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We will start today’s class by thinking about the terminology introduced in class 1 –

on a sheet of paper write your own understanding  of:

1. Strategic Planning
2. Operational Planning
3. VMB board

KPI – Key Performance Indicator

Key Performance Indicators (short: KPIs) are an extremely important measure in successful businesses. We will look at the definition of KPIs, how to create a KPI and look at examples. You will then need to create an example KPI.

Please open the presentation below and follow it in class.

KPI – Presentation

In 6 teams we will look at examples of KPIs used in hospitality and report back to the class.

Examples of KPIs used in restaurants, cafes and similar businesses

Below is a text with examples of KPIs used in restaurants, cafes and similar businesses. Read and write one from each category that you can relate to on a sheet of paper. We will use it in a group discussion.
Source: http://www.profitablehospitality.com/public/88.cfm  (Sourced in August 2012)

Key Performance Indicators for Restaurants, Cafes, Catering, Clubs and Hotels

Remove the guesswork from managing your business by checking the numbers that tell you what’s really happening.
There’s a business saying: ‘if you can’t measure it, you can’t manage it!’ Real, responsive management needs reliable and truthful figures on which decisions can be based. If there are problems, you can take corrective action quickly. If you are having success, you’ll know to do more of what you’re doing! Good figures also give you a wider understanding of your success – sometimes if it’s a quiet month (when your suppliers are telling you that ‘everyone’s quiet!’) you’ll see that some of your KPIs are actually improving (eg sales per head). Well done – it is not all doom and gloom!
Watch several figures from each of the 6 following sections.

1. Staff and Employment KPI’s

Wage Cost % – wage costs as a percentage of sales.
Total Labour Cost % – not just wages but also the other work cover insurance, retirement and superannuation charges and other taxes that apply on your payroll.
Total Labour Hours – how many hours worked in each section. This is useful to compare against sales to measure productivity.
Function Labour charge-out. Caterers usually charge-out service staff at a markup on the cost of the wages paid. Are you achieving a consistent mark-up?
Sick days taken – sometimes a measure of morale and the management skills of your management team.
Labour turnover (number of new staff in any one week or month) Everyone says high staff turnover is ‘part of the territory’ in hospitality. It doesn’t need to be like that, but one way to measure how good (or bad) you are at controlling this is to measure labour turnover. Count the number of positions you have (A), then count the number of people who you have employed during a certain period (B). Divide B by A and you will get a labour turnover figure, sometimes expressed as a percentage. For example if you have 10 staff positions and you have employed 38 people in the last year, your Staff Turnover is 38/10 or 380%!!
Average length of employment – another way to look at your success in keeping staff. Add up the total number of weeks all your people have worked for you and divide this by the total number of staff.
Average hourly pay – divide the total payroll by the number of hours worked by all staff.

2. Kitchen Management

Food Cost % can be measured quickly by adding up food purchases for the week and measuring them against your food sales. This is based on the assumption that you are not holding very much stock (as it’s perishable, you need to sell it or throw it out!). You may also do a stock-take regularly to get a more accurate food cost percentage, although the burden of kitchen stocktaking often means it is not done very often.
Total Food Costs – how much was your total food bill? Sometimes a useful figure to show staff who think you are made of money!
Food Costs per head. It can be useful to see every week how much it costs to feed an average customer. If your menu and sales style is consistent, this should also remain much the same. If it starts to go up, you will have to find out what’s happening!
Kitchen Labour % – it’s only fair to measure kitchen productivity by comparing kitchen labour against food sales, not total sales (alcohol and beverage sales may be influenced by other factors).
Kitchen Labour hours – how many hours worked in this section? Compare against sales to measure productivity.
Stock Value – how much food stock are you holding? It should be less than a week’s use, but can slip out if you are storing frozen seafood or Cryovac meat (a packaging method that is supposed to prolong the life of meet).
Best (and worst) selling items – check the weekly sales from your POS or dockets. Did you know what the best sellers were? Map these on the Menu Profitability Analyser.
Kitchen linen costs – the cost of uniforms, aprons and tea-towels can be a shock! How many tea-towels are you using each day? (Have you thought about laundering them yourself?)

3. Front of House and Restaurant Management

Total Sales Per Head – your total sales divided by the number of customers. How does it compare to last week and last month? This may vary between different times of the day .
Number of customers – simple! A good measure of popularity.
Food, Dessert, Beverage Sales per head. These are divided into key areas of choice – main course and starters, desserts, non-alcohol beverages, alcohol and perhaps also side orders (eg breads and salads) and other product sales. It’s the perfect indicator of two things – how much your menu appeals to your customers (do you have all the choices they want, eg the right dessert selection?), and how well your staff are selling. This KPI can be a good basis for a bonus system.
Seating Efficiency – how well your tables are being turned over while still offering high quality customer service. Usually many small things combine to have a large impact – cooking time, seating, service and clearing. The size of tables relative to the average group size will also make a difference.
Basket Analysis – eg how many items do lunch customers buy? What else do morning coffee drinkers order, or red-wine drinkers (mineral water if the servers are awake)? A recent analysis with a client showed that typical diners ordered only 2 items (most ordered nothing after the main course) and many of the lunch customers did not order a beverage. Grab a pile of dockets from a typical day, and look for ordering patterns.
Linen costs – uniforms, aprons etc.
Front of House Labour % – how many hours worked in this section? Compare against sales to measure productivity.
FOH Labour hours – how many hours worked in this section? Compare against sales to measure productivity
Customer satisfaction. This is measured in different ways. Feedback forms, complaints and other methods that are hard to quantify sometimes but worth making an attempt.
Strike Rate – if 500 people came to your club last night and only 100 ate at the bistro, your ‘strike rate’ would be 1 in 5, or 20%. Good enough? Compare with similar businesses and different times.
RevPASH – Revenue per Available Seat Hour. The same idea hotels use to measure Revenue per Available Room. For RevPASH take the total number of ‘seat hours’ and divide total revenue for a period by this number.

4. Bar and Cellar Management

Sales per head. Useful to have them separately for alcohol beverages and non-alcohol (juices, mineral waters, soft-drinks and coffee etc). It’s the perfect indicator of two things – how much your beverage and wine appeals to your customers and how well your staff is selling. This KPI can be a good basis for a sales bonus system.
Gross Profit on sales – the difference between what you sold and what it cost you. The sales mix can influence this heavily. If you are selling two bottles for the same price, but one costs you $5 to buy and one costs you $7 to buy, you should try to maximise the sales of the one with the highest dollar profit.
Average Profit % on Sales – useful to see if your sales are holding steady, although ultimately the actual Gross Profit (real money) will matter the most.
Stock Value – how much cash is locked up in the value of your cellar? Tens and even hundreds of thousands of dollars can be tied up in cellar stock and you don’t realise it! It’s worth checking with your suppliers and seeing how much you can order ‘just in time’. This is where retail business models are useful to compare, because unlike food stock, these supplies are not perishable, which can lead to a temptation to hoard. Also, the romance of wine lists and ‘special deals’ can lead to stock blow-outs! Weekly stocktakes are essential for proper management.
Stock turnover – how fast is your cellar stock selling? If you are carrying wine stock worth $50,000 and the value (not sales) of what you sell each week is only $10,000, it’s taking 5 weeks to turn over your stock. That’s too long! An accurate figure here will be based on regular stocktakes and accurate sales information.
Carrying cost of stock – what is the cost of financing this $50,000 of stock? Take the current interest rate for borrowing money, apply it to your stock value, and divide by 52 to get a weekly figure. If stock is valued at $50,000 and interest rate is 8%, annual cost of financing the stock is $4000 or $77 per week.
Sales / stocktake discrepancies. Alcohol means security problems, and keeping an eye on ‘shrinkage’, staff drinks and stealing is a constant problem. As an essential KPI, measure the difference between what you used (from comparing two stocktakes) and what your POS system says you sold. You often need to find our why they aren’t the same!

5. Sales and Marketing plus Function Management

Number of customers – simple! A good measure of popularity.
Visits by your top 100 or 200 customers – they provide a huge proportion of your sales! Track their frequency and spending – these people are gold!
Sales per Head – across all areas
Marketing and advertising costs – the total value of what you spend, always trying to measure it against the response you get. A difficult one to measure, but worth investigating.
Response rates – how many people responded to different campaigns and what effect did this have on profit?
Press Mentions – keeping your eyes open for favourable mentions.
Bookings – in the current week and month and coming up. Also in peak times, eg Christmas.
Function Inquiries – number of inquiries about large bookings and functions, especially if you have undertaken a campaign to promote them.
Sales inquiry conversion rate – the number of inquiries that turn into actual sales. If 50 people asked for information about your function packages and this resulted in 10 firm bookings, this would be a conversion rate of 1/5 or 20%. You would want to look at why so few people were ‘converted’ – was it the quality of the promotional material, skill of the sales staff, pricing or make-up of your function menus and facilities?

6. Management of Finance and Administration

Cash position at bank – how much do you have available after reconciling your cheque book?
Stocktake discrepancies – a measure of the efficiency of each department, but also of the administrative systems in place. They need to be simple and easy for line staff to fill in, and the results should be made known quickly if they are to have an impact.
Total accounts due – how much do you owe?
Total accounts payable – not usually a problem in restaurants and pubs, but needs careful management if you have accounts, eg large restaurants.
Return on Investment – the profit your business makes can be measured as a percentage return on the amount you have invested in it (see the Balance Sheet). Is it sufficient?
Taxes owed – most of these taxes are not paid at the time they are collected. Hence the need to know how much is owed at any one time so it is not ‘spent’.
Sales & costs – actual figures compared to what you budgeted for the period. You will want to see real dollar figures and percentages.
Administration labour costs. This is often begrudged in hospitality businesses and seen as ‘not productive’. But strong and skilful administrative support will be essential to manage the KPIs listed above!
Computer and technology efficiency – how much down-time for your computer system? How accurate is the POS system? How many of your staff know how to use the equipment they use each day, eg telephones – can everyone transfer a call properly?

Class Task

Please complete the comprehension task below by answering the questions!

Class 02 – Comprehension – Task1