Doing business without any sort of indicator for success is like sailing the open sea without a map – you may feel like you’re moving, but you can get lost easily.
The service industry, especially the bar and restaurant sector, is a vast and constantly changing environment. Key Performance Indicators (KPIs) are metrics that you can use to measure your performance, just like a map that tells you where to go. They can be very helpful, but their sheer volume can also lead you astray if you don’t know which ones to use.
In this article, we’ll discuss the most important KPIs to track when running a bar or restaurant.
KPIs: What Makes Them So Important?
KPIs can help you make decisions that ultimately drive the success or failure of your establishment. Having a good understanding of KPIs, choosing the right ones and monitoring them on a regular basis can steer you towards the first and away from the latter.
In today’s data-centric world, these numbers tell you how your bar or restaurant is doing so you can act on time to capture opportunities and prevent mistakes from happening.
How to Choose the Right KPIs for Your Bar or Restaurant
Almost everything can be measured nowadays, which means there’s an abundance of KPIs to choose from. However, not all of them are relevant to your industry or your particular establishment.
Every business is unique, which means you may need different indicators to improve specific areas of your business, depending on its stage. The right indicators for your business might not be the right ones for a competitor down the street.
However, there are certain KPIs that every bar or restaurant manager should track. They form the foundation of your day-to-day, weekly, and monthly decisions.
8 Bar and Restaurant KPIs You Need To Track
Now that we know what the right KPIs can do for your business, here’s a list of the best ones to monitor if you’re a bar or restaurant operator.
The overhead margin or ratio shows your overhead costs as a percentage of your total sales. A low overhead margin indicates efficient use of resources like staff, space and utilities. You can calculate your overhead margin as follows:
Overhead margin = (Total Overhead Costs / Total Sales) x 100
For instance, let’s say you’re making $70,000 a month in sales and your overhead costs are $20,000. This means that your overhead costs make up 28.5% of your revenue.
Overhead margin = ($20,000 / $70,000) x 100 = 28.5%
While the overhead margin is useful to get a better perspective on your expenses, it’s not enough to jump to conclusions – you still need to take other KPIs into account to see the full picture.
Gross Profit Margin
There are many metrics related to bar and restaurant sales.
The first one to keep in mind is Gross Profit Margin, which measures your profitability. It can be computed using this formula:
Gross Profit Margin = ((Net Sales – Cost of Goods Sold)/Net Sales)) x 100
Where Net Sales is equal to Gross Revenue less returns, allowances, and discounts.
The Gross Profit Margin is a key metric to keep in mind – a healthy margin should be around 80% or more. Using this in combination with your overhead margin can provide a good view of your overall income and expenses.
Net Profit Margin
Net Income shows the actual earnings from your restaurant. This is basically the amount that you get after you’ve paid all your expenses, including cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses.
That said, one of the most important ways to measure your restaurant’s profitability is the net profit margin. This metric shows the percentage of net profit that your business makes after subtracting all the costs.
To get the net profit margin, you simply need to divide your Net Income by Total Sales and multiply by 100.
(Net Income/Total Sales) x 100
The average profit margin for restaurants is between 3 and 5% but can range anywhere from 0 to 15%.
This is another easy yet essential metric to look into. Your historical sales can reveal trends and they’re also a good measure of your performance.
Historical sales are typically categorized into daily, weekly, monthly, and yearly sales. If you have a bar or restaurant POS, you don’t even have to calculate anything for this KPI since your POS records every transaction you make with it.
Average check per server
This indicator measures the average amount customers spend in your bar or restaurant per server. You can get this number through the formula:
Server Sales / Number of Customers Served
For example, let’s say Server 1 and Server 2 brought in $150 and $230, respectively. Server 1 covered five customers, while server 2 covered nine. Using this formula, the per-head average of each server is:
Server 1: $150 total sales / 5 = $30 per head average
Server 2: $230 total sales / 9 = $25.5 per head average
Take note that this is most effective when measured over a longer period such as a month or quarter to account for daily fluctuations.
Guests Served Per Hour
While the previous indicator measures the average that your servers bring in, this indicator measures the hourly average of customers that your servers cover in a period of time, typically per hour.
You can get this measurement by dividing the total number of customers covered by the number of hours that the server worked, or:
Number of Customers Covered / Hours Worked
For example, if a server covered 27 customers in a total of 8 hours, their guest served per hour is 2.1
You can use this metric to measure the overall efficiency of your front-of-house, especially when implementing improvements or using new restaurant software.
Time per Table Turn
This indicator measures how long a table in your bar or restaurant is occupied. It’s a complex metric that gives a number of insights.
Your POS should already be logging the time between when your customers order and the time that they pay the bill, as well as the averages throughout a certain period.
This gives you a solid idea of how many customers you can serve over a given period of time and whether your customer service speed is improving. In general, the lower the time per table turn, the more customers (and revenue) you can accommodate for.
Percentage of Satisfied Customers
When sending feedback surveys, make sure to note the percentage of customers that indicated they were “Very Satisfied” – or whatever the top rating for customer satisfaction is in your establishment.
For example, if you collected a total of 275 feedback forms and 144 of them rated the highest level of satisfaction, this means you have a 52.3% satisfaction rate.
By tracking this metric over time, you can measure how specific changes in your establishment can affect customer satisfaction.
Tracking Bar and Restaurant KPIs
Key Performance Indicators are important measurements that you can use to assess your establishment’s performance – something every restaurant and bar operator has to know.
Make sure to remember the three broad categories of bar and restaurant KPIs: financial indicators, employee indicators, and customer indicators. When you make and track these measurements, you have guiding points that you can use to determine your next actions, and you can then navigate your business journey better.