Managing a restaurant franchise involves juggling numerous components, and as the network grows to include multiple locations, maintaining uniformity and visibility can quickly become challenging. 

For both franchisors and franchisees, the success of each unit is intrinsically linked. Each unit monitors its own restaurant performance metrics, crucial for informed decision-making and growth. 

However, setting too many metrics can lead to confusion and inconsistency, while focusing on the wrong ones can hinder effective management.

Identify and track the right KPIs to optimize operations across the franchise network, ensure consistent performance, and drive profitability for each location.

Below we’ll delve into the 15 most critical KPIs that restaurant owners and franchisors should measure to empower their franchisees and set the foundation for collective success.

How To Use Restaurant Performance Metrics To Improve Your Franchise

KPIs, or Key Performance Indicators, provide restaurant owners and managers with data to understand and track their success against their main business goals. Examples of common KPIs restaurants use include customer satisfaction, operational efficiency, sales, and employee engagement levels.

Shifting consumer behaviors, emerging competitors, and fluctuating economic conditions all impact the restaurant industry regularly.

By viewing KPIs as industry benchmarks instead of fixed targets, restaurateurs maintain flexibility and enhance their strategic decision-making in this ever-evolving marketplace.

10 Essential Restaurant Franchise Metrics

1. Gross profit & gross profit margin

Gross profit is the value between the selling prices of your dishes and the direct costs associated with preparing these dishes. These direct costs are also known as the cost of goods sold (COGS) and exclude operating expenses such as labor costs, rent, and utilities.

By analyzing gross profits, restaurateurs can make cost-saving strategies on menu pricing, inventory management, and supplier negotiations. 

If you’re looking to calculate your gross profit margin, the percentage of revenue that remains after subtracting COGS, divide the gross profit by the total revenue and multiply it by 100. 

2. Net profit & net profit margin

Net profit, also commonly known as the bottom line, is a restaurant’s revenue after all costs have been deducted from gross sales. Net profit margin calculates the percentage of sales that become profit.

Both are holistic measurements of your restaurant’s profitability by taking into account not only COGS but your operational costs as well.

Common operational expenses include:

• Taxes
• Rent / Mortgage
• Insurance
• Labor
• Utilities

The formula for both are below:

Net Profit = Total Revenue − Total Expenses‍

‍Net Profit Margin = ((Total Revenue - Total Expenses) / Total Revenue) x 100

3. Percentage of a Strategic Category

Each franchise unit’s menu profitability hinges on its specific customer demands, locations, and local market trends.

A location that fails to pivot to changing trends, misses out on key growth opportunities. So how can franchisees spend their valuable capital on the right menu items to ensure they’re meeting customer demand, capitalizing on trends, and driving growth?

Let’s say a specific unit identifies gluten-free options as a growing customer favorite of popular menu items/ingredients by looking at their restaurant inventory management software.

The franchisee would calculate the percentage of this strategic category to understand the impact of gluten-free options so they make data-driven decisions on menu development, recipe costing, and marketing strategies. 

To find the percentage of a strategic category, restaurateurs need to know the total sales of the strategic category as well as the total sales of all categories.

Keep in mind that this percentage will vary across all franchise locations and the insights that arise from this calculation will not be one-size-fits-all. 

4. Average Transaction Value (ATV) 

The Average Transaction Value (ATV), or average ticket size, represents the average amount of money spent by customers per order or visit. 

This metric offers restaurateurs valuable insights into customer spending patterns, the effectiveness of their menu, and the success of upselling strategies. By analyzing ATVs across different franchise locations, operators can fine-tune their menus, enhance cost management, and refine marketing strategies. 

Leverage MarketMan’s suggestive ordering capabilities so operators are equipped to accurately predict item demand, make informed decisions, and significantly increase profitability.

5. Same-Store Sales Growth

Same-store sales Growth (SSSG) measures the increase or decrease of revenue growth of existing franchise locations over a certain period. It assesses the performances of established locations that have been operating for a minimum of one year. 

For franchisors, this metric is crucial for understanding locations’ organic growth and overall health. A unit’s SSSG should be a positive number, indicating good restaurant health, an increase in sales, and effective business growth strategies. 

Keep track of your franchisees’ SSSG scores to see which locations are outperforming others. Their practices and insights will enable you to update operational guidelines within the franchise system if needed.

‍Same-Store Sales Growth = ((Current Period Sales - Previous Period Sales) / Previous Period Sales) x 100

6. Franchisee Turnover Rate

Franchisee turnover rate refers to the total number of franchisees that voluntarily or involuntarily leave the franchise system during a certain period. It’s typically expressed as a percentage of the total number of franchisees. 

Some common reasons why franchisees leave a system include:

• Financial losses and operational inefficiencies
• Lack of training
• Supply quality and logistic difficulties
• Unmet financial expectations

Maintain the health, longevity, and success of your franchisees by empowering them with industry-leading technology that optimizes operations, improves communication, and provides uniformity across locations. 

‍Franchisee Turnover Rate = (Number of Franchisees Who’ve Left / Total Number of Franchisees) x 100

7. Franchisee Satisfaction Score

A franchisee satisfaction score provides insights into the health of the franchise system and the overall contentment of your units. High satisfaction scores indicate better performance, higher renewal rates, and an increase in franchisee recruitment.

Early detection of low franchisee satisfaction scores enables franchisors to pinpoint and address any underlying issues, transforming dissatisfied owners into loyal partners.

Determine this score by conducting surveys inquiring about franchisees’ experiences. To receive a numerical rating, assign a number from one to five to each survey answer option.

Examples of survey answers include: 

1 - Very Dissatisfied

2 - Dissatisfied

3 - Neutral

4 - Satisfied 

5 - Very Satisfied

Below are questions to ask your franchisees to gain comprehensive insights:

• How satisfied are you with the financial performance of your restaurant?
• How satisfied are you with the supply chain and inventory management support?
• How satisfied are you with the operational guidelines provided to you?

Calculate these scores for each location to gain a deeper understanding of every unit’s contentment. To get a location’s average satisfaction score, add up their answers and divide them by the total number of questions in the survey.

8. Employee Turnover Rate

High employee turnover doesn't just mean more recruitment and training costs; it also hits hard on everything from overtime pay to the quality of your customer service.

Your employee turnover rates reflect the stability of your workforce and reveal patterns related to the quality of training, effectiveness of operations, or employees' working conditions.

Keeping an eye on staff turnover helps owners understand its financial impact and encourages proactive measures to improve employee retention, create consistent customer experiences, lower labor costs, and maintain optimal staffing levels during key periods.‍

Follow these steps to find your employee turnover rate:

1. Choose a specific period to run this calculation for. 
2. Find the total number of employees at the start of the period and the number of employees at the end of the period.
3. Note the number of staff members who’ve left during this period.
4. Plug your figures into this calculator to find your percentage.

9. Unit Growth Rate

Growth rate is the measure of how quickly a restaurant chain expands over a specific period. 

Calculating your unit growth rate provides a birds-eye view of expansion efforts, market responses, and overall health and scalability likeness. 

To calculate unit growth rate select a specific period you’d like to measure the growth for. This can be monthly, quarterly, annually, etc. You’ll need to know the number of units that existed at the start of your particular period and the end of this period. Enter your numbers into a restaurant KPI Excel calculator [link] to view the final percentage.

10. New Market Penetration Rate

The new market penetration rate measures the rate of expansion into new geographic or demographic markets, where it wasn’t previously present. 

To find this rate, divide the number of new units in new markets by the total number of new units. You can view this rate as a percentage; to do so, simply multiply the number by 100.

Factors that affect a franchise’s new market penetration rate include:

• Menu adaptability and localization
• Supply chain flexibility based on customer demands
• Operational efficiency

More Restaurant Metrics to Ensure Franchisee Success

MarketMan helps restaurant operators to effectively manage Inventory, invoicing, purchasing, recipe costing, and more, all on one easy-to-use platform. Sign up for a demo today.

Break-even point

The break-even point is a critical financial metric measuring the sales volume required to cover the cost of an investment. It’s the point at which there are no losses or gains in your business since your total revenue and total costs are equal.

It's especially useful when considering significant financial investments, such as opening a new location, introducing new menu items, or procuring new equipment.

Calculate your break-even point by taking your total fixed costs and dividing them by the ratio of your net sales (total sales minus total variable costs) to your total sales.

Cost of Goods Sold

COGS includes all costs associated with producing and delivering menu items to customers. This includes the cost of food items, beverages, cooking equipment, packaging, kitchen supplies, and cleaning supplies.

Having accurate COGS reports is essential to controlling your costs, understanding inventory usage, increasing profit margins, and more. 

The average COGS for a successful restaurant can vary widely depending on factors such as the restaurant type, location, menu prices, and operational efficiency. However recent industry benchmarks have reported a target COGS of 28-35% of total revenue for a successful restaurant.

Prime Cost

The prime cost ratio measures a restaurant's overall profitability. Decreasing prime costs can lead to higher profits for restaurant owners.

Calculate your prime cost ratio by adding together the cost of goods sold (COGS) and total labor costs. Divide this sum by the total revenue for a time period (usually a week or month).

Prime Cost = Labor Costs + COGS

Prime Cost as % of Sales = Prime Cost 'Divided By' Total Sales

Labor cost and labor cost percentage

The effects of increasing labor costs on restaurant profitability have been substantial in the last few years. Labor has traditionally been a significant expense for restaurants; historically, labor costs have never been higher than today. 

Labor costs include wages, taxes, discounts, and benefits. Historically, labor costs have been 30% to 40% of a restaurant’s total revenue. 

According to the National Restaurant Association, mobile and cloud technology solutions are increasing in popularity, like point-of-sale (POS) and inventory management software, which drastically increase staff productivity.

Inventory turnover rate

A food inventory turnover ratio measures the frequency of sold-out inventory in a given period and gives you a look into the effectiveness of your inventory management and operations. 

Understanding this ratio impacts food costing, menu pricing, ordering frequency, and overall profitability. Although the ideal ratio varies depending on restaurant type, many restaurateurs aim between 4 and 8. This means that every month, your units are selling out of their inventory 4-8 times. Achieve your optimal inventory turnover ratio to reduce food waste, control costs, and drive profits.

Tracking Franchise Metrics with Restaurant Management Software

Effective calculation of a restaurant's key performance indicators often depends on the integration of accounting systems, point-of-sale (POS) platforms, and inventory management software. With technology becoming an integral part of running a restaurant, data analytics is at the heart of unlocking restaurant growth.‍

Integration between these software platforms allows for advanced reporting, real-time metrics, and better forecasting. View your restaurant KPI dashboard and gain access to your COGS, Menu Profitability, and Actual vs Theoretical reports with MarketMan’s restaurant management platform.

‍Sign up for a demo today.