You might find yourself rolling your eyes at the mention of Key Performance Indicators (KPIs.) This buzzword is everywhere in the world of business today, and we see articles upon articles that are absolutely saturated with their mention.
But it’s for a very good reason: KPIs are important, and can provide you with critical insight into the health and wellness of your business. This allows you to set realistic goals for your establishment, budget like you’ve never budgeted before, and catch problems in their infancy before they become too big to handle.
And like other fields, the bar and restaurant industry has its own set of KPIs which too often go unmentioned, unexplained, and untaught. But bar and restaurant owners have been tracking KPIs for a long time – it’s only the name that’s new, not the concept. And the collected KPIs of the past help to inform new proprietors of the numbers they need to know when opening their own establishment.
Thanks to the diligence of bar and restaurant veterans, you can weigh your KPIs against industry standards to better know what you should be doing. Metrics like the average cost of a liquor license, average drink prices at bars, average open bar cost, average price of a cocktail in NYC, average liquor store profits, even the average cost to open a bar and average cost to open a liquor store are all available because of KPIs.
So in this post, we’re going to cover critical bar management metrics: what they are, why you need them, and how to make them work for your business.
Major questions to ask when measuring success
Running a bar or restaurant isn’t as easy as setting and forgetting. It takes dedication, constant upkeep, and demands that you maintain a vigilance for any problems or changes and make adjustments when they are required. There are a lot of moving parts in food and alcohol service, and you should know the signs that tell you whether something is working, or needs to shift.
Here are a few questions to regularly ask yourself to keep your business on track as a bar or restaurant owner:
Do I need to cut back on staffing expenditures? Can I afford to keep a full staff while paying them all living wages? (For reference – the average salary of a brewmaster is around $45,000.)
Do I need to promote this product better, or do I need to get rid of it? Is that new beer not moving because patrons don’t know you have it, or because they don’t want it?
What days do I expect to sell out of a certain product? How can I make sure I have enough to keep my patrons happy?
Which of my products are the most profitable to my establishment? How do I make them even more profitable?
How can I tell if my business strategy isn’t working? What can I do to shift the practice and make my business more profitable?
Asking yourself these questions is the first step; and KPIs are how you will get the answers. Bar and restaurant measurements help you to understand the specifics of your establishment’s functionality – everything from marketing, to the price of your latest signature cocktail.
Your next move needs to be establishing a system that will allow you track critical metrics for your bar or restaurant. Here’s how.
Best ways to measure bar management metrics
Most of the time, you’ll want to look at your KPIs as dollar amounts to see where your biggest wins and losses are, using tangible numbers.
Income and expenditure KPIs are some of the top considerations to take into account when making decisions for your establishment. And, ideally, those numbers will be tracked in one place: namely, your POS system. A sophisticated point of sale should automatically compile every expense – inventory, wages, overhead, incidentals, etc. – and list it against your total sales to give you an at-a-glance look at your business’ profitability margin.
Alternatively, if you don’t mind taking a manual approach, you can do your numbers tracking in a spreadsheet application such as Excel or Google Sheets. Take a look at our other post, Inventory Excel Formulas You Should Know, for a list of important spreadsheet functions that will help make tracking revenue and expenses a little easier.
Here are a few of the top bar and restaurant KPIs that will help you keep tabs on your establishment’s performance.
Wage percentages - This number represents the portion of your overall revenue going towards paying your staff. You can calculate this on a month-to-month basis or as a yearly average.
Find the total sum of all wages paid within a given time period, and divide that number by your total revenue for the same time period. If the percentage is too high, you may need to cut back on staff. Too low, and it’s time to give your employees a raise. The average cost of bartending school is about the same as community college tuition – make sure your people can pay for their education, especially if you require certification.
Food and drink average spend - This number represents the amount of money you’re spending on food and beverage inventory per customer on any given night of the week. You can calculate this daily, or as an average over a greater period of time.
Find the total sum of the cost of your inventory sold within a given time period. Then, divide that number by the total revenue accrued over the same time period. The result will give you the percentage you spent on inventory.
You can get really detailed with this metric if you want. Because there are so many different ways beer, wine and liquor can be served, figuring your alcohol spend can get really complicated, really fast – but it’s worth it if you want to have a solid understanding of your beverage spend.
To figure the average cost of a cocktail in your establishment, you either need to know that figure for every cocktail you sell, or more generally for the types of alcohol you serve. The average price of alcoholic beverages is dependent on what you put in them.
The average cost of a glass of wine and average bottle of wine cost both exist in the same margin. The average cost of a bottle of vodka, average cost of tequila (in an average liquor bottle size), and the average price of whiskey along with other spirits are also similar, but the price depends on the quality of the liquor being served. For example, the average price of Ciroc and the average price of Grey Goose will both average out differently across your menu.
You can also change your metric depending on the type of service you’re giving –the average price for a shot of tequila on a standard night versus the average cost per person for open bar at an event will affect your numbers for the month.
If you want to go more general, you can look at the average cost per unit of alcohol across all types of alcohol you sell – the average alcohol content of rose wine, average IPA alcohol content, and average tequila alcohol content will give you an extremely broad view of your beverage spend.
Entertainment spend - This number represents the amount you spend on entertainment – live music, television maintenance, vintage pinball machines, etc.
Assuming your entertainment spend isn’t a one-time cost, you will calculate this similarly to your wage percentages. Total the amount you spend on entertainment, and divide by your revenue. If the number is too high, it may mean you need to hold off on bringing back that Dave Matthews cover band this week.
Gross profit margin - This number represents the percentage of your revenue that is not put back into your regular business expenses.
Find the sum of all of your business expenses – wages, inventory, overhead, entertainment, etc – and subtract from your overall revenue. Now, divide that number by your revenue, and multiply the dividend by 100. The result will give you your profit margin as a percentage.
Wastage - This number represents spillage – quite literally, what amount of your inventory is spilled onto the floor, rather than into a glass for your patron to enjoy?
Wastage means everything from stolen drinks, broken glasses, spilled shots, and everything your establishment loses but does not profit from. On average this sits at around 20% for the bar and restaurant industry as a whole.
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