The restaurant business does not have a lot of margin for error.  Profit margins thin.  But, if managed right there is the potential for a profitable and lucrative business.  In order to enjoy success there are key metrics that every restaurant owner should pay attention to.

These are the top 10 metrics that restaurant owners should pay attention to.

1.  GROSS MARGIN:

The Gross Margin reflects the amount of money left over after paying all your expenses, before paying taxes.  Make quarterly and annual comparison of your gross margin to determine what changes are taking place over time that affects your ability to improve your gross margins.  Looking at your gross margin will enable you to identify whether or not you’re pricing your products correctly and overpaying on expense items such as shipping, raw materials, etc.

2.  AVERAGE MONTHLY REVENUE:

The average monthly revenue is the amount of money generated in amonth after paying expenses.  Compare monthly revenues generated from year to year to determine how much it changes over time and assess what may be responsible for the changes.  This will help you to identify what you need to do in order to address those months where revenues come in lower.  Calculate monthly revenues as follows:

Annual Revenues / 12  = Average Monthly Revenue

3.  FOOD COST PERCENTAGE:

The food cost percentage is the difference between how much it cost you to create the meal and how much you sell that meal for.  This is important because it is a key element that determines your overall gross profit margin.  You calculate the food cost percentage as follows:

Food Creation Cost / Sale Price  = Food Cost Percentage

$4.50  / $19.00     =   .236 (or 23.6%)

4.  EMPLOYEE RETENTION RATE/TURNOVER RATE:

More than any other industry, the turnover rate for employees in the restaurant industry is very high.  Keep this rate low.  It cost valuable time and money to recruit a new employee, get them trained and familiar with their duties.  It’s not good for morale when someone has to work longer hours to make up for the shortage when an employee leaves.  Try to avoid the negative impact on your business by reducing employee retention rate.  You calculate the retention rate as follows:

Startign Number of Employees + Ending number of Employees / 2  =  Average Number of Employees

Lost Employees / Average Number of Employees  =  Employee Turnover

If you start the month with 18 employees and finish the month with 10 the calculations would look like this:

(18 + 10) / 2 = 14

2 /14 = .142 (or 14.2%)

5.  GUEST CHECK AVERAGE:

Guest checking average is the amount of guest that each server tend to in the restaurant.  Some guest prefer to be served by certain servers that they like and hence always ask to sit in areas where that server is responsible for.  Servers that provide good service attract more guest.  By paying attention to this number and making comparisons between employees you could encourage employees to up their game and do a better job to attract more guests. 

6.  LABOR COST:

Labor cost is the percentage of revenues that goes toward employee pay.  Your labor cost should be less than 35 percent of revenues.  Calculate it this way:

Labor cost / Revenues  = Percentage of Labor Cost

7.  DAILY CASH FLOW & PROFIT:

As a restaurant owner you must have a keen awareness of cash-flow and profits.  Cash flow is the net  amount of money that is being generated every day by the business.  Knowing what the cash flow is will enable you to determine day-to-day how much money you can allocate to important things such as marketing, employee pay, etc. in order to grow the business. 

8.  CONVERSION RATE:

The convesion rate is the percentage of people that become new customers based on the leads you’ve generated.  If you generate 200 leads and was able to get 15 people from that group to become new customers, then your conversion rate is 7.5 percent.  It is calcualted as follows:

Leads  / new customers  =  Conversion Rate

200  /  15    =    .075 (or 7.5%)

9.  COST OF NEW CUSTOMER ACQUISITION:

The customer acquisition cost is the amount of money you spend in order to acquire a customer and  generate a sale from that customer.  This takes into consideration the cost of all your marketing efforts.  Customer acquisition cost should be as low as possible.  This is how you calculate the customer acquisition cost:

Marketing cost / Number of Customers Acquired  =  Customer Acquisition Cost

$1,000  /   10   =    $100

10. VOIDS & COMPS:

Voids are orders that get canceled.  Comps are attempts made to make it up to customers when a mistake is made.  This could include giving customersa free drinks or meals.  These things cost the restaurant business a lot of money.  They have to be kept to a minimum.  Keep track of them and identify the employee that is making the mistake repreatedly and get them to stop.