revenue per Available Seat Hour (RevPASH)

Measures how effectively a restaurant generates revenue from its seating capacity over time. Key metric for evaluating operational efficiency.

RevPASH = Total Revenue ÷ (Total Seats × Operating Hours)
  • Total Seats: The restaurant’s maximum seating capacity
  • Operating Hours: The time period being analyzed (day, week, etc.)
  • Benchmark: £5-15/hour for full-service restaurants

3. Menu Item Contribution Margin

Shows how much each menu item contributes to overall profit after accounting for its specific food cost. Essential for menu engineering.

Contribution Margin = (Item Price – Item Food Cost) × Quantity Sold
  • Item Price: Menu price charged to customers
  • Item Food Cost: Total cost of ingredients for one serving
  • Quantity Sold: Number of units sold in a given period
Example: (£22 salmon dish – £7.15 food cost) × 85 sold = £1,262.25 contribution

4. Break-Even Point

The minimum sales volume required to cover all fixed and variable costs. Below this point, the restaurant operates at a loss.

Break-Even Covers = Fixed Costs ÷ (Average Check – Variable Cost per Cover)
  • Fixed Costs: Expenses that don’t vary with sales (rent, salaries, utilities)
  • Variable Costs: Expenses that scale with sales (food, beverage, packaging)
  • Average Check: Mean revenue per customer

5. Prime Cost Ratio

The combined percentage of revenue consumed by food costs and labor expenses. The most important metric for restaurant financial health.

Prime Cost % = (Cost of Goods Sold + Labor Costs) ÷ Total Revenue × 100
  • Target Range: 55-65% of revenue (fine dining may reach 70%)
  • COGS: Cost of food and beverage sold
  • Labor Costs: Wages, benefits, and payroll taxes
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