Key Performance Indicators Explained

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Key Performance Indicators Explained

For a manager, whether one of the team or a designated senior professional, chances are that they will have heard of Key Performance Indicators (KPIs). KPIs are the performance measurement tools or data that represents the success or opportunities within a business – good or bad. There’s a saying “If you can’t measure it, you can’t manage it!”Hence KPIs require reliable and truthful data reports for decision making. Remember, if there’s a problem, required action should be taken. And if the organization is successful, it is easier for the executives to identify the successful elements that may be exploited.In essence KPIs depend on the figures to provide a wider understanding of success. 

To be effective, the KPI must be:

  • Applicable to the line of business.
  • Factually generated through data based channels (eg POS)
  • Well-defined.
  • Thoroughly communicated throughout the staff.
  • Crucial to achieving the goals.

In restaurants, Robert Ancill of The Next Idea Restaurant Consultants Group, suggests the following KPIs are primary data points that should be watched closely:

Staff & Employment KIPs

Wage Cost %- Wage cost (combined salary cost) should be reported as a percentage of sales.

Total Labor Cost %- Along with the wages, this KPI also includes other aspects of labor expenses such as vacation time, staff meals, workers compensation, and all taxes that apply on the payroll specific to the local tax laws, etc.

Total Labor Hours –The time devoted by the workers play an important role to compare against sales.

Sick Leave by Staff – This checks the leadership skills of the management team in a true manner, a higher absence rate is often the result of poor or even troubled leadership.Naturally incidents like flu outbreaks must be considered before drawing conclusions.

Function Labor Charge-Out – The event operators, food trucks and fixed price parties fall under this category.

Labor Turnover- While a high staff turnover may be considered as normal in hospitality industry, The Next Idea can point to a number of operators that have less than 50% annual staff turnover. The formula to calculate Turnover is simple;the number of staff employed, subtracted with number of employees that are employed during a certain period. The result represents the labor turnover figure.

Time Spent (Employment Tenure) by Employees – It’s another factor to assess company’s success in keeping the staff.

Average Hourly Pay– This number may be obtained with a simple step – divide total payroll by the number of hours worked by all staff, same applies to restaurant managers.

Kitchen Management

Food & Beverage (Cost of Goods / COG) cost percentage is an essential KPI measurement, especially when operating restaurants.

The cost is measured as:

FC% = (BI+P-EI) /S

COG is calculated by taking beginning inventory for a certain period of time (one month, for example), adding all percentages to that number.

It’s then subtracted with ending inventory number. And the result divided with sales of same period. The percentage (answer) is calculated for the cost.

Example

$10,000 beginning inv., $2,000 purchases, $ 10,500 ending inv., $5,000 in sales.

Formula: FC%= (BI+P-EI) /S

(10,000 + 2,000 = 12,000) – 10,500 =1,500

$1,500 / $5,000 = 0.30 or 30% food cost

 Note – Don’t forget to keep in mind the following factors in Food/Beverage Costs (COG):

  1. Wastage
  2. Discounts (Marketing driven or for errors in product)
  3. Employee meals
  4. Management Accounts
  5. Guest complimentary items

Total Food Costs – calculate the percentage of company food bill. This helps make staff aware about the actual economical condition of the company. The reason for employingCOG as a KPI is that it represents the primary KPI illustrating that the kitchen and menu management is going well.

Typically, a restaurant Point of Sale system, (POS) helps generate a theoretical COG %. This can be later matched to the actual COG. Along with this, variance % is another primary KPI as the variance represents the variance margin.

The COG may be broken into:

  • Beverage (Wine, Beer, Liquor)
  • Food (Meat, Dairy, Fish, Produce, Dry goods)

Food Costs Per Head– ensure to know what the cost to feed per customer is. If the cost goes above the expectations, it is essential to evaluate the reason, and respond accordingly.

Kitchen Labor % – compare the kitchen productivity against food sales and not total sales, for example alcohol and beverage sales.

Kitchen Labor Hours- compare total number of hours, worked in each section, against sales to measure productivity.

Stock Value- total stock in the inventory. It should be less than a week’s use, which can slip out if using storing frozen seafood or cryovac (shrink-wrap) meat.

Best (and worst) Selling Items- go through the weekly sales and map these products on the menu Profitability Analyzer. It helps what played the biggest role in profitability as the brand heroes and who are the worst players.

Kitchen Linen Costs- budget the cost of uniform, aprons and tea-towels, etc. as % of sales or cost per head. Check the numbers of tea-towels are being used on particular time duration?

Front of House & Restaurant Management

Total Sales Per Head – divide the total sales by the number of customers. The outcome may vary between times of the day.

Number of Customers–This KPI represents an excellent scale to measure guest satisfaction and repeat business.

Food, Dessert, &Beverage Sales Per Head –This indicates two variables. (1) The menu appeal to guests, and (2) the success of staff at selling. It’s great for bonus system.

Seating Efficiency–This includes the number of customers, turning away despite the high-quality customer service.Many factors play important role such as cooking time, seating, service, clearing etc.

Basket Analysis – The number of items that lunch customers order. Also check what else the morning coffee drinkers, red-wine drinkers order. During a TNI Client survey, it was predicted that the typical diner ordered only 2 items and the lunch customers hardly order a beverage. Check the routine ordering patterns.

Linen Costs–The cost of uniforms, aprons etc.

Front of House Labor % – Number of hours compared with the sales; to measure productivity of the business concept.

FOH Labor Hours - Hours worked in this section? Compare against sales to measure productivity of organization.

Customer Satisfaction – Measure using various methods, such as feedback cards, complaints, social media ratings, mystery shoppers, etc.

Bounce Rate–If 100 people came to the restaurant in a day and only 10 ordered something to eat. Then the ‘bounce rate’ would be 1/10.

RevPASH – Described as the Revenue per Available Seat Hour. Hotels use this idea to measure revenue per available room. Divide the total number of seat hours with total revenue for a period of this number.

Bar & Cellar Management

Sales Per Head– Always maintain a record of alcohol and non-alcohol beverages as this records two factors –1) how much the beverage and wine appeal to customers and 2) the staff’s selling efficiency. It may be helpful within the context of a sales bonus system.

Gross Profit on Sales–In simple words, it’s the difference between what company sell and what is saved on each sale. Sales mix can influence it. For example, if two bottles are sold on the same price, but one costs the brand $10 to buy and the other costs $17, then it’s important to maximize the sales of the products that offer highest profit.

Profit % on Sales–Useful to understand if the revenues are holding steady or not.

Stock Turnover–Check how fast is cellar stock selling? For example, if there is wine worth $50,000 in stock and weekly sales are$10,000, then it will take 5 weeks for the stock to turn over.

Carrying Cost of Stock – The amount spent financing the stock may be acquired with a simple formula; apply the current interest rate for borrowing money to the stock value; and divide it by 52 for a weekly figure.

Sales / Stock-take Discrepancies –For an organization, keeping an eye on shrinkage, staff drinks and theft are constant challenges.If the amounts differ between what is sold and what the POS system says has been sold, then find out why they aren’t the same!