Restaurant KPIs Every Owner Should Measure
Key performance indicators, also known as KPIs, help businesses involved in the food industry to calculate how closely their actions align with their goals.
While working on the KPIs, the restaurant owners can easily identify the areas where there is a need for improvement. Moreover, understanding the basic KPI metrics will help you to understand the metrics that are actually helpful for your business.
So, in this article, we are going to discuss the importance of measuring the importance of restaurant KPIs and the KPIs that you should track.
The Importance of Measuring Restaurant KPIs:
Measuring your restaurant’s KPIs is important to improve your business service so that you can keep on servicing satisfied diners.
KPI data is also important to focus on the best ways to use the staff, budget, and time. Restaurants who are collecting the KPI metrics need to compare their current activities with the past to analyze and predict future trends.
So, here are the eight most important restaurant KPIs that matter for your dining business.
Eight Restaurant KPIs that Matters:
Important KPIs for your business that you should know in detail
1. Break-even Point:
When you are opening a new business or a new branch at a new location, it is important to know about the break-even point.
The break-even point is generally calculated over a particular time period to discover the points where a business becomes profitable. It also helps to measure the amount of revenue that needs to be generated to cover the investment in the business.
Moreover, the break-even point is also important when it comes to decision-making processes for new projects and businesses.
The break-even point of a restaurant can be used for deciding the amount that needs to be spent on equipment or to upgrade existing equipment to raise revenue.
For example, if a commercial convection oven needs to be upgraded so that it can serve 100 extra customers at a time, it can be justified as it will result in an increase in revenue.
Here is how you can calculate the break-even point
Break-Even Point = Fixed Costs ÷ Contribution Margin
2. Cost of goods sold (CoGS)/Actual food cost percentage:
Your actual food cost, which is formally known as CoGS, is used for measuring how much it costs to produce food over a period of time.
CoGS is also helpful to measure your inventor’s stock value at any given time. CoGS also helps you to calculate how much it actually costs you to prepare items for sale.
So, this is one of the most important KPIs that you will need for your restaurant business to calculate the food costing and also for your restaurant inventory management system.
CoGS provides a precise picture of how much you have been spending for producing a particular dish and if the profit margin for that particular dish is profitable for your business.
Here is how you can calculate actual food cost
Actual food cost = ((Beginning Inventory + Purchases) – Ending Inventory) ÷ Food Sales.
3. Food cost percentage:
Once you have calculated the actual food cost, it will get easier for you to figure out the proportion it is used to make up your sales figure. The food cost percentage is simple but also a crucial calculator to determine the profitability of your menu.
The industry benchmark that has been set for a profitable food cost percentage is 28-32% which obviously depends on the outlet.
For restaurants dealing with multiple outlets, this is the best possible way to compare how each of the outlets is functioning.
Here is how you can calculate the food cost percentage
Food cost percentage = (Actual food cost X 100)/ Total sales for a given period
4. The ideal food cost percentage:
The ideal food cost percentage is used for targeting food costs for a specific time period. It helps in gauging performance.
Food cost percentage doesn’t contain trimmings, over-portioning, or other common causes of food waste.
Comparing your actual food cost percentage with the ideal food cost percentage will help you to calculate your target performance.
The ideal food cost percentage will help you narrow down to the actual problems that might have been affecting your business profit and, at the same time, use menu engineering too.
Here is how to calculate the ideal food cost percentage
Ideal food cost percentage = (Ideal food cost X 100)/ Total sales
5. Food cost variance:
According to experts, a major portion of restaurant owners don’t calculate their food waste.
Whereas, it is important to know the amount of Inventory that goes to waste due to squandering, pilferage, over portioning, or other common causes.
By comparing the food cost percentage with the ideal food cost percentage, you will be able to calculate the extent of this problem.
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For example, if your ideal food cost percentage is 27%, but your actual food cost percentage is 33%, there is a food cost variance of 4%, which is where you need to work to close the gap.
The most common causes of food cost variance are:
- Portion size
- Waster or squandering
- Theft
- Poor reception procedure
- Unrecorded sales
- Modified/wrong ideal food cost
- Error in the accounts
Here is how you can calculate your food cost variance
Food Cost Variance = Ideal Food Cost Percentage – Actual Food Cost Percentage
6. Prime cost & prime cost as a percentage of sales:
The prime cost is used for measuring the controllable cost in a restaurant. It ranges from total labour cost to actual food cost. The labour cost includes hourly wages, salaries, benefits, and expenses.
The prime cost helps in creating a benchmark for the restaurant to have control over their costs. The prime cost is also one of the most useful metrics that is used in this calculation. Typically, a prime cost cannot be more than 60% of the total sales.
Here is how to calculate the prime cost and prime cost as a percentage of sales
Prime cost = total labor cost + CoGS
7. Menu item profitability:
Effective menu engineering needs to work on an individual menu item’s profitability.
Restaurateurs know about the most popular dish in their kitchen by looking at the order graph in the wireless call device records.
But what they don’t know is the most profitable dish that is making the most money in real-time. Working on the profitability of each item helps in taking away the biases and the guesswork.
Here is how to calculate menu item profitability
Menu item profitability= (number of items sold X menu price) – (number of items sold X Item portion cost)
8. Gross profit & gross profit margin:
Gross profit is the basic KPI that lets you calculate how much your business is making before profit and fixed costs.
If your gross profit is off, you might need to go back to the basics and fix it before doing anything further. Your gross profit amount can be used as a benchmark of success.
Here is how to calculate gross profit and gross profit margin
Gross Profit = Total revenue – Actual food cost
Key Takeaways:
Setting KPIs is a good start towards a profitable restaurant business. They need to be regularly monitored, and the insights need to be used for pivoting strategies when required.
Also, another KPI that needs to be focused on is the table turn time. This metric tracks the time that is spent from a table being seated to cashing out. Using a wireless waiter call system, the table turn time can be calculated in real-time.
About Author:
Rintu Biswas
Rintu Biswas is a professional content marketer since 2011. He is extremely passionate about his work and always tries to help people with his informative articles.
