Acronyms. IDK about you, but I don’t like them very much. Back in my blue-shirted office-bound days, I still had a writer’s mentality when it came to language. Exchanges like this were fairly common:
Person: I need this thing done ASAP [pronounces it ‘ay-sap’].
Me: OK, I’ll do that thing for you, and it will be done tomorrow morning.
Person: No, no. Perhaps you didn’t understand. I need it ASAP.
Me: Yes. You need this thing done as soon as possible. Tomorrow is the soonest possible time to completion for this thing that needs doing.
Person: But I need it sooner.
Me: That’s not possible.
Somewhere along the line, ASAP became a word that meant “immediately”–except when it didn’t. The point is it’s easy to lose sight of the meaning of certain phrases when they become acronyms. But I’m going to be dealing a lot with the stuff in this post, and it might all sound like “Business 101” gobbledy-gook to the creative restaurant types for whom this is written. So even though you’ll see things like KPI and RevPASH sprinkled throughout my words, stay with me. This post is for you.
What We Talk About When We Talk About KPIs
It’s not enough to just know that KPI stands for Key Performance Indicator. Like any good jargon, the phrase itself is essentially meaningless. When we describe anything as “key,” we’re describing in terms of singularity: in this case we’d be discussing “the” performance indicator that is the key to– well, indicating performance. And yet the title of this piece promises seven keys. Why would you need seven keys for the same door? So what we’re really talking about are “important” performance indicators, but IPI isn’t as easy to say as KPI, so here we are. And it’s also good to understand that KPIs aren’t goals in and of themselves, they’re measurements of how well you’re achieving your goals. Keep this in mind as I go ahead and list certain KPIs for restaurants that would be useful to you in measuring your success. If I talk about measuring wage costs as a percentage of sales and point out that lowering the percentage increases your margin, it doesn’t mean you should make this a goal. It’s just one way to get a big picture understanding of where your money is going and is an indicator of how efficiently–or not–you’re running your business. Besides, there’s no one range of numbers that could possibly cover all the unique situations for every different restaurant out there. Some places might need to invest proportionately more in staffing than others, some rely more heavily on beverage sales for revenue, some are owned by a chef who just wants her own place to create delicious food and has no desire to grow beyond the initial vision. These three different situations just aren’t going to have the same goals, and certain KPIs are going to be much different as a result.
So: where do you look to figure out whether you’re on track and performing as expected?
Remember when you went to the bank, and you showed them a business plan which included projections on start-up costs and recurring overhead expenses as measured against anticipated income, and they liked what they saw and gave you a loan? That would be a good place to start, yes? I mean, you had a vision of how things would go. For each aspect of running the business detailed in that document–food costs, wages, marketing, customer acquisition–you had an idea of where you wanted to be. Are things going as you planned? Do you need to change the way you do stuff to keep it in line with your business plan? Or do you need to change the plan? It’s not the sort of thing you should be guessing at, and that’s where my handy list of seven key performance indicators comes to the party. I’m going to operate under the assumption that one of your business goals is to stay in business, and so I’ll focus on indicators that not only let you know how you’re performing in that area, but can provide insight on identifying areas for improvement.
- Food Costs as a percentage of sales. By factoring in the all the food you bought, not just the cost of what you sold, you get a truer representation of your operating efficiency. Maybe you sold $100 of food that cost you $50, but if another $50 of inventory goes bad in the same time you’ve got nothing left to pay your other expenses. Though there isn’t a “right” number for this that applies to everyone, it does get more universally wrong the closer it gets to 100%, and any sustained upward trend needs to be investigated. Dig deeper to see if you can lower your food costs by not buying as much (if you’re wasting things), or shopping for new vendors. You can also start looking at ways to increase revenue, by raising prices, redesigning the menu, or simply increasing traffic. Whic brings us to the next key performance indicator:
- Total number of customers. Counting doesn’t get any easier than this for your digital POS: just tally up the number of customers who ate at your restaurant. You had a projection in your business plan about how many customers a day you expected. Are you close to that number, but still struggling to make ends meet? Maybe people aren’t ordering like you thought they would. Does your number of customers fluctuate wildly for some reason, and can you spot a reason or a trend–something you can capitalise on? This number is also supremely useful in figuring out other KPIs.
- Basket Analysis. Looking at each order and analysing it: how many items does the average customer order? Are people not ordering dessert? What items are most frequently ordered together? If your number of customers is falling where you expect it but your revenue isn’t, this is a great way to measure the “performance” of an important group: your customers! Looking at their ordering habits can help you reshape the menu or craft promotions geared towards their preferences. Maybe you notice people tend to buy a burger and fries but don’t order a soda: this is how the combination meal was invented.
- RevPASH, or Revenue per available seat hour. This is one of those dumb sounding things that some toothy middle manager with a weekend statistical analysis hobby came up with, but it’s really quite useful. In the simplest of terms, an empty seat costs you money while a filled one makes you money, and RevPASH is a good indicator of how much your seats are worth. Example: Ten seats and a ten hour window means 100 available seat hours. Obviously, you want this number–the revenue per those seat hours–to be as high as possible, with no upper limit. But you can also divide your total operating costs by the number of seat hours to figure out what it needs to be for you to break even, and what the ideal revenue would be. Couple that information with your average number of customers, and a basket analysis, and you’ve got a lot of information at your disposal to start growing your RevPASH.
- Staff Productivity. Your staff’s effectiveness can be measured in a variety of ways. You can view your kitchen labor costs as a percentage of food sales to get an idea of the kitchen’s use of time and labor. You can view waitstaff statistics, like their average turnover time, average check total, and average tip as a percentage of check total. You might have one waiter who can hustle two meals through a table in an hour, but if he’s only serving up one item to each customer and not getting tipped so well, you’ve got an idea that he’s not really doing his job well. In that same hour, another member of your waitstaff could spend a little time chatting with her customers, making recommendations (and upsells) and make more money–and goodwill–for your place.
- Average Length of Employment. While you should always be looking at and measuring your labor costs, staffing your restaurant should never be solely a question of money. Or, rather, it should be a question of money, but not such a short-sighted question like “Why would I pay you more money when I can hire someone new for the same or less?” Because that question actually has a good answer: staff turnover is a detriment to efficiency and the customer experience. Hiring new staff means spending more resources–time and money–to find the right fit. Money that you can no longer spend on addressing any other problems. Hiring new staff also means training them while they get acclimated and learn the menu: delays and impediments to the customer experience. Good staff will generate you more money than someone new just learning the ropes, and if you have high turnover you’ll find it hard to focus on anything other than finding your next employee.
- Customer satisfaction. Don’t just rely on machine driven data. Customer surveys are a great way to get feedback, and you’ve got more ways than ever to engage your audience. Emails, social media, and tableside tablets are just a few of the modern incarnations of the suggestion box: use them! If you wait to read what people say on Yelp, you’ll just drive yourself crazy reading idiotic things brought to you by folks who don’t deserve a forum. And that’s just the creators of the app: the users are even worse. You’re more likely to get honest and helpful feedback from people who’ve eaten in your place and won’t couch their meanness in anonymity. Again, you want to know how you’re doing, so you can see what’s working and what isn’t, and I’ve always said that people are a great source to mine for human experience.
Tune in next time when we look at the key performance indicators for Rensselaer Polytechnic Institute’s home grown application program interface. They’re doing some cool things with RPI’s APIs’ KPIs.