Knowing the right restaurant metrics is vital for every restaurant operation. Running a restaurant business could be wild because you’re catering to different types of customers and at the same time you’re trying to make your business profitable. Providing customer service is a must for restaurant businesses but it is not just what makes the Restaurant Industry successful, there’s another side of the coin that needs to be focused and monitored on- finances.
It may not be appealing for others, but restaurant business owners know how crucial it is to regularly monitor and check the financial state of their restaurant. The financial information produced can be then utilized to enhance the effectiveness of the management, save costs, increase the profit, and make better strategic business decisions for the restaurant. Knowing your restaurant business’ numbers leads you to financial freedom and you’ll be able to manage your time and expenses for the growth of your restaurant business.
Success can’t be done overnight, especially when you run a business in a highly-competitive industry. There are key restaurant metrics or key performance indicators that you, as a restaurant business owner, need to monitor and check out in order to run a profitable business. These are factors that affect your restaurant’s revenue and finances.
Here are the essential restaurant metrics and key performance indicators that every restaurant owner should know and how to calculate such costs.
KEY RESTAURANT METRICS AND HOW TO CALCULATE THEM
There are two ways on how to categorize these key restaurant metrics, first is according to how it functions within the restaurant business, and second is according to how it is calculated.
Here’s how these key performance indicators or key restaurant metrics are categorized:
ACCORDING TO FUNCTION
OPERATIONS RESTAURANT METRICS
These are the metrics that calculates and measures the restaurant’s progress towards its goals. It measures the effectiveness of the whole restaurant operation.
- Cost of Goods Sold (CoGS)
- Break-Even Point
- Food Cost Percentage
- Labor Cost Percentage
- Prime Cost
- Net Profit Margin
- Gross Profit Margin
- Inventory Turnover Ratio
PERFORMANCE RESTAURANT METRICS
By calculating the costs under this restaurant metric, you’ll have a better insight regarding your restaurant’s performance. And of course, an improved performance leads to achieving the goals for your restaurant.
- Table Turnover Rate
- Employee Turnover Rate
- Restaurant Revenue Per Seat
RESTAURANT CUSTOMER METRICS
This is important for a restaurateur because this will determine how well the customer service of a restaurant business is. It represents your customer’s insights about the services you offer.
- Customer Acquisition Cost
- Customer Retention Rate
ACCORDING TO HOW THE KEY PERFORMANCE INDICATOR/ RESTAURANT METRIC IS CALCULATED
BASIC RESTAURANT METRICS
These are the restaurant metrics that can be calculated with basic tools.
- Cost of Goods Sold(CoGS)
- Prime Cost
- Food Cost Percentage
- Labor Cost Percentage
- Net Profit Margin
- Gross Profit
SECONDARY RESTAURANT METRICS
As the category title says it, more time for calculation may be necessary for these restaurant metrics but it won’t need advanced tools yet.
- Employee Turnover Rate
- Inventory Turnover Ratio
ADVANCED RESTAURANT METRICS
To calculate these metrics, advanced reporting tools are needed.
- Break-Even Point
- Customer Acquisition Cost
- Customer Retention Rate
- Restaurant Revenue Per Seat
- Table Turnover Rate
Now that you know the different categories of the key restaurant metrics, it is now time to know what they are and how to calculate them.
COST OF GOOD SOLD (COGS)
How to calculate:
CoGS = (Beginning inventory of F&B) + (Purchases) – (Ending inventory)
This is the type of cost that helps you to discover if your food and menu items are priced correctly. It is the total amount to spend on the inventory to buy the raw materials needed over a certain period of time.
CASH BURN
A business metric used as a scale of how many months overheads can be covered by cash reserves. The cash burn rate calculates how much money businesses are spending and how swiftly they’re spending it.
BREAK-EVEN POINT
How to calculate:
Break-even Point = Total fixed cost / [(Total Cost – Total Variable Cost) / Total Sales]
This restaurant metric is when the total sales equal the total expenses, meaning your restaurant is just bringing the exact amount of income to continue the operations and cover the expenses of your restaurant. The result from calculation can be used to determine how long it will take for your restaurant to recover the initial investment.
FOOD COST PERCENTAGE
How to calculate:
Food Cost Percentage = Item Cost / Selling Price
Food cost percentage provides you an idea on how much you are selling a specific item and if it is profitable for your restaurant business, that’s why it is important to calculate this cost.
LABOR COST PERCENTAGE
How to calculate:
Labor Cost Percentage = Labor / sales
Considered as the second prime expense of a restaurant business (first is food cost). This restaurant metric is the percentage of the whole revenue that goes into labor cost.
PRIME COST
How to calculate:
Prime Cost = CoGS + Total labor cost
The restaurant’s largest expense, Prime Cost is the total cost of good sold, food, liquor, and labor costs.
NET PROFIT MARGIN
How to calculate:
Net Profit Margin = (Gross Sales – Operating Expenses) / Gross Sales
This restaurant metric is the income your restaurant makes after calculating and accounting all the expenses of your operations.
‘TRUE’ PROFIT
Calculating your net profit margin usually doesn’t include dividend and tax. True profit is declared after accounting the tax and dividends to your net profit.
GROSS PROFIT MARGIN
How to calculate:
Gross Profit = Total Revenue – CoGS
This restaurant metric is the difference between the cost of good sold and sales demonstrated as percentage of sales.
INVENTORY TURNOVER RATIO
How to calculate:
Inventory Turnover Ratio = [CoGS / (Beginning inventory + Ending inventory) / 2]
One of the most crucial restaurant metrics as it indicates the number of times your restaurant has used up its inventory for a period of time. It helps you manage your inventory and avoid overstocking and understocking your resources.
CASH CONVERSION CYCLE
This business metric exhibits the amount of time it a business takes to convert its investments in inventory and accounts receivable into cash.
TABLE TURNOVER RATE
How to calculate:
Table Turnover Rate = Number of guests served during a time period / Number of seats
This restaurant metric helps your kitchen determine how they should prepare for a service, this is the number of tables turned over in a specific period of time.
EMPLOYEE TURNOVER RATE
How to calculate:
Employee Turnover Rate = (Employees Departed / Number of Employees) X 100
If this restaurant metric is high, it will help you identify what are the possible concerns or problems in your workplace and culture. Employee turnover rate shows the number of employees leaving your restaurant (resignation, retirement, and termination). It is important to track this metric in order to save your restaurant from future chaos, 59% of restaurateurs find it challenging to hire, train, and retrain staff.
RESTAURANT REVENUE PER SEAT
How to calculate:
Average Cover = Total Sales / Number of Covers
This restaurant metric is the transaction spent by your customers at your restaurant. It shows how efficient and effective your restaurant staff with their tasks.
CUSTOMER LIFETIME VALUE
This is the expected total amount of expenses by your customers at your restaurant within their lifetime. It will help you plan better on how much to invest to acquire new customers and try to retain the existing ones. Your online ordering system UK can have a big impact on this number.
CUSTOMER ACQUISITION COST
How to calculate:
Customer Acquisition Cost = Marketing Expenses / Total New Customers Acquired
Resources and marketing costs that are used to attract and acquire new customers is under this restaurant metric. It is a key restaurant metric that’s usually calculated alongside with customer lifetime value to produce a better and effective marketing plan to acquire new customers.
COST PER LEAD
This is the cost a restaurant pays every time a possible customer’s name and contact details are provided.
CUSTOMER RETENTION RATE
How to calculate:
Customer Retention Rate = [ ( Total Customers – Total New Customers) / Total Customers] X 100
Though acquiring new customers costs more and seems more important, it is still crucial for a restaurant owner to monitor the number of the customers his restaurant business retains. This is to understand the customer and market effectively.
Here are some of the business metrics restaurant owners should also look out for:
- Net operating cash flow. This business metric is calculated by taking the net profit from the income statement and adjusting for changes in net working capital, this is to arrive at the total cash generated or consumed in the period. This is the amount of cash revenue generated by the restaurant’s operations.
- Return on Marketing Investment. Usually measured on a campaign basis, this business metric is the contribution to profit accountable to marketing. It determines the point to which marketing efforts contribute to income development.
CONCLUSION
Behind a successful restaurant are dedicated employees who work around with customers and numbers. These numbers may appear to be boring for others, but these are the figures that will help your restaurant business to secure its success.
