Serving up performance
The restaurant industry is notoriously difficult to survive in. Nearly 1/2 of all restaurants will fail in their first five years. Those that survive pay attention to more than just quality food and service. They dive deep into the numbers. The kind of numbers that tell you whether your Friday night rush made money… or just made noise.
There are dozens of things you could track. But with as busy as you are? You need to focus on the ones that give you the clearest picture of profitability, performance, and control. Here are the five KPIs we consider absolutely essential — along with how to calculate them and what they really mean.
1. Prime Cost (% of Sales)
Formula: (Cost of Goods Sold + Labor Costs) / Total Sales
Why it matters: This is your restaurant's heartbeat. Prime cost typically makes up 55–65% of total sales in a well-run operation. If it’s creeping above that? You’re probably bleeding money — either through overstaffing, food waste, poor pricing, or all of the above.
Pro tip: If you can, check one on a weekly basis, not just monthly. Waiting until month-end is like checking your smoke detector after the fire.
2. Contribution Margin (Per Item or Category)
Formula: Menu Price - Ingredient Cost
Why it matters: This tells you how much money you actually make per item sold and lets you look beyond your menu price.
A $15 entrée might only net you $3 after food cost, while a $9 cocktail might earn $7. This is critical for pricing decisions and menu engineering.
Pro tip: Sort menu items by contribution margin, not just popularity. Your stars are high-margin, high-selling items — protect and promote those. For even more meaningful data, include your labor costs per item.
3. Revenue Per Available Seat Hour (RevPASH)
Formula: Total Revenue / (Number of Seats x Hours Open)
Why it matters: This metric blends table turnover and spending habits into one powerful productivity measure. It's especially useful for comparing day-parts (e.g. lunch vs dinner) or optimizing under-performing shifts.
Pro tip: Use RevPASH to guide promotions and staffing decisions. If Tuesdays from 2–5pm are dead, a targeted happy hour can be a smart play.
4. Average Check (or Per Person Average – PPA)
Formula: Total Sales / Number of Guests
Why it matters: This tells you how much guests are spending on average. It’s an easy way to track upselling success, evaluate server performance, or spot changes in customer behavior.
Pro tip: Don’t just track this overall — Do your best to break it down to discreet segments including server, section, and shift. It can reveal training opportunities or superstar employees.
5. Labor Cost (% of Sales)
Formula: Total Labor Costs / Total Sales
Why it matters: Labor is one of your only truly controllable expenses. Monitoring it closely helps you manage schedules, avoid overtime, and maintain service levels without burning payroll.
Pro tip: Pair this with sales forecasts in your scheduling tools. The goal isn’t just lower labor — it’s right-sized labor.
Final Thought: Focus First, Expand Later
There are multiple other KPIs out there including table turn time, guest counts, online order ratios, waste percentages, you name it. While a number of these are work tracking, these five will tell you 80% of what you need to know.
The key is to track them consistently, talk about them with your team, and use them to make informed decisions.
Want help building a custom KPI dashboard or help making actionable decisions based on the numbers?
Spokane Accounting Services specializes in outsourced accounting and CFO services for restaurants, hospitality groups, and franchise operators. Let’s turn those spreadsheets into strategy.