The top Key Performance Indicators every restaurant CEO should track

The top Key Performance Indicators every restaurant CEO should track

As a restaurateur, tracking your Key Performance Indicators (KPIs) is a necessary part of daily business – and a key process when it comes to accelerating your success. KPIs allow you to measure, evaluate and adjust operations within your restaurants to ensure continued success. If you don’t track (or haven’t set!) KPIs, you can’t evaluate how effectively you are operating, and eventually will be unable to pin-point and fix issues as they – inevitably – arise.

So, what are these KPIs? Essentially, a KPI is a performance measurement that is used to evaluate how effectively your company is achieving its key business objectives. KPIs must be:

  • Applicable
  • Generated and measured with actual data
  • Properly defined
  • Communicated clearly
  • Monitored regularly

No matter your style of restaurant, it’s important to develop and monitor a set of KPIs that will alert you of opportunities, and of successes or failures, so that you may focus energy on the areas that need it most.

Here are some of the main areas of your restaurant, and the associated KPIs we recommend you track with your restaurant management and Point of Sale solution:

Kitchen management KPIs

Your kitchen is the main place where you can reduce costs and increase throughput. Keeping close tabs on what’s going into and out of your kitchen will allow you to laser focus on ways to reduce waste and costs.

Here are some kitchen management KPIs we suggest you track:

  • Cost of goods sold: If you track only one thing in your kitchen, make it this one. Cost of goods sold is likely the biggest expense for any restaurant; knowing where you can reduce the costs is a key factor in increasing profitability.
  • Menu item profit and popularity: Pricing items on your menu impacts profitability. Do you know which items yield the biggest return and how well those items are selling? A high-profit menu item is great – but not if it produces a statistically insignificant percentage of your sales. Items with a higher sales velocity but lower profit margin might be driving all your revenues. Get a true handle on the profits of each menu item to help drive menu engineering and promotion decisions.
  • Production time per dish: Knowing how long it takes to produce each dish is key, as it can help you determine the value of each single dish based on turnaround time and expectations. Track popular (or star) items as well dishes with low sales volume, and consider ways to shorten production time and offer faster service. If a popular dish takes too long to prepare, it will negatively impact the customers experience as well as your kitchen’s efficacy. And if items that are quick to produce are rarely ordered, consider swapping them out for more popular items and giving the kitchen more time to prepare the items customers want, faster.
  • Food wasted per food purchased: Food waste is a huge concern for restaurateurs worldwide. Monitoring food waste enables you to improve your demand forecasting, forces you to reconsider how and where you procure your foods, and leads to better management and storage your food stock. It can also help you determine if there are better methods to prepare your food, and if you need to reconsider your portion sizes or serving methods.
  • Other kitchen management KPIs to consider tracking are:
    • Food costs per head
    • Kitchen linens costs
    • Value of stock
    • Total food costs
    • Best/worst selling items

Front of house and staff management KPIs

Your customers are the most important part of your restaurant. Measuring what keeps them happy and returning to you is incredibly valuable when it comes to determining what to change, maintain or improve. Ability to keep your staff costs in check and staff turnover low will impact service levels.

Consider tracking the following front-of-house and staff-related KPIs:

  • Food and beverage sales per guest: Get a handle on which menu items appeal most to guests, and whether time or day impact total spend. Tracking this metric will allow you to make menu adjustments – for example removing underperforming dishes that might negatively impact kitchen productivity while resulting in little profit, or increasing prices on popular and hot-selling items to improve your margins. This metric can also help you determine which promotions to run – for example, happy hour to increase sales during slow periods.
  • RevPASH: Revenue per available seat per hour is crucial to profitability. If your chairs are empty, your profits are suffering. By measuring your actual revenue per hour divided by the number of seats you have, you’re able to make adjustments to improve hour-by-hour profitability.
  • Additional front of house KPIs to consider are:
    • Time per table turn
    • Number of customers
    • Customer feedback
    • Seating efficiency
    • Basket analysis
  • Total labor cost percentage: Just knowing your staff’s hourly or annual rates isn’t enough. Consider wages alongside all the other labor expenses a staff member incurs, including sick and vacation time, staff discounts, benefits and insurance, as well as taxes and other local wage-related laws. This value should be expressed as a percentage of your total sales.
  • Additional staff management KPIs to consider are:
    • Wage cost percentage
    • Total labor hours
    • Average hourly pay
    • Staff turnover

Sales, marketing and administration KPIs

Even if customers and food service make up the bulk of your daily life, no restaurateur can escape the back-end management aspects of the business. Knowing how your sales and marketing efforts affect your revenues and being aware of your cash flow position is necessary for you to thrive. Fortunately, the increased proliferation of affordable and powerful cloud-based reporting solutions means that accessing and drilling down on data is becoming easier every day.

Consider tracking the following sales, marketing and administrative KPIs:

  • Visits by top customers: Consider implementing a loyalty program, as it can help you track and reward the frequency of visits by your top customers.
  • Bookings: Track and measure your reservations throughout the year to identify patterns, and properly plan for restaurant usage during peak and low times. If you use a retail management system that offers integrated booking management, then this KPI will be really easy to track.
  • Additional sales and marketing KPIs to consider are:
    • Marketing and advertising costs
    • Social media following
    • Press mentions
  • Return on investment: The net value of cash flows divided by the cost of investment or capital employed. As any business owner knows, this metric is essential to determining profit.
  • Total accounts payable and receivable: Keeping a close watch on your accounting payable and receivable will help you avoid a compounding cash flow issue.
  • Additional administrative KPIs to consider are:
    • Technology efficiency
    • Cash position in bank
    • Sales and costs: budgets to actuals

Track, measure and adjust operations with a unified restaurant management system

There is no limit to the amount of KPIs you can track and manage in your restaurant, so it can be hard to decide which ones to focus on and which ones to overlook.

Once you have set your key metrics, you must ensure that you have the means to track them. If you are using disparate systems to manage the various parts of your business – for example using one software system to handle vendors, another one for staff management, a third one for finances and accounting, a fourth one for the Point of Sale – chances are you lack clarity and visibility over your business.

The best decision you can take to drive profitability in your restaurant(s) is to ensure you’re using a unified system that collects all the data you need in a single database, where they will be available for you to assess, measure and adjust.

Before you start lining up your KPIs, review your current restaurant management solution and determine if you have all the data and visualization capabilities needed to effectively assess and affect operational performance.

Want to learn more about how an all-in-one technology platform can change the way you track and manage your business and operations? Schedule a demo of LS Nav Hospitality today.

 

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