A laser focus on costs and margins is essential for restaurant businesses looking to expand.
Here are the three biggest reasons to keep a steady eye on your restaurant KPIs:
- Tracking performance – to understand how the teams and the business are really doing by gaining deep insights into the day-to-day running of the business
- Business optimisation – to keep on top of cash flow, profits and areas for improvement so that management can identify opportunities for process optimisation and growth.
- Investment rounds – if you are in the market for a capital injection, investors will want to know the real numbers before putting in their money.
But with so many restaurant metrics, how do you know which ones to focus on?
There are numerous important staffing, customer-focused, and other front-of-house restaurant metrics that tend to attract all the attention.
In this article, however, we will mostly focus on back-of-house metrics that have a major impact on:
process efficiency, cost control and profitability.
These 11 restaurant performance metrics can propel or sink your bottom line. Make sure you have them dialled-in when you’re scaling your foodservice operation:
- Break-even point
- Actual food cost or cost of goods sold (CoGS)
- Food cost percentage
- Ideal food cost percentage
- Food cost variance
- Menu item profitability
- Prime cost & prime cost as a percentage of sales
- Gross profit & gross profit margin
- Net profit margin
- Employee turnover percentage
- Inventory turnover ratio
11 Restaurants KPIs To Focus On For Growth
Let’s examine each restaurant metric in detail.
1. Break-even point
Knowing the break-even point is crucial when you are starting a business or opening new locations.
Calculated over a given time period to discover the point at which the business becomes profitable, it gives a measure of how much revenue needs to come in to cover the investment in the new operation. The break-even point can be used to forecast how long it will take before the new location is making money for itself.
A restaurant break-even point is vitally important in the decision-making process for new projects. It can be used to decide how much to spend on equipment, for example: if a more expensive convection oven will allow the business to serve 100 more customers per service, it can quickly be justified by the resulting increase in revenue.
How to calculate the break-even point
2. Actual food cost or cost of goods sold (CoGS)
Actual food cost – or CoGS as it’s known more generally outside the restaurant industry – is a measure of how much it costs to produce your food over a given time period. It can also be seen as the value of the stock you have in the inventory at a given time.
It helps you see how much it is really costing you to prepare items for sale. It is a very important KPI to assess your food costings and restaurant inventory management system as it provides an accurate picture of what you are effectively spending to produce food in a given period.
How to calculate actual food cost
3. Food cost percentage
Now that you know your actual food cost, you can figure out what proportion it makes up of your sales figures. The food cost percentage is a simple but crucial calculation that can be then used to determine how profitable your menu items are.
The industry benchmark is 28 – 32% depending on the type of outlet (side note: cloud kitchens are often able to reduce costs to as low as 20%). So this is a useful comparison tool to see how each outlet is performing.
How to calculate food cost percentage
To calculate the actual food cost percentage you divide the actual food cost by the turnover of the given period and multiply by 100.
4. The ideal food cost percentage
The ideal food cost is a target food cost for a specific period of time that helps you gauge performance. It is ‘ideal’ in the sense that it doesn’t take into account over-portioning, trimmings, and other causes of food waste.
By comparing your ideal food cost percentage to your actual food cost percentage, you can see how far you are from your target performance.
That tells you where the problems are and means you can pinpoint where to make changes to menu pricing and how best to use menu engineering.
How to calculate ideal food cost percentage
5. Food cost variance
The National Restaurant Association estimates that around half of restaurant owners don’t track food waste. Yet it’s crucial to know what proportion of your inventory goes up in smoke due to pilferage, squandering, over portioning and any other causes.
By comparing your food cost percentage with your ideal food cost percentage, you know the extent of the problem. Say your ideal food cost percentage is 28% but your actual food cost percentage is 32%. The food cost variance of 4% is your room for improvement.
There are seven common causes of food cost variance:
- Waste or squandering
- Portion size
- Poor reception procedure
- Unrecorded sales
- Error in the accounts
- Modified/wrong ideal food cost
These are the areas in which you can make up the margin to bring your food cost percentage as close as possible to the target.
How to calculate food cost variance
Keeping tabs on F&B inventory is vital for cost control but, unfortunately, it is also one of the most difficult things to do in a restaurant business.
The reason is twofold.
One, it is not a simple matter of reselling items, like a hammer that you pick off the shelf. Ingredients are processed into semi-finished items that go back into stock and finished dishes that go to the customers.
Two, the BOH team is dealing with perishable goods, so procurement has to be finely tuned or wastage will inflate food costs and hammer down the already slim profit margins in the restaurant industry.
Check this free guide for a full breakdown: Restaurant Inventory Management & Control: How to Always Bring Your A Game.
Automate Inventory Tracking
Bridge the gap between front and back of house. Every sale registered in your POS systems depletes your stock down to the raw ingredients. Get real-time inventory levels.
6. Menu item profitability
Working out individual menu item profitability is crucial for effective menu engineering. Restaurateurs always know the most popular dish, but do they actually know which ones are making them the most money in real-time.
Working out each item’s profitability takes away the guesswork and biases and shows you the real numbers to pinpoint your most profitable dishes.
In a similar way to the food cost percentage, it shows you your best-performing dishes and allows you to compare dishes and make informed decisions about pricing, special offers, and availability.
How to calculate menu item profitability
The calculation is similar to the food cost percentage but for individual menu items. Take the total cost of producing a portion away from the total sales number for each menu item.
Menu Item Profitability = (Number of Items Sold x Menu Price) – (Number of Items Sold x Item Portion Cost)
7. Prime cost & prime cost as a percentage of sales
The prime cost is a measure of almost all of a restaurant’s controllable costs – the total labour costs together with the actual food cost (or CoGS). The labour cost includes all salaries, hourly wages, staff expenses and benefits.
This total serves as a benchmark for a restaurant’s control over its costs. It is also a useful metric to use in further calculations. Typically, prime cost should be no more than 60% of total sales. If it is much higher than this, it is something to look into.
How to calculateprime cost & prime cost as a percentage of sales
8. Gross profit & gross profit margin
Gross profit is the most basic of metrics that lets you know how much the business is making before fixed costs and profit. It is a high-level measure of the health of the business. If your gross profit is off, you need to go back to basics and fix this before anything else.
The gross profit margin is your gross profit as a percentage of total revenue, which can be used as a benchmark for success.
How to calculate gross profit & gross profit margin
9. Net profit margin
How to calculate net profit margin
10. Employee turnover percentage
Employee turnover is a measure of how many employees leave or are fired and need to be replaced in a given period. The ratio gives this as a proportion of the total number of employees.
The restaurant industry has a particularly high turnover rate – as much as 30% more than other sectors. Finding and training new staff is a huge cost in the industry but also a burden on efficiency and on existing staff.
It’s much more efficient to keep trained staff than to have to find, vet, onboard and train new staff constantly. Managers who are able to keep this ratio low deserve a medal. It’s one of the toughest jobs going.
How to calculate employee turnover ratio
Figure out the average number of employees in a given period by adding the number of employees at the start of the period to the number at the end of the period and dividing by two. Divide the number of lost employees by the average to get your ratio.
Employee Turnover Percentage = (Lost Employees / Average Number of Employees) x 100
11. Inventory turnover ratio
There’s nothing worse than dusty old bottles stuck on a shelf for months in the dry stores.
Inventory turnover ratio keeps an eye on how often your total inventory is used and replaced.
It is important to know this in order to avoid over or under-stocking your shelves. This helps to reduce food waste and avoid having too much cash tied up in stock. And also to avoid running out of items and disappointing customers.
How to calculate inventory turnover ratio
Work out the average inventory levels by adding together the inventory value at the begging of a given period to the value at the end, and dividing by two. Take the sales for the period and divide by the average total inventory to get your inventory turnover ratio for the period.
Scale Your Restaurant Business Confidently Without Tripping Over KPI Blindspots
If you want to expand your organisation and open new sites, you have to be able to see your operation from a higher level.
That is a tall order when data gets siloed in different departments or locked in spreadsheets.
The metrics you rely on to validate big investments or secure financial back-up can quickly become dicey when calculations are inaccurate or data is absent altogether.
It is vital to bring light to these dark corners.
Apicbase is a centralised system that processes all your data in one place. You connect new units as you grow and track performance in real-time.
With all the figures being updated in real-time, our smart software gathers the data and performs all calculations automatically.
Simply open your laptop to get an instant health check of your business as a whole, and all your outlets individually.