A thriving full-service restaurant must understand its data and performance well.
The Importance of KPIs in the Restaurant Industry To start, let’s clarify.
Accurate KPIs enable you to evaluate your success at reaching targets, making them indispensable tools for making informed business decisions.
For restaurant operators, KPIs can dictate direction or strategic pivots. They act much like a compass or map, measuring everything from cost management to customer satisfaction, specifying the relationship between operational practices and their financial outcomes.
KPIs guide restaurants to optimize profitability and guest satisfaction, which are crucial for sustained growth and competitiveness in the industry.
Revenue-related KPIs Kicking things off, the following are critical KPIs you can tie to revenue for your restaurant.
Average check size (AKA cover) Maximizing the average check size is a powerful growth lever. This involves strategic menu pricing and creative upselling tactics, which can significantly increase restaurant sales .
Deploying technologies for more innovative sales techniques, such as voice AI powered by providers like Slang.ai, can enhance this effort by suggesting additional items based on customer preferences and order history.
Table turnover rate The table turnover rate reflects the efficiency with which a restaurant serves customers and turns tables to accommodate more diners.
Table Turnover Rate = Total Parties Served / Number of Tables Improving this KPI boosts revenue and enhances the ability to provide a flexible and responsive dining experience.
Integrating a sophisticated restaurant tech stack with reservation management and table optimization can improve this factor.
Revenue per available seat hour (RevPASH) RevPASH combines time, space, and money elements, encapsulating the revenue generated per seat per hour. This KPI considers how much customers spend and how your spatial layout and timetabling affect revenue.
RevPASH = Total Revenue / (Number of Seats x Hours Open) Cost-related KPIs Restaurants must consider direct and indirect costs associated with inefficient practices that they can mitigate through automation and tech solutions.
These cost-related KPIs can serve as a stepping stone toward not just weathering the storm of operational costs but actively using them to steer toward more profitable waters.
Food cost percentage This metric calculates the cost of creating each dish on your menu with the price for which it’s sold. By keeping track of this KPI, you can make decisions about pricing your menu effectively, driving profits, and ensuring your costs don’t eat away at returns.
Leveraging technology like inventory management software can keep close tabs on your food costs and adapt to real-time fluctuations.
Food Cost Percentage = (Food Cost) / (Sales Revenue) x 100% Labor cost percentage This is the ratio of your labor cost to your total revenue. Maintaining a balanced and optimized labor cost percentage is crucial as it directly impacts profitability.
Solutions such as employee scheduling software could assist in this facet by ensuring staff schedules match customer demand peaks and valleys, thus enhancing operational efficiency.
Labor cost % = (Total Labor Costs) / (Total Sales) x 100% Prime cost Prime cost involves the combined expenses of food and beverages and labor costs, including salaries, wages, benefits, and payroll taxes. This figure serves as the foundation of your restaurant costs.
Intelligently managing prime costs can fundamentally improve your profit margin. Aiming for a prime cost representing roughly 60-65% of total sales is a good idea.
Prime Cost = Direct Material Cost + Direct Labor Cost Guest Satisfaction KPIs
In the dynamic world of restaurants, guest satisfaction is not just an afterthought; it’s the currency of success.
Prioritizing the guest experience speaks directly to the essence of hospitality, turning casual diners into loyal guests and making it easier to sing your praises to friends, family, and review sites.
Net Promoter Score (NPS) The Net Promoter Score (NPS) measures customer loyalty and satisfaction. By asking one simple question, “How likely are you to recommend us to a friend or colleague?” With this, operators gain access to a ton of data and can track a path from a pleased guest to the promoter—someone so satisfied that they sing your praises—a journey documented well by Harvard Business Review .
Customer feedback and reviews Online reviews posted on platforms such as Yelp! and Google Maps are core to shaping the public perception of a restaurant in today’s digitally-driven world.
These platforms and websites can often sway potential guests. Actively managing these reviews is crucial, demonstrating a restaurant’s dedication to satisfaction and collecting valuable insights for continuous improvement.
Online reviews are a powerful tool to make or break a restaurant’s reputation. Effectively managing them has become a modern standard. Related: Check out our guide on how to boost restaurant guest feedback .
Repeat customer rate A robust repeat customer rate is the hallmark of a restaurant’s appeal, encapsulating the twin pillars of quality and service. This metric underscores loyalty and satisfaction because returning guests cast a vote of confidence in their experiences.
Repeat Customer Rate = (Number of Repeat Customers) / (Total Customers) x 100% By regularly tracking the repeat customer rate, restaurants can identify the strengths that keep guests returning. This can be tricky to measure without a tool such as one that helps manage loyalty programs or a CRM.
However, consider exploring ways you can track this since the cost of acquiring new customers often surpasses the cost of retaining existing ones.
Operational Efficiency KPIs Optimal operational efficiency is essential for ensuring long-term success and sustainability.
The following are vital metrics that measure the operational health of a restaurant. When measured accurately, these KPIs provide insights into the business’s efficiency and effectiveness.
Inventory turnover ratio A high inventory turnover ratio is a clear indicator of efficient inventory management, and using fresh ingredients contributes significantly to the quality of the food served.
Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory Sophisticated inventory management systems streamline the procurement and use of stock, reduce waste, and ensure the freshness of ingredients. By optimizing inventory management, restaurants can maintain a delicate balance between demand and supply, ensuring that they neither overstock nor run into shortages, both of which can be costly.
Employee turnover rate The employee turnover rate is a crucial KPI in an industry where hiring and retaining employees is a consistent challenge. A stable and satisfied workforce is indispensable for delivering high-quality service.
Employee Turnover Rate = (Number of Employees Separated) / (Average Number of Employees) x 100% High turnover can lead to increased training costs, inconsistency in service, and a decline in team morale. These factors can harm the restaurant’s reputation and guest experience.
Using shift scheduling software like 7shifts, restaurants can better manage employee schedules, improve work-life balance, and increase job satisfaction and retention.
Table utilization rate Maximizing the table utilization rate is about making every square inch of the restaurant as productive as possible. This KPI directly influences revenue by ensuring you’re serving the maximum number of guests without compromising the experience or safety standards.
Table Utilization Rate = (Total Customers Served / Number of Tables) / Average Seating Time per Table Overcrowding can lead to declining service quality, whereas underutilization means missed revenue opportunities and costlier service. Reservation management software assists in managing reservations more efficiently, allowing restaurants to optimize their seating arrangements, reduce wait times, and adjust staffing according to demand.
Financial KPIs Gross profit This KPI reflects the restaurant’s total revenue after deducting the Cost of Goods Sold (COGS) but before subtracting overhead, payroll, taxes, and interest payments. It clearly indicates your restaurant’s efficiency in managing its core business.
Gross Profit = Total Revenue - Cost of Goods Sold (COGS) Let's say a restaurant brings in $10,000 in total revenue on a Saturday night. The cost of ingredients used to prepare the food sold that night amounts to $3,500. In this example, the restaurant's gross profit for Saturday night is $6,500. This signifies that after covering the direct cost of ingredients, they have $6,500 remaining to cover other expenses like labor, rent, utilities, and overhead costs.
Net profit margin This metric is the ultimate indicator of a restaurant’s financial health, showing the revenue percentage remaining as profit after all expenses. It represents the effectiveness of your overall operations and strategic decisions, reflecting selling performance and how efficiently you manage the business.
Net Profit Margin = (Net Profit / Total Revenue) x 100% The net profit margin gives a holistic view of a restaurant’s financial health beyond just sales figures. Monitoring this KPI helps identify areas for efficiency improvements and is vital for long-term growth and sustainability.
KPIs to Shape the Future of Your Restaurant The restaurant industry’s evolution is constant, with technology and customer expectations continually changing. Staying ahead of these trends and adapting your operations is crucial for sustained growth.
The restaurant KPIs and strategies outlined here are your building blocks toward transforming your restaurant into a thriving, future-proof business. You can come out on top by focusing on systematic growth strategies, incorporating innovative technological solutions, and perpetually improving customer service.
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