Recently, I’ve been doing a lot of work implementing KPIs for restaurants and bars. For those of you who may not know, KPIs are Key Performance Indicators. Statistics, or metrics, about your business, that you can track to monitor your performance toward key objectives, such as profitability and growth.
I researched the most used KPIs in the restaurant industry and was a bit shocked to find that most of the “popular” ones would not help restaurant owners achieve their key objectives. Some of them sound very important, like Sales per Seat per Hour, but provide almost no guidance as to what to do to improve the statistic. What would you do? Remove some seats? Make it stop raining? Is your objective to increase sales per seat per hour? Really?
Many of the KPIs suggested for restaurants and bars fit this mold. They are statistics about what happened in the past and they are about some objective, like sales, number of guests, and gross margin percentage. The problem is they are statistics about the objectives and not about the activities that must be performed to achieve those objectives. They don’t give any indication as to what to do to improve the metrics. Not very useful, to say the least.
Your Value Proposition
Most businesses want to improve profitability and growth. There are many ways to achieve these objectives, but they all involve a combination of getting more customers, keeping the ones you have, selling more things to them (more often), and doing it more profitably. Everything customer related, depends on your value proposition – the perceived value a customer sees from your combination of menu offerings, service level and atmosphere.
So, you should focus on those activities that improve your value proposition, not the end objective. By improving your value proposition, you will ultimately achieve your profitability and growth objectives. Let’s look at a simple example.
A Simple Example
You have a small, neighbourhood pub. Most of your customers come from the local area where there are several other competing bars and restaurants. Based on historical sales data, if your customers order food, it tends to be wings, burgers and fries. There seems to be a preference for craft beers over corporate beer brands. People come to watch sports and to meet up with their friends. In other words, you run a typical pub.
In order to succeed in this business, you need to attract and retain as many customers as you can. You have to offer a better value proposition than your competitors, relative to the prices charged. Let’s say your research shows that potential customers in your area place the most value on quick, friendly service, consistent, good quality food, and a clean, comfortable atmosphere in which to watch their favourite team on TV.
If these are things they value, these are the exact things you should be monitoring with custom KPIs. Here are a few possible KPIs that you might use. By no means is this a complete list!
To monitor friendliness of service, you might keep track of the percentage of guests that are greeted with a friendly smile and “hello” as soon as they arrive. Similarly, keep track of the percentage of guests thanked for their visit before they leave. Note that the “data” for this KPI won’t be found in your POS system. You will need to have someone devoted to gathering this information – perhaps only for a few nights per week.
Similarly, to monitor speed of service, you may want to keep track of the number of times (or percentage of times) it takes longer than two minutes for a server to take the first order. Again, you may need someone to gather this data. Most people don’t like waiting to settle up once they are ready to go. You might monitor POS data showing the time from the last order to bill printing. Determine an acceptable time difference and monitor how often this is exceeded.
There are a number of ways to monitor product quality. One is to monitor the percentage of complaints to total orders. However, most people don’t complain when something isn’t to their liking. They just don’t come back or come back as often. So, you may want to look at the quantity of food scraped off plates. This may indicate how much customers like what was served to them. If a few wings are left uneaten, it may indicate they weren’t cooked properly. If lots of fries are left, it may indicate that portions are too large.
Washroom cleanliness is usually a key concern for customers, especially women. You should keep track of complaints about the state of your washrooms and keep a log of washroom cleaning activities. If women won’t frequent your pub because of dirty washrooms, it’s a sure bet their significant others won’t be visiting either. You know that many guests come to watch their favourite teams on TV. Therefore, you should track some metric that indicates the quality of viewing experience. This might be something like the percentage of TVs with a good quality picture each night.
Of course, there are many other potential KPIs that you may choose to employ. The only requirement is they relate to the activities that will ultimately get you new customers and keep the ones you have.
By monitoring your KPIs, your staff will focus on improving their performance in the areas that are important to your customer’s value proposition. Staff only improve things that are measured. Customers only pay for things they value.
In our simple example, by monitoring these KPIs, your pub will provide consistently friendly, quick service, deliver consistently better quality menu items, and offer a cleaner, more comfortable atmosphere to potential customers. In other words, you will be increasing your value proposition. The higher your value proposition, the less pressure there will be on your prices and the less impact your competitors will have on your business.
As a result of these activities, you should be able to attract more customers to try your pub and your existing “regulars” will be more likely to return and come in more frequently. More customer visits mean more revenue. You will still need to monitor your costs of providing this level of service and quality with other KPIs.
Now, you can calculate the “popular” KPIs to monitor how well your business is performing in terms of the overall profitability and growth objectives. These KPIs will reflect the effect of having performed the activities that contributed to your value proposition.
In today’s post, I hoped to show how to use KPIs effectively in a restaurant or bar. The key takeaway is that you need to monitor the activities that will contribute to your value proposition and ultimately your profitability and growth. Erroneously focussing on overall objectives will not help you achieve them.
I should emphasize that each business is different and will require a custom set of KPIs to monitor and manage the specific key activities that will help you achieve your overall objectives.