February 20, 2020
As a restaurant owner or manager, understanding your restaurant's performance is crucial for making informed decisions and ensuring long-term success.
Key Performance Indicators (KPIs) provide valuable insights into various aspects of your business, from sales and profitability to overall customer satisfaction and operational efficiency.
In this blog post, we'll discuss some of the most essential KPIs for restaurant businesses that you should track to ensure you stay on top of things and help your restaurant business remain solvent.
The restaurant industry is a huge global phenomenon. Last year in the US, it delivered a whopping 1.09 trillion dollars.
However, running a restaurant is hard. In an increasingly competitive restaurant industry, consumer choice, rising costs, environmental concerns, and labour laws affect the bottom line, making it challenging to remain competitive.
According to the Bureau of Labor Statistics, 2% of full-service restaurants fail in their first year, and the median lifespan of a typical food business is 4.5 years. Given this, it’s crucial to know which KPIs to track to deal with issues quickly before they get out of control.
Read: Fathom's guide to business KPIs
Like the US, the UK market is also highly challenging. It must deal with a perfect storm of changing tastes and trends, high rents, and growing food and beverage costs.
Another factor is technological disruption. With technology companies such as Deliveroo, UberEats and JustEat on the rise, the number of people dining in restaurants is shrinking.
This has even led to the creation of ‘dark kitchens’, where a kitchen exists without the front-of-house to serve the app delivery companies. Fashion and health concerns can also affect your business. 20 years ago, Italian food was exciting. These days, not only have tastes changed, but the idea of carb-heavy cuisine can put many loyal customers off.
High-street restaurants are increasingly feeling the pinch. Jamie’s Italian, Prezzo, and Pizza Express are a few recent, high-profile examples. Another cuisine that hasn’t moved with the times in many towns and cities is Indian food, with 50% predicted to close by 2027, perhaps driven partly by customer expectations for lighter, healthier dishes.
Tracking key performance indicators (KPIs) for your restaurant business is essential for business success in a climate of ever-increasing competition.
Gauging the success of your restaurant business comes down to the goals that you’ve set for the business. Setting goals is hard if you don’t know how you’re currently performing.
Average customer headcount = total number of customers within a period ÷ by the total number of periods.
Average customer headcount is one of the more critical restaurant metrics. It tells you how many customers you have served during a period.
This will help you allocate resources moving forward. Identifying the busiest periods will let you accurately order the appropriate inventory to satisfied customers so enough employees are on the floor when required.
By identifying times with consistently lower headcounts, you can reduce your percentage of employees or look for ways to market your restaurant to others.
You could look at incentives, such as the classic happy hour, that increase the likelihood of customers going through the door at any stage and help increase customer loyalty.
Looking at this metric, along with revenue per available seat hour, will allow you to better forecast revenue targets and cash flow and make more informed business decisions.
Table turn time = number of tables served ÷ by the period of time
This metric tracks the time it takes from a table being seated to cashing out.
Table turn time shows your employee productivity When tied to table spending, you can conclude from the optimal table turn time to drive value to your bottom line.
Typically, point of sale apps will track the time for you. You should regularly track this KPI to optimise your service quality for the table turn time that yields the best results for a successful restaurant.
Dry sales gross profit percentage = (Net dry sales ÷ COGS) x 100
Wet sales gross profit percentage = (Net wet sales ÷ COGS) x 100
Keeping an eye on dry (food) and wet (drink) gross profit percentages is important for the average restaurant manager as it will tell you the margin you make from each sale, including the most profitable items.
Wages to sales ratio = (Hourly wages ÷ hourly gross sales) x 100
The wages to sales ratio will let you know if you are turning a profit for the number of employees in that given hour.
Seat Hours = Number of Seats x Hours Open
RevPASH = Revenues ÷ Seat Hours
RevPASH measures the total revenue per seat in your restaurant. A high RevPASH means that your restaurant is effectively managing its dining experience. With a high RevPASH, the restaurant seats are frequently occupied, and the turnover rate is high. This highlights that a good percentage of customers are choosing to dine in your establishment, and your seating arrangements accommodate the right number of patrons during operational hours.
Average revenue per customer = Total Sales ÷ Number of Covers
Knowing your average revenue per cover tells you how well your front-of-house staff maximizes the level of sales you are receiving. It allows you to allocate resources more strategically, such as scheduling the right number of staff and ordering the appropriate amount of ingredients to match your expected percentage of revenue.
CoGS for the period = (Beginning Inventory) + (Purchases) - (Ending Inventory)
Investopedia defines the Cost of Goods Sold (CoGS) as the total cost required for each unit you sell.
Tracking CoGS is important as it is included in the gross profit margin calculation and will allow you to order inventory more accurately for future periods.
Industry standards dictate restaurant CoGS fall between 20-40%
Food wasted = Food purchased that is wasted ÷ Total food purchased
Wastage is typically measured in weight, with companies like Winnow providing smart tech to generate additional wastage insights.
Depending on your processes and provided there is sufficient time to measure wastage by-product, it is worth measuring wastage by-product. This helps you revise the demand forecast for those items, particularly if there is a week-on-week trend.
Measuring food and drink wastage helps you better understand your food cost percentage, find ways to reduce wastage, and improve the amount of food and drink wasted per purchase.
Tracking your restaurant's Key Performance Indicators (KPIs) offers numerous advantages that can significantly improve your business's performance and profitability.
Here are some of the key benefits you'll experience:
Setting KPIs is a good start for effective restaurant management but must be regularly monitored. Any insights they provide should be used to pivot strategy where necessary.
Here’s what a restaurant business management report looks like with Fathom's financial analysis software.
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Tracking your restaurant business’s KPIs and key metrics over time allows you to understand how your restaurant performs compared to prior periods. Monthly review meetings and a restaurant KPI dashboard are also good ideas.
By tracking the KPIs highlighted above, you can identify areas for improvement, optimize your daily operations, and make data-driven decisions to enhance your restaurant's financial performance.
Remember to set clear goals and regularly review your different metrics to ensure that your business growth is on the right track. You can always visit our KPI glossary to learn about more metrics that can help your business.
With Fathom's financial analysis software, you can track the metrics and Key Performance Indicators (KPIs) that matter to your business. Start a free trial today.
Matt is the Head of Operations for Fathom’s UK office. With a background in legal services, Matt also has tech experience, having consulted to clients ranging from sole traders to FTSE 100 companies before joining Fathom.
