The hospitality industry remains as competitive as ever, with almost 700,000 restaurants in the US vying to get ahead of each other. And when not worrying about their competitors, restaurants must adapt to new consumer trends, increased employee demands, and changing business practices.
Therefore, the only way for a restaurant to remain competitive is to consistently improve. And in order to improve, restaurant managers need a detailed understanding of where the business currently stands, and which areas need more attention than others.
Failure to achieve this can result in overspending, declining standards, and a loss of competitive edge in an industry that’s notoriously unforgiving.
This is why KPIs are so important. A restaurant’s success cannot be measured simply by gross profit (although this is important). All areas of the business must be understood and presented as quantified data, which is then evaluated and used to determine future decisions.
Here are the most useful restaurant KPIs and what they mean.
Sales-per-Employee is a useful metric to understand roughly how much revenue each employee generates for the business. Of course, some staff members generate more than others. However, this will help you evaluate the effectiveness of your workforce and decide if changes need to be made.
Calculate sales-per-employee by totaling your business's annual sales and dividing it by your total number of employees.
Simply put, cash flow is a term for the profit you’ve made minus what you have spent on operating costs. Understanding cash flow offers an immediate insight into the current state of your business while also informing any future decisions. Do you have enough money to pay the bills? And if so, what’s next for your business? Should your next goal be growing the restaurant or ensuring it survives?
The formula for calculating cash flow is as follows:
Cash Inflow – Cash Outflow = Total Restaurant Cash Flow
Labor costs are defined as the total amount spent on your workforce by your business including salary, perks and taxes. They are just one of the operational costs that restaurant managers cannot overlook and must be accurately measured in order to optimize earnings.
A simple formula to calculate labor cost is:
Labor cost per hour = (gross pay + all annual costs) / actual worked hours per year.
Cost Of Goods Sold (COGS)
The cost of goods sold (COGS) is the cost of ingredients a restaurant uses in a defined period.
Tracking COGS is particularly important in today's economy which is defined by supply chain woes, labor struggles, and price fluctuations. To calculate COGS, follow the formula below.
Beginning Inventory + Purchased Inventory – Ending Inventory = Cost of Goods Sold (COGS)
Restaurant prime costs are the combined total of labor costs and costs of goods sold.
When it comes to driving profit, prime costs can be just as valuable as sales. If your sales approach is working optimally, meaning it’s no longer possible to increase sales, lowering prime costs can help drive profit.
For example, if your $20 hamburger has a prime cost of $14, you’re walking away with $6 in profit.
The formula to calculate your prime cost is simply: Total COGS + Total Labor = Prime Cost.
The current labor crisis in hospitality continues to deepen, with the average turnover rate peaking at 130.7% during the pandemic.
Employee turnover is costly for restaurants, with the cost-per-hire costing upwards of $3500. Additionally, turnover impacts performance and a lack of experience among staff can result in diminishing restaurant standards.
Before tackling turnover, you first need to understand it. In this case, knowledge is power, and understanding your turnover rate can help you control it.
Here’s how you calculate your turnover rate:
Number of employees that left your restaurant/average number of restaurant employees
Servers are vital to any restaurant's success. By interacting directly with customers, they act as brand ambassadors and influence important business areas including customer experience and sales. Understanding your server’s performance provides insight into how to optimize them.
There are a number of ways to track server performance, including the aforementioned sales-per-employee.
Tracking server errors-per-guest can prove to be a good idea as mistakes often lead to unhappy customers and inflated costs. Do this by dividing total number of server errors by total number of items wrung.
Customer Retention Rate
Returning customers spend, on average, 67% more than new customers. This statistic alone tells you all you need to know about the importance of retaining customers. Additionally, recruiting a new customer is up to five times more expensive than retaining one.
If your restaurant is to survive, you’ll need to analyze your customer retention rate and, if necessary, put in place proven retention strategies.
To work your retention rate out, you will need to select a time frame. Once you have done this, collect the following three pieces of information:
- The number of existing customers at the start of the time period (A)
- The number of total customers at the end of the period (B)
- The number of new customers added within the time period (C)
Then follow this formula:
[(A-B)/C] x 100 = customer retention rate
Whether accurate or not, reviews can make or break any restaurant. The average customer now has access to a vast amount of information about your business before they visit, and 88% of consumers incorporate reviews into their purchasing decisions.
Good reviews can increase sales by up to 19%, whereas a single negative review can lose you 30 customers. The importance of online opinion should be clear, and restaurants must work hard to improve their online brand.
Furthermore, analyzing reviews can help you to improve your business. While making everyone happy is impossible, a significant number of reviewers highlighting the same issue is not a coincidence. So, if no one likes the spaghetti carbonara, maybe it’s time for a new recipe.
When analyzing reviews, what we are really doing is measuring customer satisfaction. A simple way to do this is by subtracting the percentage of negative customers from the percentage of positive customers.
The popular review platform Trustpilot outlines a way to calculate customer satisfaction when using information from their website.
How to Improve your KPIs
Improving all of the KPIs listed above may seem like a daunting task, however, for the majority of them, the common denominator is your employees.
Sales, reviews, and retention—your employees play a role in all of them. Therefore, the quickest way to improve your KPIs is by providing your workforce with the tools they need to onboard successfully, continuously upskill, and maximize performance.
This is where eduMe can help. As a seamless mobile-training platform that utilizes the proven practice of microlearning, eduMe improves employee performance by providing them with the information they need, exactly when they need it. Our customers are already reaping the benefits, with one of our clients experiencing a 66% increase in sales following the integration of eduMe.
Get in touch with us now to find out how eduMe can help improve your KPIs 👇