Industry Benchmarks for Limited-Service Restaurants

Industry benchmarks serve as a critical starting point when evaluating the financial and operational performance of a company. High performance often correlates with a higher valuation, making these benchmarks essential.

GCF Valuation is a full-service business valuation firm dedicated to privately held businesses and the professionals who support them. During our appraisal process, we invest significant time in researching and analyzing industry data. A key part of this involves identifying industry benchmarks, which provide a basis for comparing a subject company to its industry as a whole. With 26 years of experience, we are adept at understanding benchmarks across various industries, enabling us to deliver accurate valuation conclusions for our clients. Additionally, we prepare Market Intelligence Reports for common industries to share valuable insights with our clients.

What Are Industry Benchmarks?

Industry benchmarks are key performance indicators (KPIs) of financial and operational performance. These KPIs are used in business valuations to compare a company’s performance to its industry peers, helping to highlight strengths and weaknesses. In the limited-service restaurant industry, for example, profitability tends to be higher compared to the full-service restaurant sector. If a company underperforms relative to this benchmark, other metrics often explain the discrepancy.

Key Financial Benchmarks

In the limited-service restaurant industry, a few financial indicators are crucial for assessing business strength and weakness:

• Cost of Goods Sold (COGS): This includes the cost of food, beverages, and other supplies. As a percentage of revenue, COGS typically ranges between 27% and 30%.
• Rent: The cost of the business’s operating space. Rent should account for approximately 6% to 8% of revenue.
• Labor Costs: A significant factor in financial performance. Post-COVID, the labor market has tightened, increasing labor costs. This trend is not expected to reverse soon, impacting cash flow margins. Currently, cash flow margins average 19% of revenue for SDE (Seller’s Discretionary Earnings) and 14% for EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

As appraisers, if we see that SDE margin is below average at 15% we start by reviewing COGS, rent, and labor costs to identify any deviations from these benchmarks. Understanding the reasons behind these deviations can often lead to simple solutions for performance improvement.

Regional and Demographic Variations

Contrary to popular belief, businesses in most industries, including limited-service restaurants, tend to perform similarly across different regions of the country. While there are exceptions, regional and demographic factors typically have minimal impact on performance.

Using Benchmarks to Improve Your Limited-Service Restaurant Business

The good news is that monitoring performance using benchmarks is relatively straightforward. For privately held companies, benchmarks often focus on just a few key areas. In the case of limited-service restaurants, business owners can compare their performance to industry peers by examining a couple of critical metrics. Regular financial oversight throughout the year, coupled with a detailed annual review, can help keep a business on track with its long-term financial goals. Achieving this consistency ensures a solid company valuation when it’s time to exit the business.

Keep Learning About Business Valuations

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What Is Business Valuation? Why & When You Need One

Our Accreditations

Your GCF Business Valuation appraisal team has one or more of the following business valuation accreditations:

• Accredited Senior Appraiser (ASA) – is recognized as having achieved the highest level of education, training, and report writing for business valuations. The ASA designation is the gold standard for a business valuation professional. (source: American Society of Appraisers)

• Certified Business Appraiser (CBA) – a very prestigious credential in the eyes of all who are familiar with it as it earned the reputation of being a difficult credential to obtain. (source: National Association of Certified Valuators and Analysts®)

• Certified Valuation Analyst (CVA)
• Accredited in Business Valuation by the American Institute of CPAs (ABV by AICPA) – a credential granted exclusively by the AICPA to qualified valuation professionals who demonstrate expertise in valuation through knowledge, skill, experience, and adherence to professional standards. (source: American Institute of CPAs)

• Accredited in Business Valuation (ABV) – credential is granted exclusively by the AICPA to CPAs and qualified valuation professionals who demonstrate considerable expertise in valuation through their knowledge, skill, experience, and adherence to professional standards. (source: American Institute of CPAs)
• Certified Public Accountant (CPA)

Over 25 years of experience and expertise in business valuations and appraisals.  An accredited appraiser receives extensive training, remains in good standing, and follows specific industry practices to determine the value of a business.

GCF’s Machinery and Equipment Appraisal Accreditations

• Expert Equipment Certified Appraiser (EECA) – Our appraisers are recognized with a deep understanding of valuation principles and extensive experience by the Institute of Equipment Valuation.

• Certified Machinery and Equipment Appraiser (CMEA) – a CMEA professional has the expertise and certification to conduct a third party machinery and equipment appraisal.