Restaurant metrics — How to measure business performance
There is no one answer to the question of how to calculate restaurant metrics, as the various measures used will vary according to the restaurant, the customer base, and other factors. However, some common methods for calculating restaurant performance metrics include customer satisfaction surveys, average spend, and attendance.
Average spend. First method in a set of restaurant metrics for measuring the success of a restaurant is to calculate how much money its customers spend on average. This can be done by tracking what items are being bought and by whom, as well as examining customer demographics.
Attendance. Another way to measure the performance of a restaurant is to see how many people it attracts in a given period of time. This information can be used to see which areas of the restaurant are most popular and to plan marketing campaigns accordingly.
When it comes to restaurant performance, marketing and metrics are just as important as the food. Below, we’re going to explore some of the most important metrics for restaurants and rate adults as a food category.
It is possible to genuinely understand the reasons for trends and changes by analyzing the restaurant’s key performance indicators. It is easier to do so by automating and implementing a KPI system. The USAR – international management reporting standard for restaurants has been adapted by Finoko reporting system to help restaurant owners.
There are several new performance indicators being developed for revenue management rate of a restaurant. This was determined after a study of how adult restaurant occupancy rates and food inventory levels have changed over the years. The objective is to help adult restaurant operators measure and manage their overall business performance in relation to meeting consumer demand for food and beverage.
Food inventory levels can be monitored on a daily basis to identify any trending patterns. This helps in making strategic and tactical decisions when it comes to ordering and adding new food items to the menu. If a restaurant’s food inventory levels are consistently low, then new menu items may not be successful. Conversely, if food inventory is high, then the restaurant may have too much inventory and may have to ration or close portions of the menu.
Another indicator that restaurant operators can use is occupancy rates. This can help identify how much demand is there for adult restaurant food and beverage. The goal is to maintain a 75-80% occupancy rate, which is a common target for most adult restaurant operators. If occupancy rates drop below 70%, then it may be a sign that dining out for adults is not as appealing as it once was. Conversely, if occupancy rates are above 90%, then the restaurant may be overcapacity and may experience higher marketing expenses due to higher occupancy costs. Let’s discuss some of these indicators in more detail.
Evaluation of restaurant performance: regularity is the key to success
Previously adopted marketing decisions may lose their effectiveness in the new business climate, affecting profitability. “Forcing onto the back burner” can quickly lead to bankruptcy if the company is unable to withstand the competition. Regular monitoring of restaurant metrics will help to identify negative trends on the spot and take action to eliminate weaknesses. Key analysis points are the following: financial performance of the restaurant, management quality and marketing. To develop a strategy and monitor the plan execution, you can use the KPI system created specifically for solving these tasks.
Analysis of restaurant metrics by basic characteristics
It is necessary to understand the features of the place according to the following metrics to bring expenses in line with income:
- Number of available seats. The maximum possible occupant load depends on this indicator.
- Daily seat turnover. It indicates the average time the table is used and the turnover of visitors. By applying the value to the total number of seats and adjusting for the average bill, you can calculate the potential maximum profit for a given period.
- Average occupancy. The actual number of guests per day, week, month, etc. Adjusting for this indicator allows you to see the current profitability and compare it with the potential one.
Any expenditures for promotions, labor, extraordinary repairs or renovation must correspond to the level of profit that can be achieved based on the restaurant’s basic parameters.
There should also be an analysis of the efficiency of using the internal space of the restaurant, taking into account the rent expense. Optimization (planning, zoning) will increase the number of seats and reduce the cost of one table maintenance (by reducing the part of rental costs).
Restaurant financial metrics
Financial metrics include revenues, expenses and final profit. These restaurant metrics are calculated on the set of criteria, depending on the market capacity, competitors’ activity, the specifics of the selected segment, and various variable factors. Revenue can be taken into account by the following:
- Sales of food, drinks and discount offers (for each type of discount). The indicator reflects the total amount of money the restaurant receives for working for a certain period. Segmenting allows you to see the role of each offer in total revenue and evaluate the effectiveness of promotions.
- Revenue per available seat hour. It is calculated to understand the restaurant’s potential, adjusted for the total capacity. As the main criterion, it is customary to use the indicator of revenue from an available seat per hour, calculated by the formula RevPASH = Revenue\(Seats * Number of working hours per shift). The indicator may differ for different shifts/days, which allows you to conclude about the efficiency of employees/the work of the place by period, and make appropriate management decisions.
- By service time: for breakfast, lunch, dinner, etc. It is an important metric that allows you to display the performance for different shifts of the restaurant. Then you can give a boost to the lagging periods — activate special offers during the hours with the highest traffic.
Cost accounting is based on the analysis of the percentage of expenditure items in the total cost:
- Cost of sold dishes and beverages (Food Cost) includes the purchase cost of both ready-to-eat products and ingredients used to prepare dishes. The actual cost is calculated to get more accurate numbers: Food Cost = balances at the beginning of the period + purchases – balances at the end of the period. Next, % Food Cost in sales revenues is calculated = Food Cost \ revenue * 100
- Operating expenses for running the business on a day-to-day basis (not included in the cost of products). This category includes labor costs (the typical percentage is 20%), rent, the cost of utilities, repairs, and other costs (for office, communications, etc.). The share of each item in % of business profit is calculated using the standard formula: item costs / total revenue for the period.
You can optimize operating expenses due to the following:
- Relocating the production of long-term storage products outside the restaurant (into inexpensive real estate, remote from the streets of the frontage line).
- Replanning with a reduction in the number of workers serving one table.
- Use of energy-saving equipment.
- Reducing the number of deliveries by consolidating supplies.
- Transition to a fully electronic document management system.
- Implementation of specialized accounting software.
- Opting for rare extraordinary repairs over frequent renovations (this way downtime hours per year are reduced).
The next indicator in the set of restaurant metrics is the restaurant’s profit, calculated as gross and net one. In the former case, the cost of the dishes sold is deducted from the revenue, which gives an understanding of the total amount from which overheads need to be paid. Next, net profit is calculated, equal to gross profit minus operating costs. You can increase profitability with wise marketing decisions combined with cost optimization. It is useful to work with the average bill to solve this problem.
Average bill types
The indicator is calculated by cumulative revenue for the period per the number of orders (in the same period). Bill analysis allows you to work out a further development plan, create personalized offers and increase profits through:
- Increasing the number of guests from certain target categories.
- Increasing the occupancy of the hall during low hours.
- Finding periods of minimum and maximum profitability on a scale from hours to a year.
The main varieties of the indicator include average bills for:
- Guest/specific group: they are used to understand the size of the average revenue per customer/compare the results of serving guests from different target segments.
- Dishes/beverages: Shows the most requested offerings in terms of price (can be calculated separately for different menu items).
- Periods (breakfast, lunch, dinner, season, weekdays and weekends): used to identify periods with better and worse returns.
- Waiter/shift: a way to assess the performance of employees, and the correspondence of labor costs to the actual rate of return.
An average per bill is also calculated (ratio of total revenue to the number of orders), used to identify the average cost per order to determine the most demanded price range.
Marketing and customer relations
For restaurant metrics to be complete it is necessary to take into account the following marketing metrics of the restaurant:
- CRR (customer retention rate) — reflects how loyal your guests are, the share of regular guests. CRR = (number of customers at the end of the period — new guests) \ number of customers at the beginning of the period. When comparing values for different periods, you can see the increase/decrease of regular guests in dynamics, and evaluate changes in brand awareness and attractiveness.
- Advertising Effectiveness — based on this indicator, the actual effectiveness of advertising is calculated for each euro spent. The formula is: Advertising Effectiveness = increase in customers after the campaign launch\advertising costs * 100.
Selling food online with home delivery service and pre-booking tables through the restaurant’s website is a significant source of profit in this age of technology. This direction should be developed as an additional one, especially in demand in the conditions of sanitary restrictions and crises. The percentage of offline and online orders reflects the ability of a business to keep up with the times and quickly rebuild itself.
Customer acquisition cost
Because customer acquisition cost is such a critical factor in business, it’s always worth taking the time to calculate it accurately – especially if you want to be able to make informed decisions about how to spend your resources.
So how do you calculate customer acquisition cost?
The first step is to estimate the budget you’ll need to invest in customer acquisition. This will include both the upfront costs (like advertising and marketing) and the ongoing costs (like support and engagement).
Once you have a ballpark figure for the budget, you can begin to narrow down your options by assessing what type of customer you hope to attract.
Here are a few tips to keep in mind when calculating customer acquisition cost:
1. Advertise cost in terms of upfront and ongoing expenses. Many businesses mistake advertising costs (the upfront expense) for marketing costs (the ongoing expense). But ads that are front-loaded (paid for up-front but not run frequently) can be more expensive than ones that are ongoing (run frequently). Narrow your focus by reviewing the effectiveness of your competitors’ ads and adjusting your own accordingly.
2. Factor in customer acquisition costs associated with targeting custom audiences. Generating leads (customers who have expressed an interest in your product or service) is an important part of customer acquisition, but it can also be expensive. Do your research to determine how much it will cost to generate qualified leads and then factor this cost into your calculation.
3. Consider customer acquisition costs associated with segmenting your market. Some businesses are better suited to target specific customer bases (such as men or women, parents or kids, urban or rural residents). When calculating customer acquisition costs, factor this information into your calculations and make sure you’re targeting the right customers.
Once you have a good idea of your budget and target market, you can begin to identify which marketing channels are most affordable and effective for your business.
By accounting for customer acquisition costs, you can ensure that your marketing efforts are actually yielding results – and that you’re getting the most out of your investment.
The profitability of any business, including a restaurant business, is determined to a great extent by the quality of management. In this case, the main areas of work are staff, the functioning of the kitchen, control of administrative expenses and utilities.
Factors such as the staff stability, skills and knowledge level of employees, and their interest in the work directly affect the effectiveness of customer service. No doubt that employee analises should take a vital part in your set of restaurant metrics. Replacement of professional staff involves time spent on training newcomers and financial losses associated with a shortfall in revenue.
Employee Turnover Rate (ETA)
There are a number of ways to calculate an employee turnover rate, and it largely depends on the specific business. However, in general, an employee turnover rate can be calculated by dividing the number of employees who leave the company by the total number of employees at the company at the beginning of the month. This number can be used to measure how often employees are leaving the company, and can give businesses an idea of how effectively they are managing their workforce.
One common method of calculating an employee turnover rate is by dividing the total number of employee absences by the total number of employee hours worked. This measure can help companies identify employee absenteeism and other issues that may be contributing to employee turnover.
Another way to calculate an employee turnover rate is by dividing the number of employee resignations by the total number of employee resignations plus the total number of employee layoffs. This measure helps businesses identify periods of high turnover, and can be useful in planning for future turnover.
While most people view employee turnover as being detrimental to a company’s operations, turnover can actually have some benefits if done correctly.
A study by the National Restaurant Association showed that the highest turnover rate for restaurant workers was in the 18-24 age group, with a rate of almost 50%. This is likely due to the fact that this is the age when people are starting their careers and are looking for new opportunities.
If you are looking to reduce your employee turnover rate, there are a few things you can do. One of the most important things is to provide a good working environment. This means providing a variety of work opportunities, good morale, and enough hours to allow employees to spend time with their families.
Another step you can take is to provide training that covers the basics of the job. This will help employees to understand the responsibilities they are charged with, and ensure that they are up to date with changes in the industry.
Finally, it is important to ensure that you are offering competitive salaries and benefits. This is something that most employees Value highly, and will help to keep them from looking for other opportunities.
Sales per labor hour
What is the sales per labor hour calculation in the restaurant industry?
To calculate sales per labor hour, first you need to know your restaurant’s annual food sales. Typically, the more food items your restaurant offers, the more labor hours it will take to prepare and serve those items. To account for variable labor hours and make the calculation more accurate, add up all the hours worked in a year by your total staff. Divide that number by the total number of food items served in the year, and that’s your sales per labor hour calculation. For example, a restaurant that served 1,000 food items and employed 25 staff members in 2012 would have a 2012 sales per labor hour of $5,000/$25,000 or 250 per hour.
Kitchen and bar
When comparing the total turnover of the average inventory of food and beverages in the warehouse with restaurant metrics by category (wine, spirits, draft/bottled beer, etc.) the following is measured:
- the demand for individual offers (liquidity).
- average storage days and associated costs.
Then you can adjust the product mix and the procurement plan, reducing the share of hard-to-sell products. The general rule is the following: the higher the turnover, the lower the rate of return per unit of goods, and the better the payback is.
The following formulas are used for calculations:
- Cost/average inventory = turnover ratio.
- Avg. inventory*Time to sell in days\Total turnover for the period = Days Sales of Inventory.
- Cost of goods sold (COGS)\Inventory for the period (average) = Inventory Turnover Ratio for a specified period.
A decrease in inventory turnover means an excess of inventory and indicates a decrease in the sales indicator (a consistent reduction in the number of orders).
Striving for energy efficiency is not only on-trend now, but it is also a real opportunity to reduce resource costs, which means increasing the net profits of the business. You can monitor the consumption of energy, gas, water and waste removal both in absolute monetary terms (total costs) and per seat/guest (total costs/unit). Similarly, cost indicators for the maintenance of the restaurant’s property should be displayed. It is possible to optimize costs by installing modern meters, energy-saving lighting devices, effective thermal insulation of premises, long-term contracts for garbage removal, and reducing the % of food spoilage (by increasing the average inventory turnover).
How to make restaurant management easier
Finoko web service for budgeting and management accounting is designed specifically to automate work with business performance indicators and includes a complete set of metrics. The system will help you to monitor the dynamics of the restaurant development, develop and test strategies as fast as possible, regardless if the manager is in the office (a convenient mobile app is provided).