To survive past the five-year mark, owners must regularly assess their restaurant's state against internal goals and industry benchmarks. The best way to achieve that is to dive deep into a restaurant's key performance indicators (KPIs).
Here are some examples of KPIs restaurants use:
- Sales and Profitability KPIs: Cash flow, table turn rate, spend per head, revenue per available seat, sales per employee, average table occupancy
- Customer Experience KPIs: Customer retention rate, online reviews
- Marketing KPIs: Social media engagements, website traffic
The list of KPIs in the restaurant industry is long, and not all of them will be relevant to your establishment. The key is to pick the most important KPIs to drive your overarching goals.
The metrics listed below offer insights into actionable ways to improve a restaurant's performance and highlight areas that require improvement or changes.
12 Essential Metrics for a Restaurant
1. Inventory Turnover Ratio
The inventory turnover ratio allows you to track your highest- and lowest-performing products. This calculation allows you insight into your inventory as a whole and affects your purchasing. By purchasing only the highest-performing products, you can cut down on waste in the kitchen, stock rooms, and accounts.
2. Food Cost Percentage
Your food cost percentage allows you to assess the profitability of your menu items, which can fluctuate with food and supplier price changes. Whether it's a seasonal product or a product shortage on the suppliers' end, a high-selling product may become unprofitable if the price spikes.
3. Employee Turnover Rate
Employee turnover rate is the percentage of staff members that leave their role or are fired and need to be replaced during a specific time period. The restaurant industry has a high employee turnover rate compared to other industries, and replacing employees can be costly—the average cost of replacing a restaurant employee is $5,864.
High staff turnover can damage operational efficiency in a fast-paced restaurant and require time and training to get new hires up to speed.
4. Actual Vs. Theoretical Cost
Theoretical food cost is what the restaurant's food costs should be for a period of time, according to the current cost of ingredients. Theoretical food costs assume that there were perfect portion sizes, no waste, no theft, and no ingredient shrinkage for the menu items sold.
Actual food cost is the true cost of all of the ingredients a restaurant spends for the same period of time. The actual food costs account for things like imperfect portions, employee theft, accidental waste, or improper invoicing.
Once you track the restaurant's theoretical and actual food costs, the difference is the actual vs. theoretical food cost variance. The variance is where you can strategize operational efficiencies and optimize ingredient costs—and where you can recapture lost profits.
For example, a positive variance may result in your reports are showing loss without waste or sales. Your usage is likely coming from the kitchen. Double-check that all recipes are logged correctly and adjust as necessary for accurate inventory.
A negative variance works in reverse. If you are finding a negative variance in your reporting, your first stop should be your recipes, also. Negative variances can also indicate minor issues in over portioning or more serious problems, like theft. Variances on a small scale are to be expected. Tracking them allows security in your business and protects your bottom line and your restaurant's integrity.
5. Break-Even Point
The break-even point is the holy grail of your business. This number represents how much revenue your restaurant needs to cover its expenses. Once you know the break-even point, you also know when your costs are covered and profit is generated. Your restaurant will crash and burn if you're consistently spending more than you're making.
6. Inventory Turnover Ratio
To calculate your inventory turnover ratio, you will need to add your beginning inventory with your ending inventory, divided by your cost of goods stored, then divide your answer by two. This calculation requires keeping close track of your inventory and the fluctuation of the cost of goods stored.
7. Cost of Goods Sold
To establish your cost of goods sold, take your starting inventory, add it with your purchases of the same period, and subtract the ending inventory. You're heavily relying on accurate purchases with the cost of goods sold. When using a manual system, you are always at risk of simply overlooking something that can throw off your whole equation at the end of the month.
8. Gross Profit
Gross profit is your restaurant's money after deducting the cost of goods sold. This metric shows you how much money is left over to pay for various expenses, such as electricity, rent, supplies, etc., after deducting the CoGS.
9. Net Profit Margin
The net profit margin is all of your restaurant's money after accounting for expenses such as rent, electricity, CoGS, etc. This is your profit margin and an important restaurant metric to calculate.
10. Average Food Cost/Food Cost Percentage
To calculate your average food cost, you will need your start-of-month inventory, end-of-month inventory, a complete list of purchases made throughout the month, and total sales. Add your total purchases with your start-of-month inventory, then subtract the end-of-month inventory. To find your percentage, divide your average food cost by the monthly food sales.
11. Labor Cost Percentage
Labor cost percentage is the percentage of the restaurant revenue that pays for labor, e.g., all of your staff members and employees. Labor cost percentage is important to measure because it's one of two components of your prime costs (the other is the cost of goods sold.) Together, they should ideally make up about 60% of a restaurant's total costs, with a healthy percentage of about 20-35% of sales.
12. Prime Cost
Prime cost equals the total sum of the labor costs and the cost of goods sold (CoGS), including all liquor and food costs. Prime cost is key to measure because the number represents the restaurant's most significant expenses, and it affects all operations, including staff scheduling, menu pricing, budgets, and goal setting. Full-service restaurants try to keep prime costs at around 60%. Prime costs above 70% can mean financial trouble, while below 55% could mean you're sacrificing quality or working your staff too hard.
13. Historical sales
Historical sales data measures how a restaurant is doing over a period of time. Tracking this metric by day, week, month, and year is better to spot trends and patterns. Historical sales data measures against past performance and helps identify your busiest times of the year while producing more accurate strategies and forecasting assistance so you can reduce costs.
Using Restaurant Management Software to Track Metrics
The more reports you generate, the more informed your projections can be, and your restaurant will run more smoothly. Restaurant management software typically provides real-time metrics throughout the day, and some even offer alerts and notifications for certain metrics, such as reaching par level.
This software is also connected with your suppliers, informing you of any changes and automatically adjusting the menu. This way, you can buy the best products at the lowest costs.
You can also filter all your reports to see detailed breakdowns of your items, with their cost percentage and variables. Once you've taken a look at the data, you can make your purchases directly through the app. With orders and invoices being produced directly through the app, restaurant management software is also on top of your purchasing, suppliers, and open orders report. This means cutting out the binders and the endless stacks of invoices. You will be completely paperless and in control.
Business metrics will make or break your restaurant
Your business metrics can help create a healthy financial future for your restaurant. By understanding your restaurant down to the last teaspoon of salt, MarketMan can provide you with in-depth, streamlined reports and an intuitive dashboard to navigate through reports with the swipe of a finger.
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