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Restaurant and bar profit margins are razor thin (see: what is margin). Bars typically have a 5% margin, while restaurant profit margins dip even lower.
The only way a hospitality business can stay competitive in the industry is to consistently improve. There’s no room for experimentation, you need to know how to manage restaurant accounts, have a bit of knowledge of restaurant SEO, and how to run a swot analysis for restaurant.
That’s why every successful restaurant benchmarks and tracks key performance indicators, or KPIs.
Restaurant Business KPIs: Why Bother?
A key performance indicator (KPI) is a metric or number that is used by a business to measure success. Think things like inventory variance and inventory usage.
In fact, KPIs are the only way you can measure and accelerate success. They allow you to track, evaluate, and react to all the data your business produces.
If you don’t set and track KPIs—with the ultimate goal of improving them—it’s like navigating without a map. You don’t know where you’ve been, so you don’t know where to go.
Here are the most useful restaurant KPI examples and what they mean.
Restaurant Sales
Overall sales is, for obvious reasons, one of the most useful metrics for restaurants. There are a few ways to track your revenue performance.
All of which get downright simple when you’re using BinWise Pro’s SmartView report, by the way.
Gross Profit
The first is gross profit. This is the bar or restaurant’s total earnings after subtracting the cost of goods sold.
And to calculate gross profit, that’s all you gotta do. Subtract COGS from your total revenue:
Gross Profit = Total Revenue - COGS
Gross profit is a great way to assess your restaurant’s efficiency at using variable costs. Those are costs that change with the level of output, like materials and labor. You know, standard COGS stuff.
Break-Even Point
Your restaurant’s break-even point measures the revenue needed to make back any variable and fixed costs. It’s the point at which your business becomes profitable.
Fixed costs include overhead expenses (like rent and utilities), marketing, internet and phone, investments, etc.
Here’s the formula to calculate break-even point for a restaurant:
Break-Even = Fixed Costs / (Total Sales - Variable Costs / Total Sales)
Your break-even point will yield a (typically monthly) number of total sales that your business will need to cover all fixed and variable costs. So that every dollar earned after that is profit. You can also use our free restaurant break even point calculator for easier calculation.
Net Profit Margin
Net profit margin is how much profit is created as a percentage of total revenue. It’s the percentage of sales above and beyond the company’s break-even point.
Here’s how to calculate net profit margin:
Net Profit Margin = (Net Sales - COGS) / Net Sales
Net sales are total sales minus any discounts, allowances, and returns.
Revenue Per …
There are two other useful sales-related restaurant KPIs. But they’re all an especially good KPI for restaurant operation managers (30). They’re all different ways of looking at how operational efficiency affects financial performance.
- Revenue per seat hour. AKA RevPASH. It’s the revenue earned per available seat per hour. You can calculate this by hand by dividing “seat hours” by total sales per hour. It looks like this: Sales per Hour / (Seating Capacity x Hours Available x Days). You can also use Boston University’s RevPASH calculator. This shows you how effectively you’re using your seating arrangement and capacity.
- Revenue per square foot. Divide the total sales by the total available area. You can use square footage or meters. This shows you how effectively you’re using your entire space.
- Revenue per cover. A cover or a head is the bar and restaurant equivalent of a “unit.” How much each person that comes into your restaurants spends is an important metric. Because it can be extrapolated to average check size per table, per private party, and beyond. Teaching servers how to upsell is a good way to increase it. Bar and restaurant technology now allows for cover tracking and seating analysis. Just divide total sales by total covers over any period of time to get your revenue per cover.
Historical Sales
Historical sales is another easy figure to pull. Either from your bar POS system or beverage inventory software like BinWise Pro. By looking over sales historically, either by day, week, or month, you can identify and react to trends.
In fact, the only way to accurately forecast sales is to have accurate historical data to consult. That’s one of the biggest benefits to using BinWise Pro: the movement of your inventory is cataloged and tracked automatically and perpetually. Historical sales data is always at your fingertips.
It also allows you to measure current performance against past performance. Which is the only way to tell if you’re improving!
Cost of Goods Sold (COGS) Ratio
A bar or restaurant’s COGS are the direct costs of producing what’s sold. In a bar or restaurant’s case, those are menu items. COGS includes all the raw material and labor needed to create the sellable product.
In a vacuum, COGS doesn’t tell you much. That’s why it’s often expressed as a percentage of sales: the COGS-to-sales ratio.
The COGS-to-sales ratio measures how much of your total revenue is used to acquire and create what you sell.
Here’s how to calculate it:
COGS-to-Sales-Ratio = COGS / Total Sales
Bar and restaurant industry standard is anywhere from 20–45%. The important part isn’t so much what your percentage is (unless it’s over 45%). The important part is calculating your COGS-to-sales ratio frequently.
That way you can benchmark performance against historical data. That’s how you’ll improve your ratio. And it’s something that BinWise Pro helps bars and restaurants across the world do.
Prime Cost Ratio
Prime cost is your COGS and labor cost added together. It’s widely considered one of the most important restaurant KPIs out there.
And, like COGS, its importance as a KPI hinges on its ratio to your sales.
Here’s how to find your prime cost-to-sales ratio:
Prime Cost-to-Sales Ratio = Prime Cost / Total Sales
Ideally, this ratio should be somewhere between 45–75%. And, again, its value is a function of consistent measurement and benchmarking. Use a bar inventory app frequently to get the figures to calculate COGS and, thus, prime cost.
Labor Cost Ratio
Labor cost includes all wages, taxes, and benefits paid out to employees. Using good restaurant accounting software can help you get a handle tracking labor costs.
Again, the ratio to sales is important. And in bars and restaurants, the labor cost ratio tends to be higher than other industries.
To calculate your labor cost-to-sales ratio:
Labor Cost-to-Sales-Ratio = Labor Cost / Sales
In hospitality, shoot for a labor cost of around 20–30%.
Inventory Turnover Ratio
Inventory turnover ratio shows how many times a business sold then replaced their inventory over a specific time period.
Here’s how to calculate your inventory turnover:
Inventory Turnover Ratio = COGS / Average Inventory
The higher the inventory turnover, the better. Because that means your business is better at turning your raw materials into finished goods … and selling them.
A healthy inventory turnover for bars and restaurants is somewhere between 4 to 7. That means you’re selling your inventory between 4 and 7 times every month.
It can be calculated at a bar-level or an item-level. Though the bar-level figures are obviously more useful for a high-level view of your business’s performance.
Server KPIs
Knowing how effective servers are is another important restaurant KPI. And there are two primary ways to go about it. One has to do with check size, and the other speed.
Per Head Average
This is essentially a measure of check size. It’s straight sales volume, and when you compare servers to each other, you can compare this absolute number. It’s usually pretty useful if your servers all handle a similar number of covers per night.
Per Head Average = Total Server Sales / Total Number of Server’s Covers
Though, of course, you have to take into account how many guests are being served.
Guests Per Server Per Hour
This restaurant KPI measures how many guests a server serves per hour. Where the per head average is a measure of sales volume, this restaurant KPI is a measure of velocity. It measures a server’s efficiency at providing service. Efficiency that can be increased with operational resources like a bar operations manual or a bar opening and closing checklist.
Guests Per Server Per Hour = Total Number of Server’s Covers / Number of Hours Server Worked
Your best servers are going to score in the top 25% percentile in both of these key restaurant metrics.
EBITDA
EBITDA stands for “earnings before interest, taxes, depreciation, and amortization.” It basically subtracts all non-cash items from total sales.
If you’ve automated your restaurant accounting, you’ll be able to automatically pull your EBITDA. And, like other restaurant KPIs, it’s relationship to total revenue is important.
EBITDA Ratio = EBITDA / Total Sales
It measures short-term operational efficiency, and a good EBITDA ratio for a bar and restaurant is somewhere between 12 and 30%.
Restaurant KPI Sample
Here’s a restaurant KPI example to give you some real-world context. The most straight-forward sample KPI for restaurant managers is sales-based. So let’s break down a hypothetical revenue over the course of a month
Let’s say a restaurant brings in $100,000 in total revenue over a month.
The restaurant has a capacity of 35 over a 3,000 square-foot dining room. And it’s open 8 hours a day, every day of the week.
Now let’s say that the restaurant had 1,500 covers during the month. That breaks down to roughly 6 covers per hour of operational time.
First, we’ll calculate the revenue per seat hour. By using the formula above along with the provided data, this restaurant has a RevPASH of 11.52. That’s $11.52 per hour per seat. That’s quite good.
Revenue per square foot is simply total sales, which ends up at $100,000 / 3,000. That’s $33.33 per square foot per month.
And, finally, revenue per cover is $100,000 / 1,500. That’s $66.67 per guest. That’s huge.
But calculating all these manually is prohibitively time-consuming. Especially because you’d have to do it constantly to generate reliable historical data.
That’s where automation and restaurant KPI dashboards come in.
Restaurant KPI Dashboard
Every restaurant that runs a tight ship uses a restaurant KPI dashboard. That means they have all their data automatically piped into a central location that allows them to visualize and interact with it.
The best way to go about creating a restaurant KPI dashboard is finding inventory management software that integrates with your POS and accounting software.
And that’s exactly what BinWise Pro does.
First, BinWise Pro has an existing restaurant KPI dashboard with metrics like inventory variance, historical sales, and COGS.
But any bar or restaurant that uses BinWise Pro can take it further. They get an inventory management powerhouse that plugs directly into existing software.
And every bar or restaurant that has a full-spectrum restaurant KPI dashboard needs their inventory data integrated into it.
That means bar inventory software like BinWise Pro is necessary for creating an end-to-end restaurant KPI dashboard. Along with giving you the data you need to create a crystal clear restaurant profit and loss statement or restaurant chart of accounts.
Book a demo and we’ll show you just how easy it is to smooth your operations, shore up your profits, and get the data you need to make profitable decisions. You should also download our free restaurant financial audit checklist to stay even more on top of your costs and read some of our favorite restaurant management books.