Profitability Through KPIs -The restaurant industry is a challenging industry to crack. Even before COVID, competition was tough and profits seemed to just gradually slip away. The emergence of the pandemic has exacerbated the situation leaving many scratching their heads wondering how to move on.
The answer is to keep a closer eye on the financial lifeline of your business and start tracking the numbers in your restaurant or bar, that’s where KPIs are your saving grace. KPIs (Keep Performance Indicators) is any bit of data that can be measured and compared to your goals.
In the right hands, KPIs are a powerful tool to drive your strategy, measure your results and help you make better decisions. There are dozens of restaurant KPIs you could track, we recommend you include these six.
Six Important KPIs
- Cash Flow.
- Cost of Goods Sold.
- Prime Cost.
- Revenue Per Available Seat Hour.
- Server Benchmarks.
- Repeat Visitor Rate.
1. Cash Flow
Essentially, this reflects the cash going in and out of your business. You always want to aim for positive cash flow where cash input exceeds cash output.
Cash Flow = Cash Input – Cash Output
2. Cost of Goods Sold (COGS)
This reflects the cost required to make each menu item and beverage sold to your customers.
COGS = (Beginning Inventory + Purchased Inventory) – Final Inventory
3. Prime Cost
Prime cost determines how much it costs to operate your business. Conventional wisdom for increasing profitability is to find ways to sell more. On the flip side, you may need to first look at cutting expenses to improve profitability.
Prime Cost = Total COGS + Total Labour
4. Revenue Per Available Seat Hour (RevPASH)
This is very useful for optimizing your labour scheduling, planning food purchasing, and to improve table turn times.
RevPASH = Total revenue ÷ (Available Seats x Opening Hours)
5. Server Benchmarks
There are several key areas you should be looking at with regards to your servers: Per Person Average (PPA), Number of Guests Served Per Server & Per Hour (NOGSPSPH) and, lastly, Server Errors Per Guest (SEPG).
- PPA = Total Server Sales ÷ Total Number of Guest Served by Server.
- NOGSPSPH = Total No. of Guests Served ÷ No.of Service Hours Worked.
- SEPG = Total No. of Server Errors ÷ Total No. of Items Wrung In.
6. Repeat Visitor Rate/Retention Rate
Your past customers are a huge asset to your business, acquiring new customers can cost as much as five times the cost of retaining an existing customer. If you truly want to know how successful your restaurant is then you need to assess customer loyalty.
Retention Rate = ((No. of Customers at End of Period – No. of New Customers Acquired During Period) ÷ No. of Customers at Start of Period) x 100