Calculating and understanding the Gross / Net Annual Revenue of a restaurant is based on accounting, numbers and modeling. Getting the numbers that can show the maximum yield/sft or labor productivity takes time and expertise.   

While these KPIs are important for every restaurant owner to know & act upon, being able to generate those numbers for the average restaurant owner is easier said than done.  I feel the following common sense KPIs may prove to be more practical and feasible for small & medium sized restaurant owners to compare their businesses with.

1.     CUSTOMER FEEDBACK

Always be in the know of what your customers are saying about you. Don’t just rely on what your customers say within the restaurant or on your website site but also bookmark popular feedback sites such as Yelp, Open Table, Urban Spoon, etc. Review them regularly and try to respond to them as soon as possible. Yes, sometimes there will be feedback that will seem trivial or vindictive but I believe it is just indicative of a deeper issue. There is always some kind of fire behind the smoke and it makes sense for a business owner to know of the underlying issue. Whatever the cause for the complaint, most important point for owners and managers to remember is that people do read these sites and quite often base their decisions based on these opinions.  

It can take years to build trust but seconds to lose it. Learn from the feedback & if possible, reach out to the poster. Rectify the issues as soon as possible. The old adage, “If it is good - tell your friends. If it is bad - tell me as soon as possible” is a good philosophy to have. It is very important that customers not only have a positive impression about your business but that they talk about the positive impression as well. If customers are not talking positively about your business, restaurant operators absolutely need to understand why.  

2.     CLEANLINESS

A clean restaurant means that the people working there CARE about their workplace and are happy with their work. Workers are HAPPY when they feel they are being taken care of and are making enough money. While clean recesses and refrigerator tops are good indicators of cleanliness and attention to detail, one of the surest signs that your team is actually cleaning   are clean floor drains. It’s that simple: Clean floor drain often implies a clean restaurant.

3.     SERVER SALES AND EFFECTIVENESS

This is absolutely one of the basic ways and while it does require the availability of some figures, those can very easily be procured from a POS rather having to undertake complex calculations. Figures for average sale per server, who is up-selling the most, who is getting the highest tip, etc. are easy to get. FOH personnel are critical for the success of any restaurant and need to be monitored consistently. Restaurant owners & managers need to make sure that the FOH team (that includes the Host / Hostess) is knowledgeable of not just what the restaurants offerings are but also its policies and procedures. Managers also need to make sure that their team can perform well under pressure and customer service does not suffer during rush hours.

4.     BUSINESS MODEL

 While the financial statements offer a quick insight into a business model, they don’t always tell us all that we need to know. I have observed that quite a few restaurants that have cash flow challenges do things like live “weekend to weekend”, delay paying vendors, pro-rate payroll, etc. Also sometimes, the business owner’s USP that may have been valid a decade ago has long evaporated but the Owner soldiers on hoping against hope that something will change.

A very basic way to validate the existing business model is whether the most critical large expenses such as rent & essential payroll based on a weekends’ sale. The rational being that if a if you can cover rent in one weekend then you are not forced into saving for rent throughout the month and that whatever occurs during the course of the month, you can be certain your rental obligations can be met. Similarly, if you can cover your critical payroll in one weekend, you are not floating the checks or using the week day cash flow normally reserved for operational costs. If you cannot pay either of these in a single (but different) weekend then your business model is flawed and needs to be reworked.

5.     LABOR MODEL

Yes, a perfect schedule is hard to anticipate but for an owner/manager who works in the restaurant, there are a few ways to measure whether your daily staffing is reasonable or not. In some cases, an additional server could help generate additional revenue whilst in other cases, the restaurant could run just as well with one less employee. How do you know when this is the case without going through all the data?

A sure sign that you are overstaffed is when you walk through your restaurant and don’t have anything to do. Whether it be welcoming guest, grabbing silverware or picking up a napkin on the floor, if there is nothing to do, what are the staff doing? Do you really need them all at that time?

Similarly, your restaurant is understaffed when you walk through your restaurant with your head down because you are conscious that the moment you make eye contact with an employee or customer, they will need you for something or when you look through your restaurant and see tables constantly looking up for a waiter or drinks empty on a majority of tables.


For any Restaurant, Prime Cost = F&B purchases + Labor Costs (wages + Taxes & Benefits) should account for 62 to 68 cents of every dollar in sales. Prime Cost is really what impacts a restaurant’s profitability.

6.     INVENTORY & YIELD

 It is often stated how important the proper management of inventory is, how it can help identify theft, measure COG or that it is the backbone to profitability. In actuality, this once a week or once a month activity mostly helps the accountant. Yield management, if done properly and based on an acceptable loss percentage can be far more valuable to your bottom line and much easier to act on.

Take your top 10 best selling individual items and track these daily against sales. If you start the day with 100 soda cans and end the day with 30 then you sold 70, if you sold less than 70 you have a problem – there is no acceptable reason for a missing can. This same technique can be used for your major items which do not require selling pieces of but rather are purchased and sold as one unit. These items would have a 0% acceptable loss because you either sold the can or you didn’t, there is no margin of error.

For items that are not being sold whole, allocate an acceptable loss to. For example, French Fries may have a slight variation in portion size and therefore a 10% acceptable loss on the purchased vs sold volume. You can build a running average of your purchases for the fries and any major variation during any purchase period would require further analysis.

 


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