Every restaurant operator needs to monitor the key performance indicators, to evaluate the fiscal health of their restaurant and to make strategic operational decisions.
We tell operators if they keep track of nothing else in their restaurant they need to keep track of these three key performance indicators, because they are critical to understanding your revenue stream and predicting what steps you must take to keep revenue on track.
If you combine these three Key Performance Indicators with your Break Even Point, you will have the very fundamental information to make strategic decisions on your revenue.
These three key performance indicators are essential to evaluating restaurant revenue performance.
1) Net Sales
2) Guest Count
3) Guest Average
These three key performance indicators are usually easy to validate and the source numbers are usually close at hand. If they are they are not easily available from your point of sale system, make sure that you have the paperwork in place to make it easy to track and harvest these numbers on a daily and weekly basis.
If your restaurant is using a computer POS system, this information will be readily available from the POS system. It may be in a report format that is different than what you will need but usually the hard numbers can be used and reformatted into an informative system for your monitoring and evaluation.
If your restaurant is not using a computer POS system, it may take a little more time to assemble the three Key Performance Indicators, but it is still possible using the paper trail that usually exists in some degree in almost every restaurant. If you don’t have this critical paper trail, start it TODAY!
Additionally, these three KPI numbers are usually easy for a restaurant operator to track and share. You may not be willing to share detailed income statement information, but these key performance indicators should be shared with your entire team.
Your service team should be tracking their contribution to the daily and weekly restaurant KPI numbers, because you certainly will be tracking their contributions to the success of the restaurant. While your production team may have other targeted numbers to evaluate their contribution to the success of the restaurant, they also should be aware of these KPI numbers because these numbers are so critical to the evaluation of the revenue. Basically, the more people on your team that are working to move the numbers, the better your restaurant will be.
Ideally, you should be able to assemble a report of the three Key Performance Indicators that covers at least the last year of restaurant operations. A shorter period can be used, but it may not demonstrate a full range of variances of seasons and operating conditions. The longer the time period you obtain, the better you can evaluate and analyze the trends in reports that you generate.
First – Net Sales
The first key performance indicator that you must gather for your evaluation is Net Sales. Net Sales is all revenue from sales of food and beverage minus tax that is collected on behalf of a government entity. The Net Sales is frequently obtained directly from the POS system, usually in the end of day or end of week report.
Second – Guest Count
The second key performance indicator that you should gather for your evaluation is the Guest Count. The Guest Count is the number of people that are served in the restaurant. This key indicator is usually available from the POS system, again in the end of day or end of week report. Occasionally the POS system will not track the Guest Count, by not requiring the input of that information as each check is opened. Contact your POS vendor to make sure the POS system is set up so that your service team can enter the number of guests for every guest check that they open.
Third – Guest Average
The third key performance indicator that you should gather for your evaluation is the Guest Average. The Guest Average is the amount that each guest spends in the restaurant. The per Guest Average is sometimes available directly from the POS system however we have noted that many POS systems track the Guest Check Average.
Again, you may have to ask your POS vendor to adjust the programming in your system so that you can get the information to output correctly. For some odd reason most computer programmers believe that Guest Check Average is the same as Per Guest Average. They are wrong! It is also helpful if the vendor will format the information into the individual server reports so that they can track their personal contributions against the group average and against your established team goals and expectations.
If the POS vendor cannot adjust the information in their system, you can fall back on a paper tracking system. It would make most sense to require your servers to track each Guest Check that they open and tracking the number of guests for each check. At the end of their shift, they can turn in the report to management for entry into a tracking spreadsheet, that will calculate the Guest Check Average for your due diligence tracking.
How to Evaluate the Key Performance Indicators
These three Key Performance Indicators can be used to determine a lot about the operation of the restaurant. Using these numbers you are able to track the business of the restaurant and critical trends of the business. They are also the primary source of many of the other numbers used in the fiscal analysis of your business. As we said earlier, if you track nothing else, these KPI numbers can provide some of the very fundamental information that will serve you very well.
As you gather these numbers, you should be able to put them into a system (i.e. computer spread sheet) so that you are able to do some analysis and manipulation of the information. You should begin gathering at the daily level and then use the spread sheet to gather the information into larger blocks of time for your analysis.
The first KPI number is Net Sales. You should know this number for every business day, with a time span of at least 3 months, if not longer, for valid trend analysis and decision processing. It is helpful to be able to break the net sales number into dayparts, if that is essential for your restaurant. The daily net sales must come from the POS or cash handling system. The number should be validated by checking it against the daily bank deposits or the guest check register.
The second KPI number is Guest Count. You should know this number for every business day, for a minimum of 3 months for valid trend analysis and evaluation. This number can also be broken into dayparts, if that is required for certain decisions.
The third Key Performance Indicator is per Guest Average. You should know or be able to calculate this number for every business day, for a minimum of 3 months to make effective decisions. Of course this number can also be broken into dayparts, to make effective evaluations of the business going forward.
Once you have this information on hand and you are getting used to evaluating it and using it to drive your every day operations decisions, your restaurant will get easier to manage.
Let’s review three decision examples:
You note that net sales are off by 5% each of the last three weeks. This downward sales trend is very alarming and you need an action plan to reverse the trend. But an effective action plan requires knowing why net sales are trending down. The Key Performance Indicators will help you hard target the problem.
If Net Sales is down because the Guest Count is falling, you can do traffic builder marketing to get the Guest Count back up. The problem is quite different if the falling Net Sales trend is from a declining Guest Average, you must action plan to get each guest to spend more, usually by focusing your service staff on upselling and adding on to each guest.
Either way, you can make a decision that hard targets the problem and makes the most effective use of your time, your action plan and any marketing that you do.
In the second decision, you must evaluate who are the contributors are on your service staff. By tracking and monitoring the Key Performance Indicators for each server you can focus your coaching for each server on the challenges that each server must concentrate on to improve. You can use the information as an opportunity to reward your high performing servers, and use the information to get the servers with lower numbers back on track.
Again, you can target your feedback to each server. The message is going to be different to a server that has the highest Guest Average on your service team but has handled the fewest guests. They may be stuck with a lot of deuces or they might be working their tables for too long and not turning them. The server that has a lower Guest Average but has a higher Guest Count may be missing sales opportunities by turning tables too quickly or by taking a section that is too large, with the mistaken belief that the table handles or table turns are their key to earning better tips.
In the third decision, you must make your marketing decision for the next Quarter. You might see the opportunity to build your lunch day part, because of certain market factors you have identified. You should find a menu special that will attract enough guests so that your promotion is revenue neutral marketing.
Your goal should be to build Guest Count at a smaller Guest Average, with a carefully planned sales effort that sells the convenience of your location, the speed of your service, your great tasting menu and friendly atmosphere. If you handle the promotion correctly, you will retain Guests after the promotion. Properly managed, the after promotion Guest Count remains at promotional levels, but the Guest Average returns to pre-promotion level. This means that you have effectively increased sales in the lunch day part.
In each of these scenarios, it is critical to have the Key Performance Indicators so that you are able to examine trends and make valid decisions that will impact your restaurant’s revenue and fiscal management.
As a restaurant owner you have a lot to keep track of every day but you must be aware of these three Key Performance Indicators, because they tell you so much about your revenue and give you information necessary to plan for effective sales and profit increases. Restaurant owners know that these Key Performance Indicators are the very foundation of running your restaurant By The Numbers!
