Nowadays you can track all sorts of data in your bar and restaurant.
From transactions in your POS system to video footage analysis, every part of your operations generates a large number of data points.
However, despite having access to accurate statistics, few bars and restaurants take full advantage of these figures.
So in this article, we’re going to look at 3 main things:
- What is data analytics and how it can help grow your bar and restaurant?
- The different sources of data you have at your disposal.
- The metrics you should track and how to turn them into useful information.
Ready? Let’s go.
Table of Contents
Metrics vs KPIs vs Analytics: What’s the difference?
Before we dive into data analytics in your bar and restaurant, let’s first set a few definitions.
When it comes to business, metrics are used to measure and compare performance. They are quantifiable and typically expressed in numeric form. This means that metrics can be found across every type of business and operations within it.
For example, the average time to serve a customer is a metric you can use to evaluate staff performance. On the other hand, your Cost of Acquiring a Customer (CAC) is a metric typically used in marketing.
The list of metrics you can track is probably endless and this creates a problem: what should you pay attention to?
Key Performance Indicators (KPIs)
KPIs are the metrics that matter for your business and your current goals.
These are typically your most important figures like Gross Profit, Pour Cost and Table Turnover Rate. You can also prioritize things like Net Promoter Score (NPS) or your average customer review rating on platforms like Yelp and TripAdvisor.
In other words, KPIs reflect the overall health of your business and your most important goals.
Data Analytics in Bars and Restaurants
While metrics and KPIs are important numbers, data analytics is a process that turns them into useful insights.
For example, let’s say you’re looking at your sales data in the past quarter and you notice something: there’s a slight dip in revenue on the same day every week. You also see that the average time to serve a customer is higher on a Saturday compared to other days.
So you decide to change the rota – moving one shift from the slow day to the busy Saturday. This way, you can keep the same labor cost while improving service speed.
This is just one basic scenario to demonstrate data analytics within a bar and restaurant. But there are many more use cases as you’ll see in this article.
Do you even need data analytics?
If you’ve been in business for many years, maybe even decades, you probably know everything there is to know about your bar and restaurant. Why would you waste time in calculations when you will arrive at the same conclusion anyway?
There are two things:
First, data analytics is meant to complement your intuition, not replace it. No matter how well you know your business, there may be hidden opportunities that only appear when you have a 360 view of your numbers.
Second, technology makes it so easy to calculate your metrics and KPIs that you can practically automate the whole process. For example, your POS system will typically produce standard reports with a single click. And you can even connect this data with your inventory and video footage to pinpoint where (and why) you might be leaving money on the table.
So what are some specific reasons why you should use data analytics in your bar and restaurant? Here are some that come to mind:
- Improve your menu: explore profit margins across your menu to push high-value orders.
- Evaluate, reward and train your employees
- Anticipate busy periods so you’re properly staffed and have enough of everything.
- Avoid sitting on too much inventory by analyzing sales trends across items.
So while data analytics may not be the cornerstone of your strategy yet, it has the potential to uncover new revenue opportunities, reduce costs, and improve efficiency across your establishment.
Gathering relevant data
Now that we’ve had a look at data analytics and why it’s important, how do you get started?
Well, the first step is gathering relevant data points to analyze. In general, there are 3 major areas to look at:
1) Sales data
This is mostly handled by your POS system and includes everything related to transactions in your bar and restaurant. From revenue and cash flow to menu analysis, your sales data can tell a complete story about your business.
2) Operational data
This includes everything about your work environment including staff performance, video analytics, and inventory management. Operational data can be found in a variety of sources, depending on the area and systems you use. For example, you could start with things like:
The more systems you use, the more sources of data you’ll have. However, even if you only have a POS system, this will often include a lot of operational metrics in addition to transaction data.
3) Marketing data
Everything related to demand generation outside of your establishment will typically be classified as marketing data. Due to digitization of this area, there is a wealth of statistics you can find in tools like Google Analytics or your customer loyalty software if you use one.
Once you have a list of your data sources, it’s time to evaluate what’s important and what’s not. So the next stage is to strategically choose your KPIs so you can make decisions that align with your goals.
The key bar and restaurant metrics you should track
First off – the things you track will depend on your current goals. So if you have a customer service issue, it makes sense to include metrics around this area such as NPS or average customer reviews rating.
However, there is a set of KPIs that you should know in order to monitor the health of your business. Here we’ll present some of the key bar and restaurant KPIs to help you get started.
Gross Profit Margin
Your Gross Profit Margin is a profitability measure that shows how much you have left after you deduct your Cost of Goods Sold (COGS) from total sales. In contrast to net profit, it does not account for additional expenses like rent, salaries, and tax. The formula to calculate your Gross Profit Margin is as follows:
Gross Profit Margin = (Net Sales – COGS) / Net Sales
As a rule of thumb, you should aim for a margin of at least 80% or even higher for premium liquor. On the other hand, if your gross profit margin is below 60%, you’re likely facing an issue.
A low Gross Profit Margin may indicate a number of problems. For example, you might be losing a lot of product due to spillage or not following standard recipes. You might also have a pricing issue or maybe you’re not attracting enough guests.
Only a careful analysis can show you the exact issue but the first step is knowing the number.
Inventory turnover is a measure of efficiency and shows the number of times you’re selling and replacing stock over a given period of time. This serves two purposes:
1) It lets you estimate how long it takes you to sell your inventory on hand.
2) It helps you avoid sitting on too much inventory and use your cash in better ways.
Typically, the higher your inventory turnover, the better because you’re likely selling quickly and not sitting on too much inventory, indicating good management.
In order to calculate your inventory turnover ratio, simply divide your COGS by Average inventory:
Inventory Turnover = COGS $ / Average Inventory at Cost
It’s better to use the Average Inventory since you might have fluctuations in demand over a longer period of time, such as a year. To calculate your average inventory, use the following formula:
Average Inventory = (Beginning Inventory $ + Ending Inventory $) / 2
In general, you should aim for an inventory turnover ratio of 7 or more.
Labor Cost Percentage
In contrast to COGS which measures the cost of the stock you sell, labor cost takes into account all of your expenses related to payroll, taxes, and benefits. In order to turn this into a useful measurement, it’s good to compare it with your overall sales. So the formula to calculate your labor cost percentage is as follows:
Labor Cost % = (Hourly wages + Salaries + Payroll related taxes and benefits) / Total Sales x 100
A low labor cost indicates that you are generating a lot of sales per labor hour. Aim to keep this ratio below 20% if possible.
Employee Turnover Rate
Your employee turnover rate measures the percentage of employees who leave over a given period of time. A high turnover rate indicates staffing issues such as low morale, flawed hiring process, or bad working conditions.
In order to calculate your employee turnover rate, you need to divide the number of employees lost by the average number of employees over the same period of time. The formula is as follows:
Employee Turnover Rate = # Lost Employees / # Avg. Employees x 100
You can calculate your average number of employees by summing your beginning and ending staff count and dividing by two. In general, you should aim to keep your employee turnover rate below 20%.
As if market saturation wasn’t enough, a global pandemic has made it even harder to stay afloat as a bar and restaurant owner.
In a business climate like this, it’s crucial that you stay on top of your costs and constantly look for growth opportunities. And this is where data analytics for bars and restaurants can help.
From optimizing your menu to keeping your customers and staff happy, data analytics can help you build a stronger, more profitable business.
To wrap it up, remember Peter Drucker’s famous quote from 1954 which still holds true:
“What gets measured, gets managed.”
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