The most successful businesses today have owners who are data-driven. Savvy business owners check certain performance indicators on a daily basis to enable them to pivot and change as soon as it's needed. Numbers are driving business today, and that includes the volatile world of restaurants. While there is no single metric in the food service business that can guarantee success or failure, there are definite areas on which every owner should focus to be successful. These key performance indicators or KPIs, are numbers that can reveal opportunities for more profit in a business. The truism, "If you can't measure it, you can't manage it" is especially applicable to a restaurant business.
Tracking Cash Flow
The first and most obvious KPI to monitor is your cash flow, which is the money coming in and going out of your restaurant. From labor costs to bank deposits, your daily cash flow is a key indicator of the financial health of your business. Naturally, you're looking for more money to come in than go out, and keeping a close eye on cash flow will allow you to spot where you're losing money, and modify operations accordingly.
Understanding Cost of Good Sold
Cost of Goods Sold or COGS is the amount of money it takes to create each item on your menu. This is the largest expense for many restaurants, making it one of the most important performance indicators you can measure. An accurate, detailed inventory is crucial for calculating your COGS. Keeping tabs on your COGS on a regular basis is the only way to manage food costs, which can make or break a restaurant's profitability.
To calculate COGS: Take the inventory at the beginning of the time period, like a week or a month, and add inventory you received during that time. Then subtract the inventory not sold by the end of the time period to receive your Cost of Goods Sold.
Determining Prime Cost
The prime cost in your restaurant gives you a more comprehensive indicator of expenses than COGS. To figure the prime cost for the week, add your COGS together with your total weekly labor. This will give you a clearer picture of where you can cut costs and tighten the budget. The most successful restaurant owners watch their prime cost on a weekly basis instead of waiting for the end of the month to look for problems.
Tracking Retention Rate
The key to any successful restaurant is repeat business. The most effective marketing in the world won't turn your business into a success if you can't get diners to come back and try your food again. Regular customers are the lifeblood of every restaurant, from corner coffee shops to high-end eateries. The ability to convince diners to come back over and over again is the basis for a restaurant's economic security.
The restaurant business is so volatile that it's crucial for owners to keep a constant watch on performance indicators. By following repeat business numbers, cost of goods, cash flow and other key numbers, owners can determine when to make changes to avoid loss of profit.
Victoria Bailey has owned and operated businesses for 25 years, including an award-winning gourmet restaurant and a rare bookstore. She spent time as a corporate training manager in the third-largest restaurant chain in its niche, but her first love will always be small and independent businesses. Bailey has written for USAToday, Coldwell Banker, and various restaurant magazines, and is the ghostwriter for a nationally-known food safety training guru.