Five Key Performance Indicators (KPI’s) that Restaurant Owners should BE tracking
If you are a restaurant owner, it is critical that you track and understand your business's most important financial drivers. Follow along as we break down some of the most important metrics.
Revenue
Frankly, this isn’t a unique KPI for a restaurant. This is the driver of everything though! Tracking revenue on a daily, weekly, and monthly basis is important to keep your finger on the pulse of the business. Monitoring this data can provide insight into the seasonality of the business and help with staffing and food cost management. When properly tracked through a point-of-sale system, we can also gain tremendous insight into the popularity of certain menu items. By understanding peak revenue times, we can scale up to capture even more business during these busy times.
Customer Satisfaction
There are different ways to measure customer satisfaction, but none is more powerful than the internet review. Online reviews are very strong forms of social proof. If others have been there and left positive reviews, it is easier for a first-time customer to take a chance and visit. On the other hand, a string of negative reviews can be devastating as well. Keep track of your number of reviews and ratings on the most important rating points for your restaurant. Respond to all reviews, and most importantly, if a customer has a valid complaint – fix it! The unfortunate truth is that even if everything is perfect, someone will be dissatisfied and let it be known. Bury the bad ones under five-star reviews and keep trucking.
Food Cost Percentage
To understand the food cost percentage, we take the total cost of food and divide this by the food revenue for the period. It is important to keep alcoholic beverages as a separate calculation as the margins there will be different.
We see successful restaurants that have food costs percentages in the low to mid-30s. This could vary depending on the type of food served as a steakhouse may well have higher costs than a pizza restaurant.
Since we are talking about one-third of a restaurant’s expenses being here, it is obviously a big driver of profitability. High food cost percentages could indicate excessive food waste, and underpriced menu items and can also vary depending upon the mix of certain menu items sold.
Labor Cost Percentage
Similar to food cost, we can calculate the labor cost percentage by taking the total cost of labor and dividing that by the revenue for the period. It is important to note that you need to include all labor costs here including all wages, benefits, and taxes.
A typical labor cost percentage can range from 25-35%. Just as food costs vary by type of restaurant, labor costs may be higher in more upscale and fine dining establishments.
Tracking labor costs helps in managing staff levels, scheduling, and overall payroll efficiency.
Employee Turnover Rate
Keeping good employees can be a challenge in any industry, but with employee turnover rates ranging from 70-75%, it can be particularly difficult for restaurants. Employee turnover can be measured by dividing the number of employees that have left over the number of total employees for a given period.
Whether the job is simple or complex, bringing on a new employee requires recruiting costs, interviewing time, training time and lost productivity while a new employee gets up to speed. Some costs are more difficult to measure but can be just as real – think reputation and brand image. How does the market interpret high turnover? What happens when a favorite staff person leaves?
What do your metrics tell you?
We would be interested to know! It is important to have a good accounting system as well as a point-of-sale system to gather all of this information. We are a small business accounting firm experience working with clients in the restaurant industry. If you have more questions about measuring the performance of your restaurant, schedule a call.