Here’s a sobering fact: around 60 percent of restaurants fail within a year of their opening date. 80 percent fail within the first 5 years. And that’s partially because so many first-time restaurateurs put the vital work of tracking their establishment’s performance metrics on the back burner until they start producing smoke. Those 20 percent of new restaurants who make it a priority, however, go on to become profitable community favorites. The average cost to open a small restaurant is manageable, but you need to pay attention to your cash flow if you are going to keep it open.
Taking a data-driven approach to restaurant ownership may not sound like the most fun thing in the world, but having a finger on the pulse of your business via critical performance metrics can mean the difference between success and failure when things get crunchy. And it’s not as scary as it sounds -- knowing how to keep tabs on your expenses, profits, losses, and needs is an easy-to-learn skill that every restaurant owner should have in their back pocket.
So let’s talk about what some of these critical indicators are, and how you can track them to the advantage of your business.
Restaurant KPIs to track, and how to calculate them
First things first: what is a KPI?
KPI stands for “Key Performance Indicator,” and describes a measurable datapoint that will help you get an idea of how your business is doing. KPIs can represent targets you might shoot for in addition to vital signs you might track on the daily.
Here is a list of the top 9 restaurant KPI samples every owner should track.
“Cost Of Goods Sold” essentially calculates your investment into the product your establishment sells. Mostly this means the raw ingredients that go into your food and drink (how much money do you spend on each shot that goes into a Long Island Iced Tea, for example) but can also include consumables like napkins, straws, reamers, shakers, etc.
Calculate your CoGS with the following formula:
CoGS = Total Value of your Current Inventory + Purchases - Ending Inventory
This one is relatively self-explanatory and describes how much money you need to bring in in order to earn back what you have already invested. This metric will help you keep a close eye on your financial reality and can help you budget to avoid losses and make your business as profitable as possible.
This metric can help you track your average check , average cost of dinner at a restaurant, average cost of goods sold percentage,
Calculate your break-even point with the following formula:
Break-even point = Total Fixed Costs / [(Total Sales - Total Variable Costs)/Total Sales]
Your overhead describes fixed costs that are out of your control including rent or mortgage, utilities, property taxes, licensing fees, etc. What percentage of your revenue goes into overhead will change month-to-month depending on a number of factors, and you should track it regularly in order to budget and price your menu appropriately.
You can figure your average restaurant expenses as a total, or more categorically. This metric will help you keep a close eye on your average restaurant insurance cost, average cost of restaurant equipment, average cost of restaurant pos systems, average restaurant rent cost, etc.
Calculate your overhead with the following formula
Overhead rate = Total Fixed Costs / Total Number of Hours Open
Your prime cost represents your largest expenditure as a restaurant or bar, and describes your average food and labor cost for restaurant on a monthly or yearly basis.. This one should also be calculated on a regular basis and can help inform your employee scheduling decisions as well as budgeting and menu planning.
Calculate your prime cost with the following formula:
Prime cost = Total CoGS + Total Labor Costs
Food cost is similar to CoGS except it only tracks the ingredients that go into each dish (or beverage) you make. You can treat this more like your CoGS and calculate for total edible inventory, or you can get specific and analyze the total food cost for every item on your menu. Taking the latter approach can help you determine which menu items to keep, and which to delete.
The average This metric will help you calculate your average restaurant liquor cost, average food cost percentage, average food cost per month Canada, average price of soft drinks in restaurants, etc. The industry standard is around 30 percent for the average restaurant food cost, which also represents the average markup on food in restaurants.
Calculate your food cost with the following formula:
Food cost = Item Cost / Selling Price
Learn more about average restaurant food cost, how to calculate food cost per dish, calculate food cost for restaurant, even calculate food cost per person in our other post: Food Costing 101.
Gross profit vs. revenue
Your gross profit is the total amount leftover after all of your operating expenses have been met: this includes your overhead, your prime cost, etc. Revenue is the total amount of money you take in from sales before your expenses. It’s important to have a relative understanding of both of these metrics to understand how much money you need to make in order to survive, and how much you need to make in order to thrive and profit.
This can fluctuate wildly depending on where in the world you are and what you serve. The average pizza restaurant revenue, average profit margin for bar and grill, and average profit margin for fast food restaurants are all very different numbers. This metric will help you track average gross profits for restaurants, average restaurant profit, average restaurant profit margin, and average restaurant revenue specific to your establishment.
Calculate your gross profit with the following formula:
Gross profit = Total Revenue - Total Expenditure
The average payroll cost for restaurant represents the highest, but most critical, expenditure to track. Average payroll for restaurants sits at around 30 to 35 percent, so you should aim for this number in figuring your budget.
Your payroll metric is also one of the most complicated to calculate as individual employees will take home different salaries depending on wage and hours worked. Average restaurant manager hourly pay and average restaurant general manager salary are very different from other employee take-home so you may have to calculate your average restaurant labor percentage on an individual basis.
New customers are great, but the majority of your revenue as a restaurant or bar will come from repeat customers and regulars. And whether you retain your customers can depend on a number of factors like the size of your average restaurant bill, average time spent in a restaurant by customers, average time to eat at a restaurant, etc.
Calculate your customer retention rate with the following formula:
Customer retention rate = [(Total Customers - Total New Customers) / Total Customers] x100
Other business metrics to keep in mind as a restaurant manager
There may be a few metric formulas you have to come up with yourself as a business owner depending on the precise flavor of your establishment. The average size of a small restaurant and average revenue of restaurant vs the size of a large bar can affect your costs, profits, and unique business concerns.
Things like employee turnover rate in the restaurant industry are also inevitabilities of service which are worth keeping track of.
How Provi can help
Provi is an all-in-one beverage ordering service that helps you easily track expenditure metrics by storing all of your ordering information in one convenient place. You won’t have to worry about doing the math yourself because Provi takes care of that for you. Talk to one of our reps today to see if Provi might be right for your business.