Restaurant KPIs you need to track to boost profits

Running a restaurant stimulates and satisfies our passions. From making new dishes to serving happy customers to getting to run a great team, there are thrills and joys in this business. But it’s still a business, and it won’t survive without profit.

Restaurateurs need to be familiar with all the industry-specific terms that help define the health of their business. These are called key performance indicators (KPIs). Restaurant KPIs are their own little world. Keeping track of these restaurant KPIs and setting goals based on them is a key way to boost revenue and profit growth in a restaurant.

This article is close to a complete guide to key restaurant KPIs. If you’re already familiar with these restaurant industry terms, this will be a refresher and a handy reference. Get ready for some acronyms and industry terms—and let’s dissect a restaurant’s performance with the most important KPIs.

Crucial overall metrics for increasing revenue

The following are some of the most important key metrics to indicate the overall health of your restaurant’s revenue. Some of these include terms we’ll cover in more detail a bit later.

Prime cost

Your prime cost shows the cost of your labor and your cost of goods sold (COGS), a significant part of your operating expenses. The formula to figure it out is exactly that: labor cost + COGS = prime cost. Your labor costs include management salaries and employee benefits like insurance. In general, your prime cost should be at or less than 60% of your total sales. You can check your prime cost on a monthly and yearly basis to see if you’re spending too much on labor and inventory or if you have breathing room in your budget.

Sales per square foot

Sales per square foot is one of the best ways to determine your gross profit and cash flow. Restaurant owners will want to calculate it yearly. The formula is simple: annual sales/square footage = sales per square foot. If you want to call it total revenue instead of annual sales, that’s fine too. Ideally, you’ll want sales per square foot to climb steadily after your first year.

As a rule of thumb, a profitable restaurant will likely be making upwards of $250 per square foot. A restaurant making under $150 per square foot may struggle to survive. You’ll want to find your break-even point in sales per square foot as a benchmark. Naturally, external costs like rent will have an impact on profitability. Simply remember that for any successful restaurant, a bigger number is better in sales per square foot.

Labor cost ratio

Your labor costs represent all costs related to labor: staff and restaurant manager salaries as well as benefits. To determine your labor cost ratio, use this calculation: labor cost/total sales = labor cost ratio. Generally, you want to keep labor costs at or around 30% of your total sales.

Back-of-house metrics

Your back-of-house metrics will determine how profitable your menu items are. There’s a lot going on here. Let’s start with one of the terms mentioned above.

Cost of goods sold

Your COGS represents how much the ingredients in a dish cost. The formula is: beginning inventory + purchases – ending inventory = COGS.

Determining how much your ingredients cost helps set menu pricing. Many restaurants follow a 3x cost method to set prices, which leaves room to cover your prime cost and gross profit. 

Food cost percentage

Your food cost percentage is closely related to COGS. Here’s the formula: total food sales/COGS = actual food cost.

Note the word “actual” there. There’s an actual food cost percentage and an ideal food cost percentage. Ideal food cost percentage represents what happens on paper, while actual food cost percentage represents what happens in the real world. For a deep dive into this topic and strategies, check out our guide to food cost percentage and profitability.

Inventory turnover rate

Your inventory turnover rate shows how quickly you need to replenish your inventory. While there’s no simple formula for this, there are plenty of inventory management tools to help navigate the wild world of inventory. Inventory management becomes increasingly complex with each menu item, especially if you’re working with multiple suppliers. For this reason, having a small menu can help keep costs down and make inventory management simpler. It also helps keep food fresh, which makes for better dishes.

Menu item profitability

Menu items will differ in their profitability even if you stick to the typical 3x cost rule, because different items require different amounts of time and labor to prepare. Additionally, they may take more or less time for customers to finish, which changes table turnover rate (more on that below).

So, in addition to looking at your food cost percentage, take time, labor, and diner experience into account when considering a dish’s profitability.

Front-of-house metrics

Your front-of-house metrics will help you identify how things are going in the customer-facing side of the business.

Revenue per seat

Revenue per seat is a flexible metric that tells you how much you can expect to make from a seat over a given period of time. You can measure this hourly, daily, monthly, or yearly. A good way to use this metric is to apply it as an average measure representing all seats and also look at individual seats. That’s because some seats provide more revenue than others.

If you find that some seats are punching well above their weight in revenue, you’ll want to figure out why. It’s often down to location, view, or frequency of use—for example, you may find that a particular bar seat turns out to be the most valuable despite its location or view.

Revenue per available seat hour (RevPASH)

RevPASH is a more complex version of revenue per seat, and provides information on both the time and capacity of your restaurant. You can track this daily or even at different hours of the day. This helps determine how much you can expect each seat to provide per hour. Naturally, the busier you are, the higher this metric will be.

Boston University has a useful RevPASH tool that you can try out to get a sense of this metric.

Table turnover rate

Your table turnover rate (or table occupancy time) determines how quickly customers finish a meal. This also tells you the number of customers you can expect to serve in a day. The speed at which customers finish meals will vary depending on your type of restaurant, the food you serve, your service speed, and more.

Note that a faster table turnover rate isn’t always best for the bottom line. Fine dining and full-service restaurants will have a slower turnover rate than fast-casual, of course, but they’ll also have a higher profit margin due to sales of high-profit items like wine and opportunities to upsell customers on appetizers and desserts.

Customer satisfaction is key—happy customers will visit again, and return customers form the backbone of a restaurant’s business. So, while a short average table occupancy time can be good, don’t let your focus on it hurt the customer experience—unless you’re running a quick-service restaurant, in which case fast turnover is the goal.

Staff turnover rate

Experienced staff are crucial to a successful restaurant, but the restaurant business is notorious for its high staff turnover rate. Rates soared above 100% during the pandemic, and though they’ve come down somewhat now, turnover is still high. Staff turnover is important to keep track of because training new employees costs a significant amount of money—thousands of dollars on average.

Calculating your staff turnover rate is simple: (number of employees that left/average number of employees) x 100 = staff turnover rate.

Be sure to use the same time constraints for both figures when calculating staff turnover—don’t measure the employees who left in one year against your lifetime average of employees. An employee turnover rate of 100% would mean that none of your employees have lasted at your restaurant longer than a year. A turnover rate of 50% would mean that half of them left during a year.

If your restaurant is losing employees faster than the national average, you’ll want to consider what you can do to keep employees more satisfied. Employee retention helps build a cohesive team and improves virtually all restaurant operations. From the experienced manager who knows employees’ schedules and needs to the friendly server who always manages to upsell, the better your staff know your establishment—and each other—the better things will go.

Footfall

Footfall determines how many customers you can expect to seat during a period of time—and the number of tables you can expect to serve. The more footfall, the more covers, the more you earn.

Anticipated footfall demonstrates how many customers you expect to serve. This can change from day to day, as Saturdays may be busier than Mondays, or weekends may be slower than weekdays if you’re in a business district. You can use anticipated footfall to plan staffing and save on labor costs.

Make KPIs your friend

Spending some time measuring these KPIs will give you an idea of how financially healthy your restaurant is and what you’ll need to do to make room for your net profit margin. Increasing total restaurant sales is the simplest way to go, but it’s not the only way. Improving your restaurant tech can go a long way to streamlining services and boosting sales.

Consider Yelp Guest Manager here: It makes FOH management a cinch. It integrates with the best point of sale (POS) systems, syncs with third-party online ordering systems, and makes reservations, check-ins, and waitlists smooth as silk.

With fully customizable FOH service, Yelp Guest Manager gives you and your servers all the tools they need to make the customer experience a memorable one.

Curious if it’s right for your restaurant? Reach out to us for a free demo and we’ll show you how Yelp Guest Manager will work for you. It’ll help you keep track of all your restaurant KPIs too—so you can keep the passion alive in your business.