The restaurant sector is very competitive. On top of that, restaurants are facing constant changing food trends and tight margins. As a result, it is vital to look beyond your turnover and track specific key performance indicators (KPIs) for your restaurant to stay competitive.
Indeed, you must assess your business regularly against your targets and industry standards if you want to make sure your business is successful. KPIs will help you determine how your actions align with your objectives and areas that need improvement.
There are several KPIs restaurant owners can track, but not all will apply to your business. To help you, we discuss below the top 14 KPIs restaurant owners should track and how to calculate them.
1. Average revenue per table (or “Cover”)
Also referred to as “cover” this restaurant KPI represents the average revenue per table served over a certain period of time.
Important: covers aren’t customers. For example, a table of 4 customers is 1 cover.
Average Revenue per table = Revenue / # covers
For example, if monthly revenue is $30,000 from 500 covers, then the average revenue per table will be:
Average Revenue per table = $30,000 / 5,000 = $60
RevPASH is not only one of the most important KPIs for restaurant owners, but also for any business in the food & beverage industry like coffee shops, bars, etc.
It gives insight into how effective or efficient each seat generates revenue. The KPI is critical since it includes capacity and time besides revenue.
In other words, RevPASH helps you plan employee shifts and shop layout, purchase supplies, and enhance table turnover.
RevPASH = Total revenue / # seat hours
# seat hours = # seats x opening hours
For example, if your restaurant has a capacity of 100 seats and is open 8 hours a day, your seat hours will be 800. Therefore if you have Revenue of $15,000 per day, RevPASH will be:
RevPASH = $15,000 / 800 = $18.75
# seat hours = 100 x 8 = 800
3. Revenue per Square Foot
Revenue per square foot is the 3rd most important revenue metric for restaurants, and any similar food & beverage business (coffee shop, bar).
It’s important to measure as, like for all these other businesses, rent is one of the most important expenses for restaurants.
Measuring revenue per square foot gives you an idea of the profitability of your business considering the space of your business. Tracking this number can help you assess whether you should:
- Expand your restaurant
- Add more tables to your restaurant
- Add a new location
Revenue per square foot = Total revenue / # square feet
For example, if your 3,000 sq. ft. restaurant generates $100,000 per month:
Revenue per square foot = $50,000 / 3,000 = $17
4. Spend per head
Spend per head is a very similar metric vs. average revenue per table. Instead, spend per head represents the average revenue your earn per customer (and not per table or “cover”).
Also, the metric can help you know what time of the day customers spend most in the restaurant. With this data, you can set up promotions and encourage diners to visit during less popular hours.
The KPI is calculated by dividing total revenue by the number of customers.
Spend per head = Total revenue / # customers
For instance, if you make $4,500 on a Friday evening serving 120 customers, then the average spend per customer is:
Spend per head = $4,500 / 120 = $37.5
5. Cash Flow
Cash flow is arguably the most important KPI restaurant owners should track because it reflects the amount of money flowing through your business. More importantly, it tells us how much cash (positive or negative) your business generate.
Cash flow simply is the difference between positive and negative cash movements in your restaurant. For example:
- Cash inflow (positive cash flows): customer payments
- Cash outflow (negative cash flows): payment to suppliers, rent to landlord, corporate taxes, etc.
To calculate cash flow, you subtract the cash you had at the beginning of a specific time from the cash at hand at the end.
Cash flow = cash inflow – cash outflow
For instance, if in a month your restaurant earns $40,000 cash inflows from your customers, and spends $10,000 on ingredients to suppliers, another $4,000 in rent and $20,000 on wages, cash flow is:
Cash flow = $40,000 – $10,000 – $4,000 – $20,000 = $6,000
6. COGS ratio
COGS is another important KPI for restaurants to track. It represents the total amount of expenses you pay for to source the food products from your suppliers and that eventually go into your menu.
In other words, this KPI helps your business to determine how much it costs to source the food you sell to customers.
When looking at COGS, it’s important to measure this number as a percentage of the income you’ve earned during a certain period (for example a month).
Therefore, you need to isolate the amount you’ve spent for that particular period of time. This can easily be done by using the value of your stock (assuming you have a diligent inventory management in place already).
COGS = Beginning inventory + Inventory purchases – Ending inventory
For instance, if you begin the month with an inventory worth $10,000 and purchased $15,000 during that month, and at the end you have $5,000 worth of inventory remaining, then:
COGS = $10,000 + $15,000 – $5,000 = $20,000
In other words, you’ve used $20,000 worth of COGS (or inventory) to source the products you served to your customers in your restaurant.
Now, assuming you’ve made $60,000 in turnover that month, COGS represents 33% of your turnover.
7. Labor cost ratio
Besides ingredients, labor is one of the highest costs for your restaurant. Therefore the labor cost percentage is among the top KPIs restaurant owners should track.
The KPI gives the relationship between gross sales and labor costs (labor costs include payroll taxes, wages, and related expenses).
The metric measures cost versus sales to help you understand how to manage expenses. If you calculate costs properly, you will be able to identify areas where adjustments are necessary (for example times when you’re under or overstaffed).
Labor cost ratio = Labor costs / Turnover
For instance, if your restaurant spent $20,000 on labor costs and generated revenue of $40,000 last month then:
Labor cost ratio = $20,000 / $40,000 = 50%
8. Prime cost ratio
This is also another top KPI restaurant owners should track. Prime cost essentially is the sum of your COGS and labor costs.
Prime cost ratio is the percentage of these costs vs. turnover. Because COGS and labor costs are by far the 2 biggest expenses for any restaurant, the prime cost ratio gives you a pretty good idea of your business profitability.
Prime cost ratio = Prime costs / Turnover
Prime costs = COGS + Labor costs
For instance, using the same example above, if a business has $10,000 COGS, $20,000 labor costs and a $40,000 turnover, prime cost ratio is:
Prime cost ratio = $30,000 / $40,000 = 75%
9. Break-even point
Among the most crucial KPIs that your coffee shop should track is the breakeven point. The metric helps determine sales performance to recoup what has been invested.
Notably, this number is important in projecting how much revenue you must generate to make profits (to “break even”).
To calculate the break-even point:
Break-even point = Fixed costs / Gross profit per product
Gross profit per product = Selling price – COGS per product
For example, assuming:
- Fixed costs are $10,000 per month
- Each cup of coffee costs $0.8Each cup of coffee is sold at $2
The Gross margin per product (coffee cup) is $1.20, and the break-even point 8,300 cups of coffee:
Break-even point = $10,000 / $1.20 = 8,300 cups of coffee
Gross profit per product = $2.00 – $0.80 = $1.20
10. Guests per labor hour
This KPI gives you the number of guests served per hour, and it tracks the number of clients served per hour which shows the efficiency of your staff.
Tracking this KPI offers insight into the efficiency of your staff. For example, when a server records more guests, but customer feedback is poor, you need to consider scaling back guest volume and offering more training to your staff.
Guests per labor hour = # guests / # service hours worked
# service hours worked = # servers x # worked hours per server
For instance, if your restaurants has 4 servers on a Friday evening serving 120 guests over 4 service working hours, then:
Guests per labor hour = 120 / (6 x 9) = 3.3
11. Customer retention rate
Your coffee shop business will thrive if you can maintain and lure new customers to your premises. The more loyal customers you have, the more consistent your sales will be.
This is where customer retention rate comes in handy: this KPI allows coffee shop owners to track how sticky their customer base is.
Yet, calculating customer retention rates can be challenging, but there are some solutions (such as CMS platforms) that you can use to track this KPI.
You can calculate customer retention as follows:
Customer retention rate (CRR) = Retained customers / # customers at start of period
Retained customers = # customers at end of period – # new customers
For example, if at the start of the year your customers were 1,200 and at the end, the customers were 1350 with 400 new customers, then CRR will be:
For instance, if at the start of a year you had 1,200 customers and at the end of year you had 1,350 customers (of with 400 new customers), your CRR will be:
ETR = 950 / 1,200 = 80%
Retained customers = 1,350 – 400 = 950
12. Employee turnover rate
The food and beverages sector faces high turnover rates, a big challenge for the industry. Usually, hourly staff will work for a short period of time (a few weeks or months typically). As a result, hiring staff is costly, and training takes considerable time.
Therefore, the employee turnover rate is an important KPI to track for coffee shop owners. This metric refers to the percentage of staff remaining in your business at the end of a given period.
To calculate employee turnover, you divide retained employees by the average number of employees:
Employee turnover rate (ETR) = Retained employees / Average employees
Retained employees = # starting employees – # employees at end of period
Average employees = (# starting employees + # employees at end of period ) / 2
For instance, if at the start of a year you had 20 employees and at the end of year you had 24 employees (of with 12 retained employees), your ETR will be:
ETR = 8 / 24 = 33%
Retained employees = 20 – 12 = 8
Average employees = (20 + 24) / 2
13. Food waste ratio
This is the proportion of food that goes to waste relative to the food the restaurant bought.
It can help your restaurant reduce waste. For example, sometimes prepared dishes may not be served to customers because of misplaced or incorrect orders. Tracking the KPI will help reduce losses.
Food waste ratio can be calculated either by using the value (the price you paid for the product) or the weight of the food. Although the first gives you a better view of how much food you actually waste, measuring by the associated monetary value gives you a better sense of how much money you’re leaving on the table.
Food waste ratio = weight of wasted food / weight of food purchased
Food waste ratio = $ value of wasted food / $ value of food purchased
For instance, if you discover that the amount of food going to waste over a day is 12 pounds and the total food purchased is 120 pounds, then
Food waste ratio = 12 / 120 = 10%
14. Customer Acquisition Cost (CAC)
This KPI measures how much money you spend to acquire (attract) a customer. Customer acquisition costs for restaurants usually are marketing expenses, a few common examples are:
- Paid ads (e.g. Yelp ads)
- Commission fees (e.g. 30% referral fee to TheFork.com)
CAC doesn’t tell you much when you look at it without comparing to something else. Indeed, you should either:
- Compare CAC of a marketing campaign vs. another one to fare which one performs better
- Compare CAC to Spend per head (to measure how much you’re spending to acquire a customers vs. what she/he spends in your restaurant)
CAC can either be calculated at the restaurant level (easier) or by campaign:
- Restaurant level: you sum all marketing expenses of the period and divide it by customers
- By campaigns: you sum a certain marketing campaign’s expenses and divided it by the number of customers it attracted to your restaurant
Customer Acquisition Cost = $ Total marketing expenses / # customers
Customer Acquisition Cost = $ Campaign marketing expenses / # customers
Let’s see an example:
CAC (restaurant level)
Let’s assume you made $50,000 in turnover from 1,500 customers (spend per head = $33) in a month. Your marketing expenses include: $4,000 commissions to TheFork.com, and $2,000 discounts to Yelp, CAC is:
CAC (restaurant) = $4 per customer
CAC (campaign level)
Now, assuming the $4,000 commissions to TheFork represents $13,000 spend (30% commission paid to TheFork as people booked on the platform). Assuming spend per head for these customers is the same as for the restaurant ($33), then CAC for the TheFork campaign is:
CAC (campaign) = $4,000 / ( $13,000 / $33) = $10
By doing so, we can identify which campaigns generate most profits, and which one(s) we should prioritise.
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