Key Performance Indicators for a profitable business

In a series of articles, gastronomy consultant Uwe Ladwig explains what it takes to have a profitable business. In this article, he shows which key figures you should pay attention to and which insights to draw from them.

How key figures support you in managing your business faster and better

Contribution margin calculation, menu or duty roster optimization: Wherever you look, key figures support you in controlling your business faster and more precisely. Since you are not a “data analyst” who spends the entire day concentrating on complex data models, you may find this kind of “controlling” to be an annoying waste of time. All you need to do daily is enter five to seven numbers into your performance measurement system. This is enough to get all key figures you will ever need. This takes ten minutes at the most, but it will improve your results in the long term.

Key figures? You might object that you get them in your monthly result statement from your tax consultant. However, the consultant is more concerned with your tax and not with your business management. You also must wait two to three weeks for the results, which only cover a 30-day average.  This is a rather thin basis for decision-making. According to the Pareto principle, restaurateurs only earn money on 20 percent of the days per month. It is precisely these micro-trends that need to be tracked. And this can only be done with key figures that document daily – or even hourly – progress. With key figures, you make better decisions faster and they also help you in managing your staff.

What should you enter every day?

While there are some duty roster, resource management and price calculation programs in the gastronomy, I am not aware of a system that really outputs all key figures. Even though it may seem unwieldy at first, I recommend entering the key figures in Excel. Because that has some advantages: Since you enter the figures yourself – ideally in the evening or in the next morning – you follow developments more closely. You will notice immediately if you have entered your data incorrectly and which days were more successful than others. This kind of “human quality control” helps you to get an excellent overview while entering your data.

You only need a handful of numbers to determine the most important key figures. Every day you should transfer from your POS system the turnover from food. You can take the employee hours for the kitchen and service from the duty roster. Usually the biggest effort is the recording of the cost of goods by the chef. You could also take these figures from the bookkeeping. If the chef enters the numbers manually, at least at the beginning, he will get a better understanding while importing his numbers. Once the input has become second-nature, you will need a maximum of ten minutes a day. Then you evaluate the key figures according to the motto “analysis opens your eyes”.

You should deal with these key figures every day: 

• Contribution margin 2 {Sales-Return-Product Purchasing (PP*)-Personnel Costs (PC)}
• Contribution margin 1 per guest {turnover – PP* / guests}
• Contribution margin 2 per guest {turnover – PP – PC  / guests}
• Revenue per seat {Turnover / available seats} Target: 20,00 – 25,00 €
• Revenue per guest {Turnover / Guests}
• Turnover per employee hour {turnover / working hours} Target at least: 50,00 – 60,00 €
• Personnel costs in % {PK / turnover x 100} Target between: approx. 30 – 35%
• Occupancy in % {guests x 100 / available seats}
• Ratio food and beverages {turnover drinks x 100 / turnover food & beverages} Target: approx. 35 – 40% beverage content

*) Calculatory cost of sales from the recipe/product purchasing

Inspect the contribution margin 2.

The right insights from your key figures

Even if you monitor all relevant key figures, your business will not improve. It depends on what you learn from the figures and what measures you take to improve them. Key figures are intended to support management. Use key figures not only to follow long-term trends but also to find out in the short term what went well and not so well.

Instead of seeing key figures as an eternal warning, use them to monitor success and motivate yourself and your team. Many restaurateurs do not hand out key figures to their employees because they are afraid that their employees want more money (if things go well) or are anxious (if the figures are low). More transparency helps to ensure the team really identifies itself as a conspired group. With key figures, high goals can be achieved as a strong team. Other restaurateurs do not publish key figures because they simply do not have any.

Start with the key figures that you already have

The success factor of the key figure system is that you determine key figures regularly and completely. However, you do not need a complete measure catalog to get started. The important thing is to start. Once you have determined the first key figures, you use them to set a target and budget. Compare these targets over time (hours, days or months) and set goals. Maybe you compare your key figures with the key figures of other restaurateurs. The evaluation of the key figures is called the “core piece”. This is where a catalogue of key figures comes in, which allows you to assess each key figure individually and draw necessary conclusions.

Just as an airport has an emergency plan, for example, if an aircraft skids over the runway, you should determine what you decide to do if key figures will not develop as expected. Restaurateurs like to make emotional decisions but “pure figures” might help to strengthen your gut feeling or perhaps to counteract it. If you know exactly where you want to go and how far away from it you are, you will be more successful in the short term. Key figures will show you the way.

Uwe Ladwig is the owner of F & B Support in Willich. He supports restaurateurs with business management challenges, offers consulting, coaching, webinars, online courses, seminars and calculation packages. With the complete package Success Key Figure System you get a ready-to-use system, where all necessary key figures are available daily for the control of a gastronomic business. Further information and questions about the key figures can be found at www f-bsupport.de.