Key Performance Indicators (KPIs) – The Vital Signs of Your Restaurant

Key Performance Indicators (KPIs) – The Vital Signs of Your Restaurant

Quick Service Restaurants (QSRs) is a mature and tough-to-survive industry. The profit margin is low, ranging from 5% to 7%. All the more reason to keep monitoring key performance indicators (KPIs) to stay on top of business needs.

To thrive in this industry, each QSR owner needs to measure and control the critical elements of their business. Successful operators track the key metrics and hold their people accountable. 

What Key Performance Indicators Should You Keep Your Eyes On?

There are tons of tricky & confusing KPIs to measure for QSRs, but the ones listed below will give you a clear insight into your business performance and allow you to take corrective actions wherever needed.

Sales – 

Sales are an essential ingredient in the success of QSR. Sales play a vital role in measuring various other KPIs for the business. In the current digital world, each business owner needs to track the multiple sources of sales, like,

  1. Dine-In
  2. Take away
  3. Digital App sales
  4. 3rd party delivery (DoorDash, UberEats, etc.)

Based on their contribution to sales, you can determine which source is generating more revenue and needs to be focused more. 

1. The Break-even point denotes the number of sales a business should have to make profits equal costs. Of course, it would help if you sold more than the break-even point to generate actual profit.

Break-even Point = Fixed Costs/Gross Margin %

2. Historical Sales

It is essential to review the historical sales data for each QSR. You can track it per day, day-part, week & month. It will give you a clear insight into the time of the year, month, week, or day. Your sales were high or low. Based on this result, you can do a 

  1. Proper staff scheduling (to avoid labor waste)
  2. Proper Food ordering (to prevent food waste)
  3. Determine the best time to open & close the store (effective use of resources)
illustration of kpis blocks stacked

Cost of Goods Sold (COGS)

The Cost of Goods Sold is a variable cost that varies in direct proportion to the sales. The primary success mantra for any QSR is to control the Cost of Goods Sold. It will have a direct impact on your bottom line. The average Cost of Goods Sold is in the range of 30%-35% for QSR. If you succeed in keeping it near a lower number in the range, you see a significant rise in the profit margin. Food and Liquor (Drink) costs are the critical contributors to QSR’s COGS.

Cost of Goods Sold = Opening Inventory + Purchases – Closing Inventory

Ways to control your Cost of Goods Sold:

1. Daily Inventory tracking

2. Keep minimum Inventory balance

3. Order Smartly

4. Reduce Food waste.

5. Use the FIFO method for perishable goods

6. Check for the item price increase

7. Select a vendor who will give you the best price

Food waste % = Food Waste / COGS

Cost of Labor

Labor costs include employee salary and wages, Payroll taxes, Overtime, bonuses, tips, and other employee benefits. A QSR usually has a labor cost of around 25% to 30%. To have a favorable labor cost, you need to follow some disciplines.

  1. Effective staff schedule
  2. Avoid overstaffing
  3. Control Break times, Leaves, etc.
  4. Control overtime
  5. Provide incentives to superior performers
  6. Improve staff retention

Prime Cost

Prime Cost consists of two things, Cost of Goods Sold & Labor Cost. An Ideal Prime cost for QSR runs between 60% to 65%. Therefore, it is the primary KPI that each QSR owner needs to measure. In addition, Prime Cost covers the maximum variable Cost of the business. 

Prime cost % of sales = COGS + Cost of Labor/ Total Sales

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Employee Turnover Rate

Employee turnover is one of the biggest challenges that every QSR owner faces at the current time. Especially after COVID-19, employee turnover has increased significantly. Employee turnover increases the Cost of hiring new employees and training and onboarding. It also impacts the productivity of the restaurant. To control employee turnover, you should focus on:

  1. Employee retention
  2. Provide employee benefits
  3. Better working conditions
  4. Pay at the market rate.

Employee Benchmarks

The success of any QSR depends on its employees. They play a very vital role in shaping the business. They are the ones who drive sales and customer satisfaction. Therefore, any business needs to measure the performance of its employees.

Per Person average – this is the sales volume generated by a server. This KPI will allow you to find the best-performing employee in your restaurant. It will also help you to find low-performing employees and take the necessary steps to improve their performance.

Per Person average = Total Server sales/ Total number of Guests served per server.

Server Errors – Per Guest – This KPI will help you to identify the number of mistakes made by the server. Errors like wrong order wrung, delayed service, results in wastage, unsatisfied customer, dejected team.

Server Errors per Guest = No of Errors/ Total Items Wrung in

Return of Investment

ROI measures how much revenue a business generates compared to the Cost of running that business. 

Return on investment: = Net Margin*Asset turnover

Net Margin = Net Income/total revenue

Asset turnover = total revenue/(debt+equity)

A good restaurant’s ROI ranges from 15 to 25 percent.

Financial strength 

This KPI will help you understand whether your business can cover its fixed-charge obligations such as Rent expenses, Interest expenses, etc.

Financial strength = (EBITDA)/(Fixed charges for the period, including rent and loan repayment)

If the financial strength ratio exceeds 2, it’s considered a healthy business. On the other hand, if the ratio is less than 1, the business struggles to meet its fixed obligations.

Cash flow and liquidity metrics

With the current downturn in the stock market and likely recession in the coming months, managing cash flow becomes paramount. 

Especially focus on the 90-day and one-year cash forecast based on past data. It will show the likely financial stress if there is an unanticipated decline in sales or an increase in cost. If possible, make sure you can pay the fixed obligations for six months, even if you have to close the store. After all, the best time to raise money is when you do not need it.

Team Up With the Best

Monitoring KPIs on your own can prove both a challenge and a hassle. With Indevia, you can contact us today and get started working with some of the best pros available. Our bookkeeping solutions for restaurants can turn your accounting process from a pain to a money-saving streamlined event.

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