Restaurant KPIs you need to know

Total sales volume, gross profit margin and net profit margin

Total sales volume is arguably the most important restaurant KPI for measuring the financial performance of a restaurant. It is calculated by aggregating revenue generated from all sales transactions within a specific period.

Increased total sales is a metric that all almost all restaurant will work towards and it can gauge the effectiveness of your marketing strategies, menu offerings, and overall business operations.

Total sales volume is utilised in various financial calculations and ratios, such as calculating the average revenue per person and determining the table turnover rate so it's important to start with basic restaurant KPI and the king of all others.

Gross profit margin is one of the most most important restaurant KPIs that measures the financial efficiency of a restaurant by comparing revenue to the cost of goods sold. Total revenue is used to calculate gross profit margin and many other restaurant KPIs. Restaurant owners can assess their financial performance and make necessary profitability adjustments by tracking this metric.

Gross Profit = Total Revenue - Cost of Goods Sold

Gross Profit Margin (%) = [(Total Revenue - Cost of Goods Sold) / Total Revenue] * 100

Net profit margin is the KPI that indicates the overall profitability of a restaurant after accounting for all expenses. To calculate net profit margin, divide the net profit by the total sales revenue and multiply the result by 100.

Net Profit = Total Revenue - Total Expenses

Net Profit Margin (%) = (Net Profit / Total Sales) * 100

By analysing the net profit margin, restaurant owners can identify areas where costs can be reduced and sales can be increased, leading to a more successful and sustainable business.

Table occupancy, table turnover rate, spend per cover and sales per person average

Table occupancy is a significant restaurant KPI that measures the proportion of tables occupied in your restaurant. This is one of the clearest ways to assess use and efficiency of your resources. An optimal table occupancy rate for restaurants is generally around 80%. Table occupancy monitoring allows restaurant managers to assess their effective use of available space and potential revenue in a given period of time.

As table occupancy directly affects the number of orders and revenue, understanding the average table occupancy and making necessary adjustments can be crucial to a restaurant’s financial success.

Table Occupancy Rate (%) = (Number of Occupied Tables / Total Number of Tables) * 100

For example, if your restaurant has 50 tables and 40 of them are occupied, the table occupancy rate would be (40 / 50) * 100 = 80%. This means that 80% of the restaurant's tables are occupied.

Table turn rate is a crucial metric that indicates how quickly tables are occupied and vacated in a restaurant, which in turn directly impacts revenue.

Table Turn Rate = Total number of guests served / Total number of tables

By closely monitoring this metric, restaurant owners can ensure they're utilizing their resources efficiently and providing the best possible experience for their customers.

Quick ways to improve table turn rates could include:

Implementing an online reservation system

Providing efficient server training

Streamlining kitchen operations

Optimising table availability

Spend per cover is a valuable KPI that measures the average amount spent by each customer, providing insights into spending patterns and the effectiveness of menu pricing. Restaurant owners can assess their pricing strategy and find areas needing improvement or adjustment by determining the spend per cover.

Spend Per Cover = Total Sales / Total Number of Customers

Quick ways to increase spend per cover could include:

Upselling and cross-selling

Enhancing the speed of service

Investing in marketing efforts

Potentially increasing menu prices

By optimising this metric, restaurants can boost revenue and ultimately enhance their bottom line.

Guests per server per hour is a restaurant KPI that measures the efficiency of staff members and helps optimise staffing levels for better customer service. By calculating the guests per server per hour ratio, restaurant managers can assess their employees’ productivity and make necessary adjustments to staffing levels.

A well-managed guests per server per hour ratio ensures that servers can provide personalised and efficient service to each guest, resulting in improved customer service quality.

Guests Per Server Per Hour = Total Number of Guests Served / (Total Number of Servers * Hours Worked)

Ways to manage guests per server hour include:

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  Implementing strategies such limiting small capacity tables

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  Curbing no-shows

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  Serving a smaller menu

Sales per employee is a useful restaurant KPI for evaluating employee productivity and identifying areas for improvement in staff performance. By calculating sales per employee restaurant owners can gain insights into the revenue generated by each employee and optimise their staffing levels accordingly.

Monitoring sales per employee can also help restaurants control labor costs and ensure that they are using their resources efficiently.

Sales Per Employee = Total Sales / Total Number of Employees

Walk-ins vs reservations, no-shows rate and cancellation rate

Analysing the walk-in vs. reservations ratio can provide valuable information about customer preferences and help optimise table management and booking policies. Understanding the ratio of walk-ins to reservations means restaurant managers to make decisions about staffing, table management, and marketing initiatives that align with their customer base preferences.

Walk-ins vs. Reservations Ratio = (Number of Walk-ins / Number of Reservations) * 100

No-show rate is an important restaurant KPI that measures the percentage of customers who do not show up for their reservations, impacting both revenue and operations.

No Show Rate (%) = (Number of No Shows / Total Number of Reservations) * 100.

Cancellation rate is a similar restaurant KPI which this time measures the percentage of reservations that are canceled, helping to identify potential issues and adjust booking policies accordingly.

Monitoring the cancellation rate can provide valuable insights into customer behaviour and preferences, allowing restaurant managers to make informed decisions regarding reservation policies and table management.

Cancellation Rate (%) = (Number of Cancellations / Total Number of Reservations) * 100

Ways to reduce no-shows and cancellations could include:

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  Implementing a reservation confirmation system: A system that sends reminders to customers about their upcoming reservations can help reduce no-shows. This can be done via email, text message, or phone calls.

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  Charging a cancellation fee: Implementing a policy where customers are charged a fee if they cancel their reservation within a certain time frame can deter no-shows.

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  Overbooking: Similar to what airlines do, restaurants can also overbook to a certain extent, predicting that a certain percentage of reservations won't show up. This requires careful management to avoid customer dissatisfaction.

Prime costs, cost of goods sold, food cost percentage and labour cost

Prime costs, also known as just prime cost, includes the combined total variable costs of goods sold and labor, providing insights into overall cost control and profitability.

Prime Cost = Cost of Goods Sold (COGS) + Total Labor Cost

Monitoring prime costs is essential as they constitute the most substantial expenditure for a restaurant and can significantly influence restaurant performance if not managed effectively.

Cost of goods sold (COGS) measures the direct costs associated with producing food and beverages, helping to assess inventory management and pricing strategies. By calculating COGS, which is determined by subtracting the ending inventory value from the beginning inventory value plus purchased inventory, restaurant owners can evaluate their cost control efforts and make necessary adjustments to optimise profitability.

Cost of Goods Sold (COGS) = Beginning Inventory + Purchased Inventory - Ending Inventory

The cost of goods sold is directly influenced by food prices, waste, and inventory management practices, making it a crucial metric to monitor and manage for the financial health of a restaurant.

Food cost percentage is an important KPI that helps evaluate menu cost-effectiveness and pricing strategy by comparing food costs to total sales. To calculate food cost percentage, divide the cost of goods sold by total sales.

By monitoring this metric, restaurant owners can assess their menu pricing strategy and identify areas for improvement. To optimise food cost percentage, restaurants can implement strategies such as reducing food waste, negotiating better deals with suppliers, and adjusting menu prices.

Food Cost Percentage (%) = (Cost of Goods Sold / Total Sales) * 100

By maintaining food cost percentage within the industry standard of 28-32%, restaurant owners can ensure they are optimising profitability and providing value to their customers.

The labour cost ratio measures the relationship between labor costs and total revenue, helping to optimise staffing levels and control labour expenses. Restaurant managers can ensure efficient resource use and a superior guest experience by calculating the labor cost ratio, which is determined by dividing labor costs by sales.

Labour Cost Ratio (%) = (Total Labour Cost / Total Sales) * 100

Managing labour costs effectively is crucial in the restaurant industry, as they typically account for around 30% of revenue. By monitoring the labor cost ratio and making necessary adjustments to staffing levels, restaurant owners can control labor costs and ensure they are running a financially viable operation.

Guest satisfaction and employee satisfaction

Employee turnover rate is a KPI for measuring staff retention and identifying areas for improvement in employee satisfaction and training. By calculating the employee turnover rate, which involves dividing the number of employees who left by the total number of employees required to staff the restaurant, and then multiplying the result by 100, restaurant managers can assess their staffing practices and make necessary adjustments to retain valuable employees.

Employee Turnover Rate (%) = (Number of employees who left / Total number of employees) * 100

A high employee turnover rate can be costly and disruptive to a restaurant’s operations, making it essential to monitor this metric and implement strategies to improve employee retention.

Guest satisfaction plays a crucial role in the long-term success of any restaurant. By monitoring guest satisfaction KPIs, such as customer satisfaction scores, online ratings and reviews, and customer retention rates, restaurant owners can gain insights into their customers’ experiences and identify areas for improvement.

Understanding these KPIs and implementing targeted strategies to enhance guest satisfaction can result in increased customer loyalty, positive word-of-mouth, and ultimately, a thriving restaurant business.

Cash flow and break-even analysis

In addition to all of the above mentioned KPIs, assessing a restaurant’s financial health involves examining cash flow and conducting a break-even analysis. These metrics are essential for evaluating a restaurant’s overall financial stability and long-term success.

Monitoring cash flow and calculating the break-even point allows restaurant owners to pinpoint potential financial issues, adjust their operations accordingly, and maintain the financial viability and prosperity of their business.

Calculating cash flow involves measuring the difference between money coming in and money going out, providing insights into a restaurant’s liquidity and solvency. The cash flow for a restaurant is calculated by subtracting total cash outflows from total cash inflows. By monitoring cash flow, restaurant owners can ensure they have adequate funds to cover expenses, plan for future investments, and address potential financial issues before they become critical problems.

Understanding and managing cash flow effectively is crucial for the long-term success of any restaurant.

Determining the break-even point helps restaurant owners understand the minimum revenue needed to cover all costs and achieve financial sustainability. To calculate the break-even point, the total fixed costs are divided by the contribution margin. By monitoring the break-even point, restaurant owners can set realistic financial goals, adjust their pricing strategy, and make informed decisions about the growth and expansion of their business.

Understanding the break-even point is essential for evaluating a restaurant’s overall financial health and long-term viability.