Have you heard the term KPI?
K-P-I stands for key performance indicator, which is a number you measure to measure your success. It’s a target number you use to help you know what’s working and what isn’t. KPIs are also great for setting expectations with your managers and employees.
In the world of restaurant systems, you start with your current results in an important area you need to see improvement. Then you implement a system to affect change in that area, then measure again after the system has been used for a set amount of time.
If your number has changed in the right direction, then your KPI is trending in the right direction, and everyone can celebrate.
Let me share with you a handful of KPIs I teach my members that basically allow them to hit a 15–20% profit margin.
1. You must create a budget
Your budget is your plan for success. Taking the past 12 months and knowing that if you operate the next 12 months the same way, you can see what you’re likely to make or lose.
Then you decide what systems to put in place that can help you lower costs and increase revenue, how quickly you can get each system in place, and who to train and hold accountable to your timely goal.
Just about every KPI you put in your restaurant is derived from your budget.
2. When it comes to cost of goods sold (COGS), you have budget targets, and you need to be calculating your actual and your ideal COGS.
Why? Because they’re going to give you different measurements. Your budgeted COGS is what you need to hit to make money. Your actual COGS is based on beginning inventory plus purchases minus ending, which is use ¬– or what left the shelves.
Use divided by sales is food cost. Set a budget target to make money and then you measure it. Are you making the money you’re supposed to?
A lot of people stop there, but I teach restaurant owners to measure their ideal to actual. An ideal food cost is based on accurate, up-to-date recipe costing cards.
What you sell each item for and what your customers actually purchased, tracked in your POS system, tells you your ideal food cost, or what it would be if you had no waste, no theft, no spoilage and ran a perfect restaurant.
Of course, perfect isn’t going to happen, but the truth of the matter is that’s where your number should be.
So, you compare your ideal to your actual to see if your menu even gives you a chance to make money. More importantly, ideal to actual tells you how good your chef or kitchen manager are doing. If your ideal is 30, and they run at 32, they’re a rock star.
Most restaurants run seven to nine points above ideal so when you have one that comes in two, maybe even three points above ideal, you know they’re doing a great job.
Then you take your ideal food cost and compare it to your budgeted food cost and if your chef or kitchen manager are getting it this close, maybe there’s room to do even more.
3. Budget your labor
If you don’t run a restaurant on a budget, I can guarantee you’re running your restaurant labor cost on an incorrect number. There’s no way to know where your labor cost should be without a budget.
That’s because some months require more staff during high traffic times while you might have low traffic times and can’t have any fewer staff on the schedule, so your labor cost is all about balance.
One of the things you want to do when it comes to budgeting for labor is go into the week on budget using a system I teach called the Restaurant Payroll Guardian.
It budgets labor hours and dollars so your managers know how to schedule the following week.
This way when they’re using that fancy scheduling software and they see they’re 14 hours over budget in the kitchen, they can figure out how to start trimming hours before the money has been spent.
You also need to start tracking labor on a daily basis. When you follow my systems, you’re going to have a different labor target by day of the week so now you can be on the same page with your management team.
4. Based on your budget targets, you need to be tracking your operating expenses
Such as occupancy costs, paper supplies, restaurant supplies, janitorial supplies, comps, credit card discount rates, and much more. With a budget and your KPIs, you’re now in a position to say that which we measure improves.
Tracking your KPIs allows you to do things like adjust your menu prices before it’s way too late, change your menu to reduce the number of prep hours needed, know when to add or subtract employees from your roster and much more.
Collecting data can be as simple as a yellow tablet, a pen and a calculator. Creating spreadsheets can do the trick for most of it, but I want to be very clear that for big things like food cost, you’re going to need software.
I don’t think I can overstate the importance of creating and measuring your KPIs. The potential benefits of using the data will help you make informed decisions for your restaurant success and that’s priceless.