- by Alex Alper |
- September 29, 2020
- Cloud Technology | 7 min read
Restaurant Performance Metrics Made Easy
Restaurant performance metrics can be frustratingly difficult to track and analyze, yet vitally necessary to daily operations. Theyll help you measure engagement and online traffic, and learn to recognize trends in your bottom line so you can adjust accordingly and optimize profits. It’s important to be able to understand when your restaurant is doing good or bad so you can plan for a more effective future.
Start by regularly reviewing your sales, labor and menu reports; many good Point of Sale systems will automatically analyze these numbers for you so that you can focus on your business, and see the factors that impact these numbers to leverage it all for future success.
First there are some terms you need to know to better understand all of these performance metrics and thus bend them to your advantage.
1. Break Even Point
This refers to how much money you need to make in order to offset expenditures. Armed with that, you can calculate how long it will take to begin profiting so you can make better choices regarding large purchases, big investments and future profitability. Additionally, the break even point is useful to your stockholders and investors, especially in hard times when theyll want reassurance of incoming success.
To calculate your break even point, follow this formula:
Total Fixed Costs / ( ( Total Sales – Total Variable Costs ) / Total Sales )
Your Cost of Goods Sold, or COGS, is how much you spend to make food and drink; it is, effectively, the cost of your menu. Calculate COGS by taking your beginning inventory, adding the purchases you made within a specific time period and subtract ending inventory.
Use this information to minimize costs and maximize gross profit. Negotiate better rates with your vendors, buy in-season ingredients and develop better storage systems to prevent excess food waste. COGS is one of the few, truly manageable costs within your restaurant, so take advantage of that wherever possible.
3. Overhead Rate
Your overhead rate is a combination of all the fixed costs that keep your restaurant running smoothly. To find it, divide total indirect costs by the amount of hours you’re open. Here, indirect costs refer to all of your fixed costs.
4. Prime Cost
Count up all of your labor costs: Wages, payroll tax and benefits are all included. Add your COGS to your labor cost and you’ll find your prime cost. It accounts for nearly 60% of most restaurants’ total sales, and encompasses most of your controllable expenses. That means it’s one of the best metrics you have to optimize your bottom line and overall operations.
5. Food Cost Percentage
This is the difference between what things cost to make and what you make from selling it. It’s your food cost divided by total sales; typically, this number hovers between 28-35%. The more you learn about how to calculate your FCP, understand your ideal food cost, and what to do with this information once you have it, the more efficiently your operations will run. Read more about how to handle FCP and make the most of your restaurant.
6. Gross Profit
Your total sales minus your COGS equals gross profit. This is everything you’ll have leftover after factoring in expenses, so you can better understand how much money you really have to work with. Pay off your debts, focus on investments and calculate how much you have leftover in real profit so you make better budgeting decisions.
7. Employee Turnover Rate
This refers to the percentage of your employees that you replace within a specific time frame. The restaurant industry has a very high turnover rate across the board, which makes this metric particularly important. Find your average number of employees by taking the amount you have at the beginning versus the end of the time period youre measuring, and that divide by two; then divide the employees you lost within that period by your average number, and theres your turnover. Constantly rehiring and retraining staff is time-consuming and costly, so if you can reduce your losses here at all then youll increase your overall revenue significantly.
What do you do with all this information? It’s overwhelming and difficult to keep track of all this, especially on top of all your regular day-to-day operations. That’s why advanced Point of Sale systems are so important.
With eatOS, our machines automatically calculate restaurant performance metrics so you skip the legwork. We make reporting and analytics easy, and let you focus on making your operations run more smoothly. Get a demo with us today and let eatOS introduce you to the future of food service.
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