### Hospitality Guide

# 10 Restaurant KPIs and Why They Are Important to Track

Restaurant KPIs, or key performance indicators, help those in the food industry determine how closely their actions align with their goals. When using these, those working in restaurants can identify if there are any areas for improvement. Understanding the different metrics to measure can help you determine which ones are best for your restaurant to use. In this article, we discuss why it’s important to measure restaurant KPIs and list some that you can track.

## Why is measuring restaurant KPIs important?

Measuring restaurant KPIs is important for them to improve their service and continue having satisfied diners. They can also use KPI data to focus on ways they can best use their budget, staff and time. Restaurants collecting KPI metrics can see how their current activities compare to those of the past and predict future trends.

## 10 restaurant KPIs

Here’s a list of 10 KPIs forÂ restaurant ownersÂ to measure:

### 1. Cost of goods sold

The cost of goods sold allows restaurants to see how much money they spend buying supplies, such as menu ingredients. This helps determine how well your restaurant manages its supplies and can help you plan future purchases. You can find this metric by adding your beginning inventory to the purchases made during the designated period, then subtract the ending inventory amount. The formula would look like this:

(Beginning inventory + Purchases in period) – Ending inventory amount = Cost of goods sold

Example:Â Jack’s Crab House begins with $500 and purchases an additional $800 worth of crabs for last month. Their remaining inventory by the end of the month was $200. Using the formula, it determines their cost of goods sold was $1,100.

(500 + 800) – 200 = 1,100

### 2. Gross profit

Gross profit is the total revenue a restaurant makes after subtracting its cost of goods sold. Restaurants use this metric to determine how profitable their business is and to see if they have a net profit. In order to find your gross profit, find your total revenue and subtract your cost of goods sold. The formula would look like this:

Total revenue – Cost of goods sold = Gross profit

Example:Â Pine Crest Diner had total revenue of $2,000 last month, with a cost of goods sold of $520, so its gross profit would be $1,480.

2,000 – 520 = 1,480

### 3. Labor cost ratio

The labor cost ratio is the relationship between labor costs and gross sales. Labor costs may include hourly wages, payroll taxes, health care and other related expenses. To calculate this metric, you divide your labor costs by your sales so it looks like this:

Labor costs / Sales = Labor cost ratio

Example:Â Heather and Holly’s Farmhouse Food spent $4,000 on labor costs last year and generated $20,000. This means that their labor cost ratio is 20%.

4,000 / 20,000 = .2 or 20%

### 4. Employee turnover rate

Employee turnover rate is the number of employees who leave a company during a designated time period. This metric can be helpful in determining how satisfied your employees are working at your restaurant. It also can be helpful for seeing how effective you are in retaining talent and providing advancement opportunities.

You can find your employee turnover rate by dividing the number of restaurant employees who quit during a period by the number of employees still working at the end of the period. The formula would look like this:

Number of employees who quit / Number of employees working = Turnover rate

Example:Â The Mason Jar Draft House has 10 servers who quit at the end of the year, with a remaining total of 200 employees. This means that their employee turnover rate is 5%.

10 / 200 = .05 or 5%

### 5. Average table occupancy

Average table occupancy examines the average amount of diners that visit a restaurant during a period. Restaurants can use this rate to help them determine whether they are effectively using their seating capacity. To find this amount, you divide the number of occupied tables by the total number of tables. The formula looks like this:

Number of occupied tables / Total number of tables = Average table occupancy

Example:Â Better Days Bistro has 24 occupied tables and 96 total tables. This means that its average table occupancy would be 25%.

24 / 96 = .25 or 25%

### 6. Spend per head

Spend per head is a metric a restaurant can use to see how much money customers spend on average when eating a meal there. This helps restaurants see what times of day diners spend most. They can then use this data to set up promotions to encourage customers to dine during the less popular times. To calculate your spend per head metric, you divide your total revenue by the number of customers. The formula looks like this:

Total revenue / Number of customers = Spend per head

Example:Â South Side Pizza made $500 Friday evening when they had 50 customers. This means that their average spend per head was $10 for a Friday evening.

500 / 50 = 10

### 7. Prime cost ratio

The prime cost ratio is a restaurant’s total costs of production and can help a company determine the minimum sales price for their food and drinks. Typically, businesses aim to have a prime cost ratio of between 45% and 75%.

When calculating your prime cost ratio, you first find the prime cost by adding your cost of goods sold to your labor costs. Then divide this value by the total sales amount. To calculate, it would look like this:

(Cost of goods sold + Labor costs) / Total sales amount = Prime cost ratio

Example:Â Checker Table has a cost of goods sold value of $450 and a labor cost of $900, making its prime cost $1,350. The restaurant can then divide $1,350 by $2,000, their total sales amount, to get a prime cost ratio of 67.5%.

(450 + 900) / 2,000 = .675 or 67.5%

### 8. Guests per server per hour

The metric of guests per server per hour looks at how many customers a server assists in a typical hour, which can show the efficiency of your servers. The formula for finding your guests per server per hour is the total number of guests served divided by the total number of hours a server works and looks like this:

Total number of guests / Number of hours worked = Guests per server per hour

Example:Â Beverly serves 45 guests in five hours when working at Tibbins Burgers and Fries, and her manager wants to know her average guests served per hour. He divides 45 by 5 and learns she serves an average of nine guests per hour.

45 / 5 = 9

### 9. Per-person average

Per-person average is the amount of money a server generates for each customer they serve. Knowing this metric is important for seeing which servers generate the most money. You can find your per-person average by dividing a server’s total sales by the number of guests they served. To calculate:

Server’s total number of sales / Number of guests served = Per-person average

Example:Â AtÂ Red Barn Southern Biscuits, Morgan earns $200 in one night and serves 50 guests. On average, Morgan makes $4 per person she serves. However, Morgan’s coworker Eddie earns $500 in one night and serves 80 guests. His per-person average is $6.25. Based on this data, Eddie earns more per person than Morgan.

200 / 50 = 4

500 / 80 = 6.25

### 10. Food wasted

Food wasted is a percentage of how much food goes uneaten in relation to the amount of food purchased and can help companies looking to reduce waste in their operations. Typically, this involves weighing the food wasted and dividing the amount of food purchased that became unused by the amount of total food purchased. To calculate:

Weight of wasted food / Total food purchased = Percent of food wasted

Example:Â Mama Italian Restaurant discovered they had 12 pounds of food go to waste. When calculating their food waste, they divided 12 by 120, the total amount of food purchased and discovered the amount of food wasted is 10%.

12 / 120 = .10 or 10%