By Dominique Maddox, CBI, CFE | EATS Broker – Dallas Restaurant Broker
Most restaurant owners have no idea what their business Key Performance Indicators (KPIs) are or what their restaurant is worth. Until they sit down across from a buyer and the numbers tell a different story than they expected. I’ve been selling restaurants since 2010, and I can tell you the single biggest mistake sellers make isn’t pricing. It’s not the listing. It’s not knowing their own KPIs well enough to defend their asking price.
Buyers know these numbers. Lenders know these numbers. And at EATS Broker, every restaurant valuation I provide, whether for a Dallas taqueria, a Houston sports bar, or a multi-unit franchise in Austin, starts with the same set of Key Performance Indicators (KPIs). These benchmarks help determine whether a restaurant is priced to sell or priced to sit.
Whether you’re a restaurant owner considering an exit or a buyer evaluating your first acquisition, here is what you need to understand before money changes hands.
What Are Restaurant KPIs and Why Do They Matter at the Closing Table?
KPI stands for Key Performance Indicator. In the restaurant industry, KPIs are the financial and operational ratios that reveal, at a glance, whether a restaurant is healthy, struggling, or somewhere in between. They are the language buyers speak when they’re reviewing your Profit & Loss statement, and they’re the metrics SBA lenders use when deciding whether to approve financing.
Here’s the reality: a restaurant generating $900,000 in annual sales is not automatically a good investment. The question is what’s left after you pay for food, labor, rent, and overhead. That’s where KPIs come in. They strip away the revenue number and show you the actual financial structure of the business.
When I work with sellers across Dallas, Houston, and Austin, I help them understand and present their KPIs strategically — because a well-presented P&L, with clean ratios and normalized add-backs, can add tens of thousands of dollars to a final sale price.
Prime Cost: The Single Most Important Number on Your P&L
If a buyer or lender can only look at one number before deciding whether to move forward on a restaurant, it’s prime cost. Prime cost is the combined total of your Cost of Sales (food, beverage, paper) and your Total Payroll (salaried managers, hourly staff, and all employment-related benefits and taxes). It is the largest expense category in almost every restaurant and the one that is most within an operator’s control.
The formula is simple:
Prime Cost = Cost of Sales + Total Payroll
Industry benchmarks for prime cost are:
- 65% or less of total sales Full-service restaurants:
- 60% or less of total sales. Limited-service / fast-casual restaurants:
When prime cost climbs above 70%, it becomes extremely difficult to generate meaningful bottom-line profit and sell at a premium. I’ve reviewed P&Ls in the Frisco and Plano markets where prime cost was running 74–78%. Those owners were shocked to learn their restaurant, despite strong sales, had very limited equity value for a buyer.
Restaurant Broker Tip: Before you list your restaurant, pull your last 12 months of P&L statements and calculate your prime cost. If it’s above 65% for a full-service concept, we work together to identify add-backs and operational adjustments that normalize the number before it hits a buyer’s desk.
Food Cost Percentage: What Buyers and Lenders Look For
Food cost is expressed as a percentage of your total food sales. For most full-service and limited-service restaurants, the industry standard is 28% to 32%. This is the range that signals a well-run kitchen with effective purchasing, portioning, and waste control.
Context matters significantly here, though. Not all food cost percentages tell the same story:
- A steakhouse or fresh seafood concept in Houston’s Heights neighborhood running 40–45% food cost may still be highly profitable if its check average and volume support the math.
- A gourmet pizza or ethnic concept generating 22–26% food cost might look great on paper, but often compensates with higher labor intensity and lower check averages.
- Fast-casual and limited-service brands typically run tighter at 28–32%, though some QSR franchise concepts have contractually negotiated supply agreements that push this lower.
The takeaway is this: food cost doesn’t exist in a vacuum. You evaluate it alongside payroll and prime cost. That combination tells the real story of a restaurant’s profitability and its value on the open market.
Payroll Cost: The Number That Surprises Most Restaurant Owners
Total payroll cost — including all salaried employees, hourly staff, payroll taxes, workers’ compensation, and benefits — should fall within these ranges as a percentage of total sales:
- 30%–35% of total sales Full-service restaurant:
- 25%–30% of total sales. Limited-service restaurant:
- 10% or less of total sales: Management salaries alone:
One of the most common issues I see when analyzing restaurants for sale in the Dallas/Fort Worth Metroplex is owner compensation commingled with business payroll. When a working owner pays themselves a salary, takes distributions, and charges personal expenses through the business, the P&L looks worse than the business actually performs. This is where Seller’s Discretionary Earnings (SDE) becomes critical and where a qualified restaurant broker can add significant value to your transaction.
Restaurant Broker Tip: If you own a restaurant and you work in it, managing, cooking, or running shifts, your salary and any personal expenses run through the business should be ‘added back’ to your net income to calculate true SDE. This is the number buyers and SBA lenders use to determine what the business is worth to a new owner-operator.
Seller’s Discretionary Earnings (SDE) and How Your Restaurant Is Valued
Seller’s Discretionary Earnings or SDE: is the most widely accepted method for valuing small to mid-size independent restaurants and franchise resales. It represents the true economic benefit a new owner-operator would receive from the business, before financing and tax decisions.
Here is how SDE is calculated:
- Start with net income (bottom-line profit from your tax return or P&L)
- Add back: depreciation and amortization
- Add back: interest expense on business debt
- Add back: owner’s salary, personal vehicle expenses, health insurance, and other personal items run through the business
- Add back: any one-time, non-recurring expenses that won’t transfer to the new owner
The resulting SDE figure is then multiplied by a market multiple, typically 2.0× to 3.5× for restaurant businesses, to arrive at an estimated business value. Franchise resales, particularly established brands with strong franchisee support systems, often command multiples at the higher end of this range. Independent concepts in The Woodlands, Cedar Park, or Sugar Land may trade at lower multiples depending on concept strength and lease terms.
A second quick-reference method is the gross sales method: most restaurants in leased space trade in the range of 38%–42% of annual gross sales. This is a rough benchmark, not a final valuation, but it gives sellers and buyers a first-pass sense of where a deal might land.
Rent and Occupancy Cost: The Ratio That Can Kill a Deal
Rent is a non-negotiable cost once you’ve signed a lease and it is one of the most important factors in both a restaurant’s day-to-day profitability and its eventual sale price. The industry benchmark is straightforward: rent should not exceed 5-8% of total sales, and total occupancy cost (rent + CAM charges + insurance + taxes) should stay at or below 10% of total sales.
When occupancy cost climbs above 10%, it starts to seriously impair profitability, and it raises red flags for buyers and SBA lenders. I’ve reviewed deals in Austin’s South Congress corridor and in Uptown Dallas where rent-to-sales ratios were running 14–16%. At those levels, the lease is a liability, not an asset. Buyers discount heavily for it, and some walk away entirely.
Beyond the cost ratio, the transferability of the lease is equally critical. A restaurant that’s running great numbers with five years remaining on the lease — and no renewal options, has a fundamentally different risk profile than the same restaurant with ten years and two five-year options left. At EATS Broker, we conduct a detailed lease review on every transaction because landlord cooperation on assignment can make or break a deal at the closing table.
Restaurant Broker Tip: One of the first questions a serious buyer will ask after reviewing your financials is: ‘How much time is left on the lease, and what does the landlord require for assignment approval?’ If you don’t know the answer or the answer is complicated, let’s work through it before you receive a letter of intent.
Sales Per Square Foot: A Quick Profitability Check
Sales per square foot is a fast-check metric that signals whether a restaurant’s revenue is adequate for its physical space. The calculation is simple: divide annual sales by total interior square footage.
Here are the benchmarks by service type:
- $150/sq ft or less Full-service, losing money:
- $150–$250/sq ft Full-service, break-even:
- $250–$350/sq ft Full-service, moderate profit:
- $350+/sq ft Full-service, high profit:
- $200/sq ft or less Limited-service, losing money:
- $400+/sq ft Limited-service, high profit:
A 3,500-square-foot full-service restaurant in Katy, Texas, generating $450,000 in annual sales is producing about $129/sq ft. That’s below the break-even threshold and the math will show it. Conversely, a tight 1,200-square-foot fast-casual concept in Plano generating $600,000 is running $500/sq ft. That’s a high-profit operation with strong buyer demand.
What To Do With These Numbers Before You Sell
If you’re a restaurant owner in Dallas, Houston, Austin, or anywhere in Texas and you’re thinking about selling, even if you’re thinking about it five years from now understanding your KPIs today is the most important thing you can do to protect your financial outcome.
Here’s the practical roadmap:
- Pull your last 2–3 years of Profit & Loss statements and tax returns.
- Calculate your prime cost percentage. If it’s above 65%, identify where the variance is.
- Identify all owner add-backs: your salary, personal vehicles, health insurance, and any one-time expenses.
- Review your lease: how much time is left, what are the assignment provisions, and is rent within 6% of sales?
- Request a complimentary restaurant valuation from a licensed restaurant broker with CBI credentials.
The restaurant market in Texas remains active — buyers are actively looking for established concepts in the DFW Metroplex, Houston metro, and Central Texas. But buyers are more sophisticated today than they were a decade ago. They know these KPIs, they have accountants who know these KPIs, and they have access to SBA lenders who apply them rigorously. The sellers who get top dollar are the ones who know their numbers before the conversation starts.
That’s exactly what I do at EATS Broker. I’m not a general business broker who handles tire shops and laundromats on the side. I specialize exclusively in restaurants, bars, and nightclubs and I’ve been doing it since 2010. When you sit down with me, you’re sitting down with someone who has lived inside these numbers across hundreds of Texas restaurant transactions.
Ready to find out what your restaurant is actually worth?
Whether you’ve been thinking about selling for years or this week’s P&L finally pushed you to the edge — the first step costs you nothing.
✅ Get Your Complimentary Restaurant Valuation → www.EATSbroker.com/restaurant-valuations
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EATS Broker serves restaurant owners and buyers across Dallas, Houston, Austin, and nationwide.