What overhead percentages should my restaurant be targeting?
Prime cost is the number that matters most. This is your food cost plus labor cost combined. For most restaurants, this should land between 55% and 65% of revenue. Go above 65% consistently and you’re either breaking even or losing money. Get it under 60% and you have room for rent, utilities, and actual profit.
Food cost should run 28% to 35% of revenue for most restaurants. Quick-service and fast casual operations typically stay on the lower end. Full-service restaurants with more complex menus run higher. Fine dining can hit 35% to 40% and still be healthy because of higher check averages. The key is knowing what your menu style should target and tracking actual costs against that benchmark.
Labor in California is expensive. Most restaurants in the LA area see labor costs between 30% and 38% of revenue. The state minimum wage and tip credit rules push this higher than national averages. Full-service restaurants need more staff, so they’ll be at the higher end. Counter-service concepts with minimal front-of-house labor should be closer to 28% to 32%. An LA County bookkeeper for small businesses who works with restaurants sees these patterns across many operations and can tell you when your numbers are out of line.
Occupancy costs ideally stay under 10% of revenue. This includes rent, property taxes, and CAM charges. Many restaurants in LA County push above this because of real estate costs. If your rent is 12% or 15% of revenue, you need higher volume or higher check averages to make up for it. Signing a lease based on projected sales rather than realistic sales is how restaurants fail in year one.
Other operating expenses typically run 10% to 15%. This covers utilities, smallwares, cleaning supplies, repairs, marketing, insurance, and all the miscellaneous costs that add up quickly. Utilities alone can be significant if you’re running a full kitchen with hoods, refrigeration, and HVAC all day.
What’s left after all of this is profit. Healthy restaurants target 5% to 10% net profit. Many operate on thinner margins. Some lose money and don’t realize it because they’re not tracking costs properly.
These percentages only matter if you’re actually measuring them. Restaurant bookkeeping should produce monthly profit and loss statements broken down by category so you can see where you land. If your food cost is 40% and labor is 32%, your prime cost is 72%. That’s unsustainable. You need to address it immediately through menu pricing, portion control, waste reduction, or labor scheduling before it drains your cash.
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