Being a restaurateur isn’t just a business, it’s a passion. And what sets excellent operations apart from those that are merely good is more than the cuisine or a friendly smile. It’s the ongoing drive to improve and to grow.
Where would you like to see your business in five years, or in ten? The restaurant industry is highly competitive, and success demands hard work and attention to detail. How do you measure success and identify areas in need of improvement? Key performance indicators (KPIs) can help you make sense of the numbers so you can plan for your future.
What Are KPIs and Why Do They Matter?
KPIs are a system of metrics that allow you as the business owner to understand how each facet of your business is performing. Using KPIs you’ll be able to:
- Track both product and employee performance
- Gather meaningful data about your business
- Assess profitability over time
- Identify areas of excess expense or loss
- Improve systems and practices to boost profitability
- Use past performance to predict future trends
With KPIs, every important metric will be at your fingertips, allowing you to make informed choices that align with your business goals.
Important KPIs for Restaurants
Every action has a set of results, and in business, mistakes can be costly. But how can you be sure the actions you and your staff take are moving your restaurant toward its goals? KPIs may hold the answer. Here are some benchmarks you won’t want to miss.
Sales & Profitability
Tracking sales revenue is a key metric for any business, because of its link to gross profits and break-even point. Sales receipts also offer an easy way to track business growth over time, and to use data from prior years to predict future trends.
Gross profits represent the amount of money your business has remaining after deducting the cost of goods sold. To calculate gross profit, simply subtract the cost of goods sold from your revenue.
This is the point where sales revenue balances against material and variable costs. Any revenue above that mark is profit.
Historical sales allow you to look back over time to compare today’s performance figures against those of prior years or quarters. Discover your strongest (and weakest) months, and make informed choices that could help boost revenue.
Cost of Goods Sold
Food Cost Percentage
Determining the cost of the food is essential to creating a sustainable and profitable pricing structure for your restaurant. The food cost percentage is basically the difference between what you pay for raw ingredients versus what you take in from customers for each prepared meal. This lets you adjust pricing to account for changes in ingredient prices.
Liquor Product Cost
If your establishment has a bar or serves alcohol of any kind, you’ll want to track liquor expenditures closely. Restaurants enjoy a substantial per-drink mark-up over wholesale prices, so by tracking what and how much your drinkers are consuming, you can make better purchasing decisions. Liquor cost percentage varies by type of alcohol (e.g., hard liquor 18-20%, bottled beer 24-28%, draft beer 15-18%, and wine 35-45%).
Prime cost refers to all resources (both raw materials and labor) required to produce a finished product. Prime cost offers you as a business owner an easy way to determine how much profit is generated on a per-meal, per-table, or per-night basis.
Labor Cost Ratio
Labor costs refer to all expenses directly related to maintaining your workforce. These include employee wages, payroll taxes, benefits, and discounts. Labor costs typically consume approximately one third of a restaurant’s budget. Knowing what you’re paying for your workers can help you make informed adjustments, especially when hiring for growth.
One measure of success for any business is employee retention. Generally speaking, good managers know how to keep good talent. In the restaurant and hospitality industry, however, turnover is especially high. The average length of stay for a server is a surprising 2 months and for managers just 4 months. Managing and minimizing this kind of turnover can be challenging, but metrics can help identify pain points within the work environment.
Average Table Occupancy / Spend per Customer
Another way to track profits is to look at your occupancy data. How many tables are full for dinner, how many customers in the average party, and how much does each party typically spend? KPIs can help you get the answers.
Sales per Server
The most valuable resource in any business is its people. Knowing how your servers are performing is one way to gauge the success of your business. Comparing receipts across servers can help identify both top money-makers and those in need of improvement.
Number of Tables/Guests per Server per Hour
Every restaurateur would love a packed house nightly, but that isn’t often the case. Knowing the table turnover rate (how many tables a server can handle in a typical hour or shift) can help you make smarter staffing decisions.
Loss & Server Errors
Errors are inevitable in any business. But recurring errors could affect your profitability. Knowing how much such mistakes are costing you can help you control the damage and institute changes that minimize the risk for recurrence.
How Moskowitz Can Help
Getting a handle on all these metrics might seem daunting. Don’t worry. The tax and legal pros at Moskowitz LLP have built our reputation helping businesses like yours achieve their financial goals. Need a financial plan for your business? Or maybe some help with the paperwork? We’re here for you. Connect with a Moskowitz LLP representative—give us a call today!
EDITOR’S NOTE: This post is part of a series of articles relating to KPI’s in various industries. Check out the posts below for KPI’s for other types of businesses:
KPIs for Construction & Trades
KPIs for Medical & Dental Practices