Managing a franchise restaurant can get pretty intense. Not only do you have the traditional restaurant pain points to deal with, but your success is often measured against other franchise locations. In order to ensure you're hitting all the right numbers and staying profitable, there are certain key performance indicators (KPIs) restaurant owners and managers should keep an eye on.
Keep reading to learn about the 8 restaurant franchise KPIs you need to measure and track.
1. Gross profit & gross profit margin
Gross profit is your franchise restaurant’s profit after deducting the cost of goods sold from the total revenue. Note that you still need to deduct other expenses (e.g., rent, labor costs, etc.) from this number to understand your net profit.
The formula for calculating gross profit is simple:
Gross profit = Revenue - Cost of goods sold
If you’re looking to calculate your gross profit margin, which is the percentage of the total revenue that constitutes gross profit, you’ll want to divide your gross profit by your total revenue, and then multiply that number by 100:
Gross profit margin = (Gross profit / Total revenue) x 100
2. Net profit & net profit margin
Net profit is your franchise restaurant’s profit after all expenses are deducted. It’s sometimes referred to as the bottom line.
Net profit is calculated by subtracting total operating expenses from your gross sales:
Net profit = Gross sales - Operating expenses
Net profit margin, on the other hand, shows the percentage of gross sales that constitutes net profit. It’s calculated as follows:
Net profit margin = [(Gross sales - Operating expenses) / Gross sales] x 100
3. Break-even point
The break-even point is one of the most crucial KPIs for a restaurant franchise. It shows how much revenue you need to generate to cover your total expenses.
Knowing the break-even point will help you get a better understanding of whether opening a franchise restaurant in a particular location would be profitable.
It can also be useful for setting menu item prices and sales targets, as well as for controlling costs.
The break-even point takes into account your total fixed costs (e.g., rent, insurance, salaries), total variable costs (e.g., labor, inventory costs), and total sales.
Here’s how to calculate it:
Break-even point = Total fixed costs / [(Total sales - Total variable costs) / Total sales]
Looking to lower your restaurant’s break-even point? The three main ways to do that would be:
- Reducing fixed costs – While fixed costs are the hardest ones to reduce, it’s not impossible to do so. For example, you could try renegotiating rent with your landlord to try to reduce fixed costs.
- Reducing variable costs – Variable costs can be a bit easier to reduce compared to fixed costs. If you’re looking to reduce variable costs, you could look for ways to optimize your scheduling or find cheaper food suppliers.
- Increasing average check size – Finally, you can also look into increasing your restaurant’s average check size. We’ll go into more detail about this later in this post.
Learn more about restaurant costs.
4. Cost of goods sold
The cost of goods sold (CoGS) includes the total amount you spend on raw materials that are needed to prepare meals and beverages at your franchise restaurant.
It’s calculated by adding up your starting inventory and purchases for a given period (usually a week) and then deducting the ending inventory:
Cost of goods sold = (Starting inventory + Purchases) - Ending inventory
Most restaurants spend a third of their gross revenue on cost of goods sold.
Since produce pricing will fluctuate based on the season, your cost of goods will fluctuate as well. This makes it crucial that you track your CoGS consistently to make sure you’re turning a profit on all your menu items.
If you need some help with reducing food costs for your restaurant business, use these tips:
- Buy supplies in bulk whenever possible
- Use inventory management software to optimize your process for purchasing supplies and reduce wood wastage
- Always stay on the lookout for more affordable food suppliers
- Design your menu around dishes that use seasonal ingredients
5. Labor cost and labor cost percentage
Labor cost includes all your employee-related expenses, such as:
- Salaries and hourly wages
- Employee benefits and bonuses
- Payroll taxes
- Overtime
Then there’s the labor cost percentage, which shows you how much of your revenue is spent on labor costs. It’s calculated by dividing the total labor cost by your restaurant’s total revenue, and then multiplying that number by 100:
Labor cost percentage = (Total labor cost / Total revenue) x 100
Learn more about how to calculate labor costs in a restaurant.
Since labor costs are the biggest expense for a restaurant, you should always be looking for ways to reduce them.
Here are three strategies you can use:
- Minimize overtime – Overtime can be very expensive. To reduce it, you should set a cap on the number of overtime hours staff members can work and let your team know that overtime should be an exception, not the rule.
- Cross-train your staff – If you cross-train staff members so that they’re able to perform duties outside of their role, you’ll be able to operate your restaurant with a smaller number of employees on staff during less busy shifts.
- Optimize scheduling – Solutions like Lineup.ai can help you optimize restaurant staff scheduling by creating accurate sales forecasts that let you know exactly how many staff members to schedule for each shift.
6. Revenue per available seat per hour (RevPASH)
Revenue per available seat per hour (RevPASH), as its name implies, helps you understand how much revenue your restaurant is generating every hour per available seat.
Tracking this metric helps you understand how effective your current restaurant layout is at generating revenue and allows you to figure out whether you might need to redesign your floor plan to boost revenue.
It’s calculated as follows:
RevPASH = Revenue / (Number of seats x Hours open)
Here are three ways to improve RevPASH:
- Distribute reservations more evenly throughout shifts
- Revise your table mix to include the optimal number of two- and four-seaters
- Reduce no-shows by sending automated reservation reminders
7. Average check size
Your franchise restaurant’s average check size is the average amount a customer spends at your restaurant. Keeping track of average check size can help you understand how profitable your restaurant is, as well as enable you to create revenue forecasts.
It’s calculated by dividing your gross sales by the total number of customers:
Average check size = Gross sales / Total number of customers
Here are a few ways to increase your average check size:
- Train your staff to upsell (e.g., by offering higher-priced liquor) and cross-sell (e.g., by offering customers dessert)
- Add more item modifiers to your menu, such as extra sides and sauces
- Point customers’ attention to your high-margin menu items by making them stand out
8. Time per table turn
The time per table turn metric shows you how much time, on average, guests stay seated at a table at your franchise restaurant.
It’s calculated by dividing the number of guest parties served by the total number of tables, and then dividing the result by the number of hours open:
Time per table turn = (Number of guest parties served / Number of tables) / Number of hours open
In most cases, you won’t have to calculate this number manually, though. Your point-of-sale (POS) system should be capable of doing this for you in real-time.
Ideally, you should be working on reducing this number so that you’re able to serve more guest parties in less time. Here are a few ways you can do that:
- Reduce the number of items on your menu - Having a long list of menu items can overwhelm customers and make it harder for them to decide what to order. By limiting the number of items on your menu, you can simplify and speed up the ordering process.
- Offer a free drink or a dessert at the bar – If your restaurant has a bar area, you can offer guests who’ve finished their meal to transition over to the bar and enjoy a free drink or a small dessert on the house. This way, you’ll free up tables faster for new customers.
- Train servers to consolidate their visits – Servers can waste a lot of time by making too many unnecessary trips to tables. For example, visiting a table once to take the guests’ orders, coming around the second time to bring a bread basket, a third time to bring drinks, and a fourth time to finally serve the ordered dishes. Train your servers to make fewer visits to each table while still doing everything that’s needed to ensure customer satisfaction in your restaurant.
Track these restaurant KPIs to ensure your restaurant franchise stays profitable
You’ve reached the end of our list of the most important KPIs you should track if you’re running or managing a franchise restaurant.
A franchise restaurant can be very profitable, but only if it’s managed properly.
Further read:
Boris Mustapic is a content marketer with a decade of experience in the digital marketing industry. He specializes in helping B2B SaaS companies drive growth through strategic, product-led content marketing.
More about the author