When I started researching this topic, it seemed that there were many sites out there that advocate looking at many different KPI’s for a restaurant or pub. Even the ones I find seemed to place so much importance on KPI’s that are really trailing indictors. What I mean by a trailing indicator is that it tells you the information you need long after events have happened. The 6 KPI’s that I believe are the most important are:
1. Food Sales
2. Beverage Sales
3. Food GP%
4. Beverage GP%
5. Food Wage % to sales
6. Bev Wage % to sales
The reason I believe these are key is that it allows you to measure the most important areas of your restaurant and evaluate whether the decisions you are making are effective. For example, if you are putting your menu together and then costing the menu so that you can plan a certain GP%, then you need to monitor your food GP% to ensure this is effective. The same goes for wages, you need to measure this against sales as your wages need to adapt to the trading of your restaurant or pub. If sales are less then expected, it is good practice to also try and reduce wages.
Even more then identifying KPI’s, is monitoring them on a regular basis. You need to have systems in place to ensure that you can get the information needed for these KPI’s. You need to ensure that you have targets, such as a budget or industry benchmark to compare to. You also need to be able to see the information in a way that is consistent and easy to make comparisons. You also need to see this information on a regular and consistent basis. You need to be able to make decisions and adjustments to your pub or restaurant based on these KPI’s and this won’t happen if the information is not received regularly and on time.
If you want to see this in practice, then here is a video I created that explains a KPI report:
The report is the result of many systems that ensure it is accurate and delivered regularly. However it is consistent and regularly delivered so that it has value and can help with decision making.
Some other KPI’s that seemed to be suggested on many sites were:
1. Cash Flow
2. Prime Cost (COGS + Wages)
3. Revenue per available seat hour
4. Retention or repeat visitor rate.
While these measures are important and can be measured, I question whether they are actually key and whether they can tell you have a problem early enough. For example, a profitable restaurant or pub should have good cash flow. All costs are paid for in arrears while revenue is almost always collected at the time of the sale. If you are having cash flow problems, then your profit must have been down. Therefore, the problem is the lack of profit, cash flow issues are a trailing indicator. You will also be able to see whether you are going to have profit problems by measuring the KPI’s identified above.
Prime Cost does not seem specific enough. The costs behind wages and COGS are completely different and should be measured separately. Combining them distorts the picture and could lead you to miss an issue with 1 or both costs.
Revenue per available seat hour looks at your wage hours vs your revenue. This is very similar to wage % vs revenue; however it ignores the cost of revenue. In Australia we have penalty rates and staff who are paid at different wage levels. Not including the cost in a wage based KPI misses are very important element.
Retention or repeat visitor rate is something that can be monitored in a Point of Sale system or Customer Relationship Management Program (CRM), however it is a very specific indicator. A key indicator is total revenue, this indicator can help drive your revenue, however if you looking for a key indicator then just revenue should be monitored.
KPI’s should always be Specific, Measurable, Applicable, Relevant and Timely. This is known as the SMART criteria. The KPI’s and reporting steps that I have mentioned above fulfil these criteria and if put in place will help identify issues in your hotel or restaurant.