KPIs are “key performance indicators”. Running a restaurant has lots of moving parts, but watching KPIs helps to keep everything moving smoothly.
KPIs aren’t glamorous but they’re the numbers that drive your restaurant’s success.
By understanding a few key metrics, you’ll be able to find waste in your restaurant, and use that knowledge to reduce costs and increase profit. This guide will make it easy, we promise.
This guide will focus on a few key performance indicators that relate to overall restaurant profitability. The formulas in this guide will help you determine if your restaurant operation turned a profit for the day.
You’ll learn how to calculate:
- COGS (cost of goods sold)
- Fixed costs per day
- Average labor cost per day
Calculate your COGS
COGS stands for cost of goods sold. It’s how much you’re spending on food during the period.
To accurately determine your food costs you need to have a firm handle on your food inventory. That means tracking waste, breakage and performing periodic audits.
COGS is calculated using the formula:
(Beginning Inventory Value) — (Ending Inventory Value) = (Cost of Goods Sold)
Let’s take an example. You have $3,000 in inventory at the beginning of the week, and you spend an additional $1,500 during the week. Your restaurant was busy making food, and at the end of the week your inventory is now valued at $2,500.
So, to figure out your COGS for the week:
Track COGS each week to determine your monthly COGS. Divide monthly COGS by the number of days in the month to find your daily COGS average.
Your daily cost of goods sold average will help you determine your daily variable costs. Because your food costs are determined by the number of guests you serve this number will change month to month, based on seasonality and other factors.
Fixed Costs Per Day
The next calculation is your fixed costs. Your fixed costs are the same whether you serve one guest or one thousand. These are your bills.
- Service fees
Keep in mind that “fixed” doesn’t mean that these costs don’t change over time. For example, your utilities rate may increase in the winter.
Figure your fixed costs per day by adding up all your fixed costs and dividing by the number of days in the month.
The formula is:
(Rent)+(Utilities)+(Service Fees and Fixed Recurring Costs)= (Fixed Costs) / (Days in the Month)=(Fixed Costs Per Day)
Your Labor Cost
Labor is one of the highest cost contributors in a restaurant, so it’s important to track labor closely to protect profitability.
To determine your monthly average labor cost calculate the following for each of your employees. Be sure to include additional costs associated with their employment such as insurance and employment taxes.
The formula is:
(Employee’s Rate of Pay) x (Number of Hours Worked) + (Additional Employee Costs) = (Single Employee’s Monthly Labor Cost)
For example, Joseph makes $10 an hour, and worked 60 hours this month. State fees and insurance for Joseph total $200.
Add the labor cost of each employee to find your total labor cost for the period. Divide the total monthly labor cost for all employees by the number of days in the month to find your average daily labor cost.
Average Daily Overhead
Now that you have figures for:
- Average daily cost of goods sold (COGS)
- Daily fixed costs
- Average daily labor costs
You can derive an Estimated Daily Overhead
This is the number that you have to “beat” every day in sales to break even.
The formula is:
(Average daily COGS)+(Fixed Costs Per Day)+(Average Labor Cost Per Day) = (Estimated Daily Overhead)
ROI and Breakeven
ROI is your “return on investment”. Breakeven is the point at which you’re no longer paying bills and are now turning a profit.
Using your POS dashboard you can live-track total sales to know when you’ve crossed the threshold. After you hit your daily breakeven point sales are profits.
In this example Breakeven was sometime during the first hour of dinner. At the time sales were checked there was $30 of profit. The rest of the night is profitable.
Business Intelligence and More KPIs
Now that you have a basic understanding of restaurant key performance indicators you can gain additional insight by tracking performance more closely. You can start to dig deeper and track ROI for each meal service. Or really go in depth and track every hour, every menu item and every employee.
To gain this level of insight you need a POS with robust reporting tools. Rezku POS has hundreds of reports to help restaurant owners track KPIs and gain greater business intelligence.
With Rezku POS Back Office you can access your restaurant’s data anywhere you have internet access. You can run every report, check sales, view your labor to sales ratio and much more.
For a free restaurant management technology consultation contact Rezku today. See for yourself how Rezku is helping restaurant owners across America do more.