17 Feb, 2020
The restaurant industry is a huge global phenomenon. Last year in the US alone it was predicted to deliver sales of $863B.
However, running your restaurant is hard; increasing competition, consumer choice, rising costs, environmental concerns and labour laws all affect the bottom line, meaning it’s challenging to remain competitive in the sector.
According to the Bureau of Labor Statistics, 2% of full-service restaurants don’t make it to their first year, and the median lifespan of a typical food business is 4.5 years. With this in mind, it’s crucial to know which KPIs to track so issues can be dealt with quickly before they get out of control.
Like the US, the UK market is also highly challenging. There’s a perfect storm of changing tastes and trends, high rents and growing costs of ingredients to deal with. Another factor is technological disruption. With technology companies such as Deliveroo, UberEats and JustEat on the rise, the number of people dining in restaurants is shrinking.
This has even led to the creation of ‘dark kitchens’, where a kitchen exists without the front-of-house just to serve the app delivery companies. Fashion and health concerns can also affect your business. 20 years ago, Italian food was exciting. These days, not only have tastes changed, but the idea of carb-heavy cuisine can put many off.
High-street restaurants are increasingly feeling the pinch. Jamie’s Italian, Prezzo, and Pizza Express are a few recent, high-profile examples. Another cuisine that hasn’t moved with the times in many towns and cities is Indian food, with 50% predicted to close over the next 10 years, perhaps driven in part by a desire for lighter, healthier dishes.
Keeping an eye on the KPIs
In order to ensure commercial viability in a climate of ever-increasing competition, it is essential to track Key Performance Indicators (KPIs) for your restaurant business.
Gauging the success of your restaurant business comes down to the goals that you’ve set for the business. It’s hard to set goals if you don’t know how you’re currently performing. Here are eight restaurant business KPIs that you can track to ensure that you’re staying on top of things and to help your restaurant business remain solvent.
Average customer headcount
Average customer headcount = total number of customers within a period ÷ by the total number of periods. Average customer headcount is one of the more important KPIs for a restaurant business and tells you how many customers you have served during the period.
This will help you allocate resources moving forward, as it will identify the busiest periods, letting you accurately order the appropriate inventory, and have enough staff on the floor when required. By identifying times with consistently lower headcounts, you can reduce staff or look at ways to get more people through the door by offering incentives, for example the classic happy hour!
Looking at this metric, along with revenue per available seat hour, will allow you to better forecast revenue targets and cash flow.
Table turn time
Table turn time = number of tables served ÷ by the period of time
This metric tracks the time it takes from a table being seated to cashing out.
Table turn time shows you how efficient your wait staff are, and, when tied to the spend of that table, you can draw conclusions from the optimal table turn time to drive value to your bottom line.
Typically, point of sale apps will track the time for you. You should ensure that you regularly track this KPI with a view to optimising your service for the table turn time that yields the best results for your restaurant.
Dry and wet sales gross profit percentage
Dry sales gross profit percentage = (Net dry sales ÷ COGS) x 100
Wet sales gross profit percentage = (Net wet sales ÷ COGS) x 100
Keeping an eye on dry (food) and wet (drink) gross profit percentages is important as it will tell you the margin that you are making from each sale, including what the most profitable items are.
Wages to sales
Wages to sales ratio = (Hourly wages ÷ hourly gross sales) x 100
The wages to sales ratio will let you know if you are turning a profit per staff member in that given hour.
Revenue per available seat hour (RevPash)
Seat Hours = Number of Seats x Hours Open
RevPASH = Revenues ÷ Seat Hours
RevPASH measures the revenue per seat in your restaurant.
Average revenue per cover
Average revenue per customer = Total Sales ÷ Number of Covers
Average revenue per cover tells you how well your front of house staff are maximising sales.
CoGS for the period = (Beginning Inventory) + (Purchases) - (Ending Inventory)
Cost of Goods Sold (CoGS), is the total cost required for each unit you sell. Tracking CoGS is important as it features in the gross profit margin calculation and will allow you to order inventory more accurately for future periods.
Food and drink wasted per food and drink purchased
Food wasted = Food purchased that is wasted ÷ Total food purchased
Wastage is typically measured in weight, with companies such as Winnow providing smart tech to generate additional wastage insights.
Depending on your processes, and on the proviso that there is sufficient time to do so, it is worth measuring wastage by product. This helps you revise the demand forecast for those particular items, particularly if there is a week-on-week trend for those items.
Measuring food and drink wastage helps you to better understand your food costs, allowing you to find ways to reduce wastage and improve food and drink wasted per food and drink purchased.
Setting KPIs is a good start, but they’ll need to be regularly monitored and any insights that they provide should be used to pivot strategy where necessary.
Here’s what a restaurant business’ management report looks like in Fathom.
Tracking your restaurant business’ KPIs and key metrics over a period of time allows you to understand how your restaurant is performing vs prior periods. Monthly review meetings and a restaurant KPI dashboard are a good idea as well.
Check out our recorded webinar on how you can use Fathom to set goals and track your KPIs, or start a free trial below.
Written by Matt Lowry
Matt is the Head of Operations for Fathom’s UK office. With a background in legal services, Matt also has tech experience, having consulted to clients ranging from sole traders to FTSE 100 companies before joining Fathom.