The majority of restaurants are franchised. The 2012 US Economic Census numbers say: “the estimated 122,042 limited-service franchise restaurants (NAICS 722513) make up approximately 54 percent of all fast-food restaurants in the United States, nearly 70 percent of the sales of fast-food restaurants ($185.4 billion), and about 73 percent of the employment of fast-food restaurants (3.6 million).”
So – how do you effectively manage a restaurant in terms of Key Performance Indicators (KPIs) in the franchising environment. See our list of 15 helpful KPIs below.
Sales and Marketing
Average Online Rating
With 91% of 18-34 year olds trusting online reviews as much as a personal recommendation, and consumers willing to pay 31% more on a business with positive reviews, there is a great reason why this should top the list for restaurant KPIs. The average star rating, along with the number of ratings within the last month or quarter is the right place to start.
Net Promoter Score (NPS)
NPS is a customer loyalty metric which rates customers as a Promoter, Detractor or Neutral depending on their answer to the following question: “How likely would you be to recommend us to a friend or family member?” on a 10-point scale. Promoters are 9-10, Neutrals are 7-8 and Detractors are 0-6. It can be calculated as follows:
NPS = (%Promoters)-(%Detractors)
CSAT is also a popular way to measure customer satisfaction.
Number of Transactions
Number of transactions is a way to assess customer count. This can typically be retrieved from your Point of Sale (POS) system.
Average Check Size
Some restaurants prefer looking at this simple metric over worrying about upsell metrics. Essentially, a strong average check size shows that the location is getting more from each of their customers. It can be calculated as follows:
Average Check Size=(Total Sales)/(Total Transactions)
Number of New Loyalty Program Members or App Downloads
Loyalty programs and apps matter in the restaurant space, since increasing retention by just 5% through customer loyalty programs can boost revenue by 25 to 95%. Measuring this helps keep the franchisee’s eye on the ball when it comes to this vital activity. Another way to look at this is % of transactions using the loyalty app.
Speed of Service
This is a great one for increasingly time-starved customers, and it does not require any new data points. Measure this automatically from time the customer walks in or drives up to your restaurant through the POS, to the time when the food is delivered to them based on your kitchen display system. Some compare this to NPS as well.
Speed of Service=(Food Order Time)-(Food Delivery Time)
Customer Retention Rate (CRR)
Customer retention rates vary greatly depending on the location and the size of the restaurant. For example, you would expect the CRR at a location at the airport to be low, given the audience in transition. This metric can be measured using the following formula:
CRR=((#of customers at the end of the period)-(# of new customers for that period))/(# of customers at the start of the period)
RevPASH (Revenue per available seat per hour)
If your franchisees have empty seats, their profitability is likely suffering. If you watch this metric hour by hour, you can make adjustments to improve the bottom line.
% Online Orders
With Off Premise sales becoming such a major part of franchising, this is a great metric to start with. The only caution is that you don’t want to punish those that are growing their revenue in the traditional business. Online orders also tend to have a bigger check size.
% Online Orders = (Online Order Sales)/(Total Sales)
% Labor Costs
You may want to split your hourly staff wages versus your manager wages. Some owners-operator franchisees pay themselves a salary. Others pay themselves a dividend out of the profits for tax purposes. By carving out hourly wages into a separate entry, values become more comparable when benchmarked against the system.
% Hourly Labor Costs = (Hourly Labor Costs)/(Total Revenue)
% Food Costs
You should have the actual cost of the items you sold in that period so that you’re properly evaluating profitability. However, some systems don’t have this data easily on hand and they make an approximation using ‘purchases’ during that period. These two numbers don’t necessarily align, so be careful. Make sure you use consistent information for each unit.
% Food Costs = (Purchases)/(Total Revenue)
% of a Strategic Category
Some franchise systems have a very successful category with great profitability, such as soft drinks. Selling a bigger percentage of soft drinks, or whichever that category is within your system is a great start.
% of a Strategic Category = (Category Sales)/(Total Sales)
Food Cost Variance
A metric a lot of franchisors are talking about today is the actual cost of food compared to the planned cost. Tracking this helps track forecasting and handling fluctuations in certain costs such as beef in the future.
Food Cost Variance = (Actual Food Cost)/(Planned Food Cost)
Employee Turnover Rate (ETR)
Every industry has to deal with turnover, and it is a good idea to determine what is an “acceptable” number in your system.
ETR= (# of employees who left in that period)/((# of employees at the beginning) + (# of employees at the end))/2
Similar to Net Promoter Score for customers, above, the Employee Net Promoter score can help you understand how happy your team is. Though some franchisees are hesitant about measuring employees this way, it can add insight – and happy front-line employees mean happy customers.
Ready to Go Further?
If you are ready to go one step further, check out our eBook: Ultimate Guide to Franchisee Scorecards.