December 11, 2024 • 35 mins
Are you truly in control of your bar's performance?
Many bar owners struggle to identify which numbers actually matter for their success and profitability.
Learn how to track, analyze, and improve the metrics that directly impact your bottom line.
- Learn which key metrics directly impact your bar's profitability
- Master the art of data-driven decision-making for your business
- Discover how to track and improve your most vital performance indicators
Tune in now to master the essential KPIs that will transform your bar's performance and profitability.
Learn More:
Email Chris
Schedule a Strategy Session
Bar Business Nation Facebook Group
The Bar Business Podcast Website
Chris' Book 'How to Make Top-Shelf Profits in the Bar Business'
Thank you to our show sponsors, SpotOn and Starfish. SpotOn's modern, cloud-based POS system allows bars to increase team productivity and provides the reporting you need to make smart financial decisions. Starfish works with your bookkeeping software using AI to help you make data-driven decisions and maximize your profits while giving you benchmarking data to understand how you compare to the industry at large.
**We are a SpotOn affiliate and earn commissions from the link above.
A podcast for bar, pub, tavern, nightclub, and restaurant owners, managers, and hospitality professionals, covering essential topics like bar inventory, marketing strategies, restaurant financials, and hospitality profits to help increase b...
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Chris Schneider (00:01):
Last week, we talked about putting sprinkles
on holiday drinks.
This week, we're going to talkall about KPIs and data-driven
decision-making, which, in manyways, are the sprinkles that you
put on top of your financials.
Hello and welcome to the BarBusiness Podcast, where we help
(00:23):
bar owners increase profits,attract loyal guests and
simplify operations so you canavoid burnout and finally enjoy
your life outside of your bar.
I'm your host, chris Schneider,the Bar Business Coach.
Before we get started, a quickthank you to our sponsors, spot
On, who provide a great modernPOS solution for the bar and
restaurant industry, andStarfish, who use AI to turn
your books into actual steps toincrease profits.
(00:44):
Today we are diving into theessential key performance
indicators that can make orbreak your bar's success.
We're going to talk about howto track them effectively and
show you and walk through how touse that data and make better
business decisions.
Now many bar owners feeloverwhelmed by the sheer number
(01:04):
of metrics that you couldpotentially track and without
some guidance here, it's reallyeasy to get lost.
So we're going to talk aboutthree types of KPIs and then
four or five KPIs under eachtype that you may want to track.
Now, not every KPI, if you'veheard me talk about KPIs before.
(01:24):
Not every KPI is going to workfor every business, but what I
want to do today is give youthese three categories, give you
five ideas in each and reallytalk through.
Here's what you could track,and then I would challenge you
pick a couple, track them, getthat data and then use that data
(01:46):
to drive your business forward.
Because, at the end of the day,here in business, we have a lot
of data and most of our datafor most businesses, let's be
honest is not organized as wellas it should be.
Lord knows even my own.
I may talk about KPIs and dataincessantly, but I promise you
I'm not tracking my own data aswell as I should be.
It's not always the most fun,it's not always the most
(02:08):
interesting, but when you trackyour KPIs properly, you are
unlocking the power of your datato make good business decisions
.
So we'll be focusing on theKPIs that truly matter and show
you exactly how to use them toincrease profitability and
streamline operations.
Now, as we go through these, asI mentioned, we're going to talk
(02:29):
about three categories of KPIs,and those three categories are
financial KPIs, operational KPIsand guest experience KPIs.
So what drives your financialsuccess.
What drives your operationalsuccess and how can you measure
what your guests feel about yourbusiness?
(02:50):
Now think about those threeglobally for a second.
If your financial picture's inline, if your costs are under
control and you're generating asmuch revenue as you can, you're
going to make money.
Your operational KPIs as youcan, you're going to make money.
Your operational KPIs I meanyour financial KPIs drive some
revenue, but really youroperational KPIs are going to
drive your revenue.
That's looking at how efficientis your business.
(03:13):
So how efficient are you withyour money?
And then operational KPIs howefficient are you with your
service, with your business?
How well are you handling this?
And then finally, like I said,we're going to talk about guest
experience KPIs.
So, as I've said before, youcan have a fantastic product on
(03:35):
paper, you can have all yourfinancial ducks in a row, but
unless what you're providing hasthe right fit with your guests,
it's very difficult to besuccessful.
So let's get started talkingthrough some financial KPIs.
As I said a moment ago, ourfinancial KPIs, that's really
the efficiency of our financialmanagement and it's setting the
(03:59):
stage to be able to make money.
You know, when it comes to anoverall framework, I talk a lot
about mindset, concept, culture.
Financial KPIs are kind of yourmindset.
When it comes to your KPIs,they're what's driving this
business.
If you don't have these inplace, it doesn't matter what
your other KPIs are, becauseyou're not making money and
(04:20):
unless you make money, you'renot going to last in this
business very long.
So we're going to talk throughfive financial KPIs your poor
cost percentage, your food costpercentage, your prime cost
ratio, cash flow and net profit.
And it's important tounderstand how all these relate
to each other.
And, of course, we will breakthat down as we go through.
(04:40):
So, starting off poor cost whatis your beverage cost
percentage?
And we're going to talk foodcost too.
Be aware for this conversationdown as we go through.
So, starting off poor cost,right, what is your beverage
cost percentage?
And we're going to talk foodcost too.
Be aware for this conversation,food cost and beverage cost
from an analysis standpoint,from a calculation standpoint,
are the same, and how wecalculate either poor cost or
beverage cost or food cost is wetake what we spent on a
(05:01):
beverage or what we spentoverall on alcohol beverages
that we're serving, and then wedivide that by the revenue that
we got from beverages or fromfood.
We take the cost of all thefood that we've served and
divide that by the revenue thatwe got for that food.
Now there are obviously a lot ofdifferent targets we can have
(05:21):
in here, but to give you somegeneral guidelines, in most
cases when we're talking foodcosts you want to be somewhere
in that 30 to 40% range.
I mean it's great if you can bedown around 25.
For bars it's not as importanton food costs to keep that low
because most bars, when we thinkabout them, you're selling 30%
food, 40% food on a reallyreally high food sales bar.
(05:45):
Some bars that I work withdon't sell food at all, so it's
0%.
So you can have a little bit ofa higher cost there because
really we're offering food as away to get people to stick
around and drink more.
If you watch Bar Rescue and wecan have a whole conversation of
what people think about JohnTaffer, that's neither here nor
there.
Personally, I think the guycomes off a little harsh
(06:07):
sometimes, but most of what hesays is really smart and show
after show after show he quoteshis statistic that 53% or, I'm
sorry, 53 minutes is how muchlonger a guest stays in your bar
when they order food.
So if you offer food, you getthat guest for 53 more minutes.
(06:29):
53 minutes means you can sellthem two more drinks and it
doesn't really matter then whatthat food costs, because we're
selling the food to get thosetwo more drinks.
Obviously, if we have foodcosts in that 30 to 40% range
which is high by restaurantstandards, fine by bar standards
we're still making money on ourfood and we're getting that
guest to stay longer and we'reselling them drinks.
(06:50):
So 30 to 40% in most cases isgoing to be all right.
If you are more food heavy, ifyou're greater than 50% of your
overall sales is food as opposedto beverage, you may want to
think about having a food costthat's more around 27, 25%.
(07:10):
Now, when we talk about beveragecosts, what are good beverage
cost targets?
Generally speaking, when wetalk about beverage costs, we're
going to want to divide this upbetween liquor, beer and wine,
at a minimum, because we'regoing to have different targets
across all three of thesecategories.
At a minimum because we'regoing to have different targets
across all three of thesecategories.
And so just how we would figurebeverage costs total cost for
beverages divided by totalrevenue for beverages If we're
talking about beer costs, itwould be total cost for beer
(07:34):
divided by total revenue frombeer.
So we can break this down.
We can even go so far as youknow bottled wine versus wine by
the glass or draft beer versusbottled beer.
You can break this down almostinfinitely far, but for most
bars out there, just knowingliquor, beer and wine is going
(07:54):
to be enough of a breakdown.
Now, what should those targetsbe?
And here is the thing I willtell you it's going to depend a
lot on where you are, and thereason behind that is our other
costs in our business are notthe same location to location.
So I have clients that I workwith that are in rural areas and
(08:15):
their rent is two grand a month, three grand a month, five
grand a month, six grand a month.
Now I don't see many two hit amonth anymore, like that's.
That's a pretty rural area anda pretty small spot, but the
thing is, overall there is theopportunity to have a higher
cost percentage in a place likethat because your overhead is
(08:37):
lower.
Payrolls are, everything ischeaper in rural Iowa compared
to New York City, cheaper inrural Iowa compared to New York
City.
So understand that when I giveyou these percentages.
Where you are in this range isgoing to largely depend on where
you're located and what yourother costs look like.
But for beverage costs, where weare looking to go on those
liquor, somewhere between 15 and25 percent.
(09:02):
Beer costs a little bit more,you're probably somewhere
between 18% and 28%.
And wine, it's going to dependa lot on the type of wine you
sell, because if you sell reallyexpensive wine you're going to
have a worse margin than if yousell really cheap wine.
And that's where we can have awhole conversation about
contribution dollars versuscontribution percentage.
(09:22):
I would much rather sell abottle of wine for 200 bucks
that cost me 150 than a bottleof wine for 40 bucks that cost
me 20.
Because on the first bottle Imake more money for the same
amount of work.
It doesn't matter how much thebottle of wine is, it matters
(09:42):
how much money am I making offthat bottle of wine, because
it's the same amount of workeither way.
So I'm willing to accept ahigher cost percentage and those
ranges I gave you are reallybig For most people.
Let's say you're in MiddleAmerica.
The exact percentages I wouldsay we should shoot for is about
22% on liquor, about 25% onbeer and about 27% on wine.
(10:07):
But, like I said, these rangesare going to vary a lot
depending upon your other sales.
Because the other thing here istoo and you got to think about
this a bottle of Bacardi costsbasically the same amount of
money regardless of where youare.
It's not that much moreexpensive in New York City than
it is in BFE Oklahoma, but whatyou can charge for that drink is
(10:31):
way more right.
You can charge in a lot ofcases double in, say, like New
York City or in LA.
Then you can get away with inthe middle of the Midwest or the
middle of the South.
So keep that in mind as you'relooking at these percentages.
The big thing is not necessarilywhat percentage you fix or
you're shooting for your targetpercentage for food and beverage
costs.
The big thing here isunderstanding that it fits in
(10:55):
your economic model.
Couple other KPIs we wanna lookat when it comes to financial
KPIs your prime cost ratio, sothe sum of labor and food and
beverage costs put together as apercentage.
So this is all your directlabor expense plus your food and
beverage costs divided by yourrevenue, and for most bars we're
(11:16):
looking for that number to besomewhere between 55 and 60%.
It depends on exactly how thatnumber is being calculated and
what you're including in it.
But again, the thing here isit's not necessarily that 50% is
good or 65% is bad.
It's about your individualfinancial model.
And if you really want to go adeep dive on prime cost numbers,
(11:38):
there is a podcast episode Idid a few months ago that covers
all of that in detail, so youcan refer to that episode on
prime cost and why 55%, which isthe number you normally hear
quoted, is kind of made up.
Next, kpi we want to measureunder our financial KPIs.
(11:58):
Well, two of them we'll talkabout together here cash flow
and net profit.
And the reason why we need tolook at both of these numbers
always is net profit.
A lot of times, when you justlook at the bottom line after
your accountant or yourbookkeeper has done the books,
you're looking afterdepreciation.
You're not including right onthe books.
(12:18):
You're looking afterdepreciation.
You're not including rightBecause principal payments on
loans are not expensed, only theinterest is expensed.
So it is very plausible thatyour cash flow and your net
profit don't even look the same.
You can lose cash and havepositive profit or you can have
positive cash and negativeprofit.
(12:40):
Now we know that a lot of barsand I'm sure some of you
listening to this podcast youare sitting right on that line
of kind of profitable.
And if you're sitting on thatline of kind of profitable, you
know I'm thinking your bottomline is 8, 5 to 8% of revenue.
You can easily have a cash flowthat's negative and a net
(13:03):
profit that's positive or viceversa.
So you always need to trackboth of those numbers.
If you're not tracking both ofthe numbers, you're in
potentially a world of pain.
Now moving on.
So that was our financial KPIs.
Now we're going to talk aboutoperational KPIs and, just like
(13:27):
financial KPIs are kind of themindset portion of looking at
KPIs, operational KPIs are ourconcept.
These are where we are drillingdown on the fundamentals of
what we're doing in order tomake sure that we are being
efficient in our business andthat we are maximizing our
ability to earn a profit.
Operational KPIs there are fivethat I like to look at.
(13:50):
Labor cost is a percentage ofsales that goes in prime cost.
It's kind of a financial one,but we can also break that down
a little bit more and we'll talkabout that in a second.
Average ticket times, becausethat is the efficiency of things
getting to your guests.
Sales per labor hour, becausethat's telling you how much.
It's giving you an idea of whatyou can produce with one labor
(14:11):
hour.
And we'll talk about how tolook at that.
Inventory turnover rates, sohow much inventory do you have
on hand?
And then the final one, andsomething that a lot of people
don't do well, is tracking waste.
So let's break these down.
First we're talking labor costs.
So labor cost is kind of afinancial metric in some ways.
But in a second, when we starttalking about sales per labor
(14:32):
hour, you'll see how thisbecomes a little bit more
operational.
But why is our labor cost moreoperational than it is financial
?
Well, because our labor is howeverything happens in a bar.
We don't have well, some of usmight, but most of us don't have
robots.
(14:53):
We don't have assembly lines.
This is not a manufacturingbusiness.
Literally everything we do,every penny of revenue we
produce, is coming from the hardwork of individuals that we
employ.
So we want our labor costs lowfrom a financial perspective.
But too often, far too often, Isee people look at labor costs
(15:17):
as a purely financial statisticand they say, oh, we can cut 1%
off our labor costs.
Hey, but did that hurt youroperation?
Too often, when it comes tothese kind of financial KPIs
that are actually operationalKPIs, we focus solely on the
(15:39):
financial aspects, solely oncutting costs, and what that
ends up meaning is that wehaven't spent the time to look
at the ramifications of cuttingthat cost, that we haven't
realized that, yeah, we canlower our labor costs by 3%, but
in lowering our labor costs by3%, we've hurt our efficiency,
we've made our bar run worse.
(16:00):
So you never want to be in thatposition, and that's why labor
cost, in my mind, is more of anoperational KPI than a financial
KPI, because we're not focusedon getting that cost down as low
as possible.
We're focused on getting thebest possible labor cost that
does not negatively impact ouroperation.
(16:22):
And that kind of takes us rightto the second, to the next two
points or KPIs to watch for inyour operational KPIs Average
ticket times and sales per laborhour.
So let's go sales per labor hourfirst.
Labor cost sales per labor hour.
That's giving you an idea ofhow many people you need to sell
something.
And by measuring sales perlabor hour.
(16:44):
So what we're taking is we'rejust taking the number of hours
that we're working and we'redividing sales by that number.
You can break this down a lotof ways.
You could say just front ofhouse employees.
You could say just your serverhow efficient are your servers?
How much can they sell in anhour and what you will find nine
times out of 10, as long asyou're busy enough that you are
(17:05):
reaching your maximum capacity,you can measure roughly what
your maximum capacity is.
How much sales can one laborhour produce front of house or
behind the bar or in the kitchen?
And once you know that, you canuse your forecasting to predict
your scheduling in a way thatyou never have too many folks on
(17:28):
staff at a given time but youalso never have too few.
Often, when we look at sales perlabor hour and we run all this
math and we get into it deep,something you will find is that
you need a little bit more laborthan you think you do.
And even with a little bit morelabor than you think you need,
you still have an hour or twothat are crazy balls to the wall
(17:48):
weeded and everybody's losingtheir mind.
It's hard to avoid that, butsales per labor hour is going to
tell you what is your capacity.
And if you run sales per laborhour for each individual server
and bartender, you can learntheir individual capacity.
Because, let's be honest hereif your average server can
(18:09):
handle $250 worth of sales in anhour, let's say that means that
some people on your team coulddo $3, $3.50, $4.
In an hour.
Let's say that means that somepeople on your team could do
three, 350, 400 an hour, andsome people in your team are
really doing 150, 175, 200 anhour.
And so when you know this, notonly sales per labor hour as a
whole to help with yourforecasting and your scheduling,
(18:29):
but sales per labor hour basedon each individual that's
working for you, each individualthat's working for you that
gives you the opportunity totrain them, to work with them,
to get that number out and toget them able to handle more
sales.
It also gives you theopportunity to know who should
(18:49):
get scheduled on a busy nightand who shouldn't, and not just
I like this person or I thinkthis person works well.
No, you mathematically have ananswer of who is better able to
handle higher volume nights.
Now, when it comes to sales perlabor hour for your kitchen and
your bar.
One of the big things aboutwhat they're able to handle is
their ticket times, and if youguys have listened to this
(19:11):
podcast for a long time, youknow I love to talk about ticket
times because ticket times areabsolutely essential.
How long it takes an item toget out and ready to go to a
guest is important, and on mostfood items, we should be talking
eight to 12 minutes.
On most cocktails, we should betalking five, six minutes on a
ticket time max.
(19:31):
There isn't a reason why inmost bars, someone should have
to wait 20 minutes to get apiece of food, or never should
have to wait 20 minutes for acocktail.
Now, if you're doingparticularly fancy things, if
you are a very fancy bar thatdid advanced mixology and you're
smoking things and you'reinfusing things and you're doing
(19:52):
all this right in front of theguest, okay, yeah, maybe it's
going to take a little bitlonger, but understanding ticket
times helps us understand howefficient we are and how well
our operation's running, so it'sa very important thing to track
.
Now, the two other metrics wewant to look at under
operational are that I highlyrecommend that you measure, if
you aren't already, ourinventory, turnover rates and
(20:12):
waste tracking, and these gohand in hand as well.
So waste tracking is going tosay you know how much are we
wasting?
And when I say waste I meanspillage.
Right, because we all know, ona busy night and you got a
bottle of Jack Daniels, you'repouring a ton of Jack and Cokes.
You probably spilled some Nowthat we probably don't have to
worry about the little bit youspilled.
But if you drop that bottle andit shatters, we need to account
(20:36):
for that in our waste.
Otherwise it's going to throwoff our financial metric of
beverage costs.
So understanding our waste isimportant.
We need to write all this down.
The same can be said if we'redoing employee shift drinks or
employee meals on the food end.
We need to write this off inour books so that we understand
(20:57):
that that's not an excess costthat was incurred, that is in a
benefit we gave to our employees, or a bottle that we dropped
and broke.
That is in a benefit we gave toour employees or a bottle that
we dropped and broke.
And that way we can actuallyaccurately measure, on the
financial metric end, ourbeverage costs against actual,
against theoretical.
And then finally, like I said,we have inventory and inventory
matters here, because wasteobviously is going to increase
what you order.
(21:19):
But within inventory we wouldspecifically want to talk about
turnover rates and there is mathon turnover rates and you can
Google all that.
I want to avoid getting tooweeded right now because if
you've listened you know I havea tendency to do that.
But inventory turnover rateswe're basically saying how often
are things going in and out,and this is always a number of
(21:40):
days, and so you might haveenough vodka on hand, enough.
Well, vodka to last 21 daysGreat, 21 days is a long time
and most bars you're probablyordering vodka every week, twice
a week.
So you don't need 21 days worthof vodka, you need maybe 14,
(22:04):
maybe 10.
But that inventory turnoverrate, we want to get that number
down as low as possible and thereason behind this is inventory
is literal cash sitting onshelves and when you have a
bottle of vodka you don't havecash.
You have a bottle of vodka.
Now you sell that bottle ofvodka and you get cash for it,
(22:24):
so you can convert that bottleof vodka into cash.
But especially when we'retrying to maximize our ability
to use our finances and when, ifyou're not doing so hot in a
given month.
Having a bunch of money on theshelves doesn't help you.
You'd rather have that cash inthe bank.
So by getting our inventoryturnover as low as possible, by
(22:46):
ensuring that we are movinginventory as quickly as we can
and we don't have two months'worth of inventory we have a
week and a half or two weeks'worth of inventory we are
ensuring that our cash is ableto be spent and used on
something that we need to spendit on and isn't just sitting on
(23:06):
a shelf waiting for us toconvert it from booze back into
cash.
So now let's talk through guestexperience KPIs, and when we
started this episode, I said youknow that we got five KPIs for
each category.
I'll tell you what I lied.
We only have three for this one.
I wasn't looking far enoughdown my notes.
But for guest experience KPIs,we want to really measure three
things that are more importantthan anything else Customer
(23:29):
satisfaction, or NPS score.
Guest check average, or averagecheck size per guest, and then,
to the extent that we canreturn, customer frequency.
So let's talk through these.
The most important.
If you're going to measure oneKPI when it comes to your guest
experience, it is your NPS.
Your NPS score net promoterscore is essentially how much
(23:49):
customers enjoy your business,and a lot of people.
When you do guest surveys, youknow you ask 15 questions how is
the food, how is the service?
Are our bathrooms clean?
Blah, blah, blah, blah, blah.
And the problem is most peoplesorry they ain't going to fill
that out, and the reason they'renot going to fill it out is it
takes too much time.
You're asking too much of them.
(24:09):
So when you survey yourcustomers about their experience
, you want to make it as shortand concise as possible.
The easiest way to do that isto ask the net promoter score
question, which is one questionBased on your experience today,
how likely are you to recommendour bar to your friends and
(24:33):
family?
And then you let them rate itbetween 1 and 10.
9 and 10 is a positive promoter.
They are going to tell otherpeople about your business, talk
about how great theirexperience was and bring in
business for you.
They are out there marketing,working hard to bring people in
or at least when somebody asksthem, they're going to say good
things about it.
Seven and eight they like yourplace.
(24:54):
It's not their favorite.
Will they come back?
Probably Are they going to telltheir friends and family about
it?
Maybe, but generally thesefolks are totally neutral.
If they give you a 7 or 8 on a1 to 10 scale, when you ask them
, how likely are you torecommend our bar?
So 9s and 10s are great, theypromote you.
7s and 8s, they're there, theydidn't have a bad time, they
(25:19):
didn't have a great time.
You did not impress them enoughto get them to go say great
things about you all over theplace.
So they're neutral.
And then six or lower.
They didn't have a good timeand because they didn't have a
good time, they probably aren'tever going to say anything good
about you.
And if it's a one or a two or athree, well they're probably
(25:40):
going to tell people they didn'tenjoy their experience at your
bar and that other peopleshouldn't go there and tell
their friends to avoid you.
But anything six or less isnegative.
And there are very complex NPScalculations that you can use.
There are more simplistic ones.
You can just average it alltogether and see where that
score is.
You can Google those.
I'm not going to run throughthe weeds on NPS score
(26:01):
calculations today, but thepoint is this is the single most
important metric to measure tounderstand your guests Quite.
Possibly it's the single mostimportant metric to measure
period.
Because it doesn't matter howefficient your team is, it
doesn't matter how well youmanage your inventory, it
doesn't matter how well youmanage your finances.
(26:23):
If people don't like your bar,they aren't going to come in and
then your revenue goes to zeroand everything else doesn't
matter.
It's freaking irrelevant.
So the NPS score is probablythe single most important metric
to measure.
And again, that question is justbased on your experience today.
Would you recommend Arbara toyour friends and family?
One to 10.
And if you want to follow thatup with something, you can say
(26:44):
why.
You can also ask otherquestions on your survey, but I
always, if I'm going to design asurvey, put those two questions
first, based on your experience, and then why.
Because if somebody's going toanswer just one or two questions
, I want those answers.
Those, to me, are the ones thattell me are we being successful
?
Are we actually going to beable to grow this business?
Do our customers, do the peoplethat come in the door like what
(27:07):
the heck we're doing?
Now?
The other guest experience KPIsthat we want to look at are
guest check average and returncustomer.
Let's talk return customerfrequency first, because this
ties in the NPS score.
Obviously, those nines and tensyou're going to assume they're
going to come back.
And one thing that was reallyhard to measure even 10 years
ago was return customerfrequency Because, especially if
(27:27):
you're Midwest or South, 10years ago there was a lot more
cash than credit cards.
Today, most bars I mean thereare still people that are cash
only and I love that people canget away with that but most bars
are taking credit cards andmost customers are paying with
credit cards.
That means we can use the datain our POS to check guest
(27:51):
frequency and so if we have ahigh MPS score, we see guests
coming back over and over andover again.
I mean you can do this just byknowing people in your bar,
walking around and talking tothem and getting to know your
customers as well.
But when you see that returncustomer frequency is shot, you
know you're in a good spot,something you have to keep in
(28:12):
mind To be successful in thisindustry.
Generally speaking, you want tosee you walk out into your bar.
You want to see about 80% ofthose folks are return customers
and about 20% of them are newcustomers.
If you don't have 20% newcustomers in your bar at any
given time, your customers willmove, they'll die, they'll go
(28:36):
somewhere else and your businesswill slowly die.
So you need to have that 80%,that is solid regulars.
But then you need 20% new folksall the time.
So return customer frequency isimportant, but don't allow
yourself to be tricked intothinking that how often
customers come back and the factthat you have a large number of
(28:59):
customers that come in once,twice, three, four times a week
means you don't need a newcustomer.
But the thing I do like aboutreturn customer frequency is it
allows us to say I have ahundred customers that come in
two or more times a week, everyweek.
And when you go to forecast andyou go to analyze your
financials, it's really good toknow that, because then you know
, okay, I have a solid base.
(29:21):
I always used to say I had anumber of guys that came into my
bar every day and most of themwere retired.
They came in between two andsix in the afternoon and they
were there like clockwork.
They ordered the same thingevery day, paid the same amount
of money, tipped the same amountof money.
They were just golden.
And what I just always jokeabout with those guys is they
(29:44):
paid my utilities, they paid mylight bill, they paid my gas
bill, because just as much as Icould count on that electric
bill or that gas bill everymonth, I could count on that
revenue from them every month.
So measuring return customerslets you understand the
stability of your business.
But again, understand thestability does not mean that you
don't have to track new guests.
(30:06):
So the third guest experienceKPI I like to talk about is a
guest check average.
Now, you could call this afinancial KPI, you could call
this operational, but to meguest check average is an
indication of the guestexperience, because we're
talking about how long someoneis there.
Obviously, if I'm in a bar foran hour, I might have two drinks
, maybe three if I'm reallytrying to hit it hard.
(30:27):
If I'm in a bar for four orfive hours, I'm going to have at
least four or five drinks.
I might have seven or eight.
I mean, even if I'm trying tobe real responsible and I drove
somewhere and living where I doin southern Indiana, it's all
hills and windy roads.
Trust me, I am not gettinganywhere near legally drunken
(30:48):
driving because the roads are alittle sketchy for me, but in
four hours I can put down six orseven drinks, wait a half hour,
if I paste them out properly,and I'm pretty sober to drive
home.
I mean, I still have some BAC,but I'm well under 0.08.
And so that guest check averagegives you an indication of how
(31:09):
long people are there.
It also gives you an indicationof what people are spending and
it allows you to see how yourteam is impacting the guest
experience.
Now let's talk about that realquick, so you can look at guest
check average as a whole, whichof course, you should do.
You can also look at guestcheck average for each
individual bartender or for eachserver, and what you'll find a
lot of times is the servers andthe bartenders with the highest
(31:30):
guest check average are the bestat upselling, and upselling,
when done wrong, can be reallybad for the guest experience.
Right, because it feels like I'mtrying to push things on you.
You want a steak?
You want me to put asparaguswith that and some bernets and
some crab, and we can do it thatway.
Or do you want me to coat itwith pepper?
(31:50):
Or do you want this or do youwant that?
I'm just trying to sell you,hard sell you.
That's not cool.
But more often than not, a highguest check average is a mark of
a server or bartender thatknows just how to say oh, it's
after dinner, oh, you wantcoffee?
Oh, I can do this really coolcoffee cocktail that you're
going to love.
And it's not impacting theguest experience in a negative
way because they're hard sellingthese upsells Like it's some
(32:13):
kind of diner where they're justthrowing ideas at you right,
it's not hash browns at WaffleHouse, but what they're doing is
they're guiding and curatingthe experience for your guests.
And while guiding and curatingexperiences for guests may sound
like a strictly fine diningthing, trust me, you can do that
in a dive bar all day long aswell, and use subtle upsells and
recommendations to get thatguest check average higher.
(32:36):
So, yes, guest check averagedoesn't always indicate a great
customer experience, but higherguest check averages,
consistently with returningcustomers, almost always means
that bartender, that server, isdoing something different.
That's making the guestexperience better, and those
guests are either spending moremoney while they're there,
buying things that are moreexpensive, or they're sitting
(32:56):
there longer.
So guest check average is agreat indicator of guest
experience.
And for the record, if you haveone bartender that has a way
higher guest check average thanthe others, you need to figure
out why and then train everybodyelse to do whatever it is that
one bartender is doing, becausethey're doing something that
everyone else isn't.
They're making more money.
(33:17):
They're making you more moneyand you want everybody to be
able to make more money, becausethen you also make more money.
If everyone operates at thatlevel, everyone earns more.
You make more.
Everybody's happy.
So, to wrap this up for today,when you focus on these critical
KPIs and you track themconsistently, like when you
focus on these critical KPIs andyou track them consistently,
like I said, you don't have tonecessarily use all 13 KPIs we
(33:39):
discussed today.
Get done, pick one or twofinancial KPIs, one or two
operational KPIs, do an MPSscore, look at guest check
average, get your guestexperience KPI, and when you
track those consistently and youuse that data, it helps you
make better decisions.
You have information now thatyou didn't have before.
(34:00):
That lets you actually choosethe right path forward for your
business.
And so I will leave you withthis thought and I've said this
plenty of times before, but Iwill always say it because it is
always true what gets measured,so what you have KPIs for gets
managed, because your managersand you are going to try to make
those KPIs better.
What gets measured gets managed.
(34:21):
What gets managed gets done.
There's too many distractionsand unless you're actively
looking at those KPIs you willnot get things improving in your
statistics because it's notbeing managed and therefore it's
not getting done.
So get those KPIs in hand andremember what gets measured gets
(34:42):
managed, what gets managed getsdone.
That about wraps it up fortoday.
If you enjoyed today's insights, make sure you like, subscribe
and leave a review.
If you are ready to take yourbar to the next level, schedule
a strategy session with me byclicking the link in the show
notes below.
Until next time, have a greatday and we will talk again later
(35:03):
.
Last week, we talked about putting sprinkles
on holiday drinks.
This week, we're going to talkall about KPIs and data-driven
decision-making, which, in manyways, are the sprinkles that you
put on top of your financials.
Hello and welcome to the BarBusiness Podcast, where we help
(00:23):
bar owners increase profits,attract loyal guests and
simplify operations so you canavoid burnout and finally enjoy
your life outside of your bar.
I'm your host, chris Schneider,the Bar Business Coach.
Before we get started, a quickthank you to our sponsors, spot
On, who provide a great modernPOS solution for the bar and
restaurant industry, andStarfish, who use AI to turn
your books into actual steps toincrease profits.
(00:44):
Today we are diving into theessential key performance
indicators that can make orbreak your bar's success.
We're going to talk about howto track them effectively and
show you and walk through how touse that data and make better
business decisions.
Now many bar owners feeloverwhelmed by the sheer number
(01:04):
of metrics that you couldpotentially track and without
some guidance here, it's reallyeasy to get lost.
So we're going to talk aboutthree types of KPIs and then
four or five KPIs under eachtype that you may want to track.
Now, not every KPI, if you'veheard me talk about KPIs before.
(01:24):
Not every KPI is going to workfor every business, but what I
want to do today is give youthese three categories, give you
five ideas in each and reallytalk through.
Here's what you could track,and then I would challenge you
pick a couple, track them, getthat data and then use that data
(01:46):
to drive your business forward.
Because, at the end of the day,here in business, we have a lot
of data and most of our datafor most businesses, let's be
honest is not organized as wellas it should be.
Lord knows even my own.
I may talk about KPIs and dataincessantly, but I promise you
I'm not tracking my own data aswell as I should be.
It's not always the most fun,it's not always the most
(02:08):
interesting, but when you trackyour KPIs properly, you are
unlocking the power of your datato make good business decisions
.
So we'll be focusing on theKPIs that truly matter and show
you exactly how to use them toincrease profitability and
streamline operations.
Now, as we go through these, asI mentioned, we're going to talk
(02:29):
about three categories of KPIs,and those three categories are
financial KPIs, operational KPIsand guest experience KPIs.
So what drives your financialsuccess.
What drives your operationalsuccess and how can you measure
what your guests feel about yourbusiness?
(02:50):
Now think about those threeglobally for a second.
If your financial picture's inline, if your costs are under
control and you're generating asmuch revenue as you can, you're
going to make money.
Your operational KPIs as youcan, you're going to make money.
Your operational KPIs I meanyour financial KPIs drive some
revenue, but really youroperational KPIs are going to
drive your revenue.
That's looking at how efficientis your business.
(03:13):
So how efficient are you withyour money?
And then operational KPIs howefficient are you with your
service, with your business?
How well are you handling this?
And then finally, like I said,we're going to talk about guest
experience KPIs.
So, as I've said before, youcan have a fantastic product on
(03:35):
paper, you can have all yourfinancial ducks in a row, but
unless what you're providing hasthe right fit with your guests,
it's very difficult to besuccessful.
So let's get started talkingthrough some financial KPIs.
As I said a moment ago, ourfinancial KPIs, that's really
the efficiency of our financialmanagement and it's setting the
(03:59):
stage to be able to make money.
You know, when it comes to anoverall framework, I talk a lot
about mindset, concept, culture.
Financial KPIs are kind of yourmindset.
When it comes to your KPIs,they're what's driving this
business.
If you don't have these inplace, it doesn't matter what
your other KPIs are, becauseyou're not making money and
(04:20):
unless you make money, you'renot going to last in this
business very long.
So we're going to talk throughfive financial KPIs your poor
cost percentage, your food costpercentage, your prime cost
ratio, cash flow and net profit.
And it's important tounderstand how all these relate
to each other.
And, of course, we will breakthat down as we go through.
(04:40):
So, starting off poor cost whatis your beverage cost
percentage?
And we're going to talk foodcost too.
Be aware for this conversationdown as we go through.
So, starting off poor cost,right, what is your beverage
cost percentage?
And we're going to talk foodcost too.
Be aware for this conversation,food cost and beverage cost
from an analysis standpoint,from a calculation standpoint,
are the same, and how wecalculate either poor cost or
beverage cost or food cost is wetake what we spent on a
(05:01):
beverage or what we spentoverall on alcohol beverages
that we're serving, and then wedivide that by the revenue that
we got from beverages or fromfood.
We take the cost of all thefood that we've served and
divide that by the revenue thatwe got for that food.
Now there are obviously a lot ofdifferent targets we can have
(05:21):
in here, but to give you somegeneral guidelines, in most
cases when we're talking foodcosts you want to be somewhere
in that 30 to 40% range.
I mean it's great if you can bedown around 25.
For bars it's not as importanton food costs to keep that low
because most bars, when we thinkabout them, you're selling 30%
food, 40% food on a reallyreally high food sales bar.
(05:45):
Some bars that I work withdon't sell food at all, so it's
0%.
So you can have a little bit ofa higher cost there because
really we're offering food as away to get people to stick
around and drink more.
If you watch Bar Rescue and wecan have a whole conversation of
what people think about JohnTaffer, that's neither here nor
there.
Personally, I think the guycomes off a little harsh
(06:07):
sometimes, but most of what hesays is really smart and show
after show after show he quoteshis statistic that 53% or, I'm
sorry, 53 minutes is how muchlonger a guest stays in your bar
when they order food.
So if you offer food, you getthat guest for 53 more minutes.
(06:29):
53 minutes means you can sellthem two more drinks and it
doesn't really matter then whatthat food costs, because we're
selling the food to get thosetwo more drinks.
Obviously, if we have foodcosts in that 30 to 40% range
which is high by restaurantstandards, fine by bar standards
we're still making money on ourfood and we're getting that
guest to stay longer and we'reselling them drinks.
(06:50):
So 30 to 40% in most cases isgoing to be all right.
If you are more food heavy, ifyou're greater than 50% of your
overall sales is food as opposedto beverage, you may want to
think about having a food costthat's more around 27, 25%.
(07:10):
Now, when we talk about beveragecosts, what are good beverage
cost targets?
Generally speaking, when wetalk about beverage costs, we're
going to want to divide this upbetween liquor, beer and wine,
at a minimum, because we'regoing to have different targets
across all three of thesecategories.
At a minimum because we'regoing to have different targets
across all three of thesecategories.
And so just how we would figurebeverage costs total cost for
beverages divided by totalrevenue for beverages If we're
talking about beer costs, itwould be total cost for beer
(07:34):
divided by total revenue frombeer.
So we can break this down.
We can even go so far as youknow bottled wine versus wine by
the glass or draft beer versusbottled beer.
You can break this down almostinfinitely far, but for most
bars out there, just knowingliquor, beer and wine is going
(07:54):
to be enough of a breakdown.
Now, what should those targetsbe?
And here is the thing I willtell you it's going to depend a
lot on where you are, and thereason behind that is our other
costs in our business are notthe same location to location.
So I have clients that I workwith that are in rural areas and
(08:15):
their rent is two grand a month, three grand a month, five
grand a month, six grand a month.
Now I don't see many two hit amonth anymore, like that's.
That's a pretty rural area anda pretty small spot, but the
thing is, overall there is theopportunity to have a higher
cost percentage in a place likethat because your overhead is
(08:37):
lower.
Payrolls are, everything ischeaper in rural Iowa compared
to New York City, cheaper inrural Iowa compared to New York
City.
So understand that when I giveyou these percentages.
Where you are in this range isgoing to largely depend on where
you're located and what yourother costs look like.
But for beverage costs, where weare looking to go on those
liquor, somewhere between 15 and25 percent.
(09:02):
Beer costs a little bit more,you're probably somewhere
between 18% and 28%.
And wine, it's going to dependa lot on the type of wine you
sell, because if you sell reallyexpensive wine you're going to
have a worse margin than if yousell really cheap wine.
And that's where we can have awhole conversation about
contribution dollars versuscontribution percentage.
(09:22):
I would much rather sell abottle of wine for 200 bucks
that cost me 150 than a bottleof wine for 40 bucks that cost
me 20.
Because on the first bottle Imake more money for the same
amount of work.
It doesn't matter how much thebottle of wine is, it matters
(09:42):
how much money am I making offthat bottle of wine, because
it's the same amount of workeither way.
So I'm willing to accept ahigher cost percentage and those
ranges I gave you are reallybig For most people.
Let's say you're in MiddleAmerica.
The exact percentages I wouldsay we should shoot for is about
22% on liquor, about 25% onbeer and about 27% on wine.
(10:07):
But, like I said, these rangesare going to vary a lot
depending upon your other sales.
Because the other thing here istoo and you got to think about
this a bottle of Bacardi costsbasically the same amount of
money regardless of where youare.
It's not that much moreexpensive in New York City than
it is in BFE Oklahoma, but whatyou can charge for that drink is
(10:31):
way more right.
You can charge in a lot ofcases double in, say, like New
York City or in LA.
Then you can get away with inthe middle of the Midwest or the
middle of the South.
So keep that in mind as you'relooking at these percentages.
The big thing is not necessarilywhat percentage you fix or
you're shooting for your targetpercentage for food and beverage
costs.
The big thing here isunderstanding that it fits in
(10:55):
your economic model.
Couple other KPIs we wanna lookat when it comes to financial
KPIs your prime cost ratio, sothe sum of labor and food and
beverage costs put together as apercentage.
So this is all your directlabor expense plus your food and
beverage costs divided by yourrevenue, and for most bars we're
(11:16):
looking for that number to besomewhere between 55 and 60%.
It depends on exactly how thatnumber is being calculated and
what you're including in it.
But again, the thing here isit's not necessarily that 50% is
good or 65% is bad.
It's about your individualfinancial model.
And if you really want to go adeep dive on prime cost numbers,
(11:38):
there is a podcast episode Idid a few months ago that covers
all of that in detail, so youcan refer to that episode on
prime cost and why 55%, which isthe number you normally hear
quoted, is kind of made up.
Next, kpi we want to measureunder our financial KPIs.
(11:58):
Well, two of them we'll talkabout together here cash flow
and net profit.
And the reason why we need tolook at both of these numbers
always is net profit.
A lot of times, when you justlook at the bottom line after
your accountant or yourbookkeeper has done the books,
you're looking afterdepreciation.
You're not including right onthe books.
(12:18):
You're looking afterdepreciation.
You're not including rightBecause principal payments on
loans are not expensed, only theinterest is expensed.
So it is very plausible thatyour cash flow and your net
profit don't even look the same.
You can lose cash and havepositive profit or you can have
positive cash and negativeprofit.
(12:40):
Now we know that a lot of barsand I'm sure some of you
listening to this podcast youare sitting right on that line
of kind of profitable.
And if you're sitting on thatline of kind of profitable, you
know I'm thinking your bottomline is 8, 5 to 8% of revenue.
You can easily have a cash flowthat's negative and a net
(13:03):
profit that's positive or viceversa.
So you always need to trackboth of those numbers.
If you're not tracking both ofthe numbers, you're in
potentially a world of pain.
Now moving on.
So that was our financial KPIs.
Now we're going to talk aboutoperational KPIs and, just like
(13:27):
financial KPIs are kind of themindset portion of looking at
KPIs, operational KPIs are ourconcept.
These are where we are drillingdown on the fundamentals of
what we're doing in order tomake sure that we are being
efficient in our business andthat we are maximizing our
ability to earn a profit.
Operational KPIs there are fivethat I like to look at.
(13:50):
Labor cost is a percentage ofsales that goes in prime cost.
It's kind of a financial one,but we can also break that down
a little bit more and we'll talkabout that in a second.
Average ticket times, becausethat is the efficiency of things
getting to your guests.
Sales per labor hour, becausethat's telling you how much.
It's giving you an idea of whatyou can produce with one labor
(14:11):
hour.
And we'll talk about how tolook at that.
Inventory turnover rates, sohow much inventory do you have
on hand?
And then the final one, andsomething that a lot of people
don't do well, is tracking waste.
So let's break these down.
First we're talking labor costs.
So labor cost is kind of afinancial metric in some ways.
But in a second, when we starttalking about sales per labor
(14:32):
hour, you'll see how thisbecomes a little bit more
operational.
But why is our labor cost moreoperational than it is financial
?
Well, because our labor is howeverything happens in a bar.
We don't have well, some of usmight, but most of us don't have
robots.
(14:53):
We don't have assembly lines.
This is not a manufacturingbusiness.
Literally everything we do,every penny of revenue we
produce, is coming from the hardwork of individuals that we
employ.
So we want our labor costs lowfrom a financial perspective.
But too often, far too often, Isee people look at labor costs
(15:17):
as a purely financial statisticand they say, oh, we can cut 1%
off our labor costs.
Hey, but did that hurt youroperation?
Too often, when it comes tothese kind of financial KPIs
that are actually operationalKPIs, we focus solely on the
(15:39):
financial aspects, solely oncutting costs, and what that
ends up meaning is that wehaven't spent the time to look
at the ramifications of cuttingthat cost, that we haven't
realized that, yeah, we canlower our labor costs by 3%, but
in lowering our labor costs by3%, we've hurt our efficiency,
we've made our bar run worse.
(16:00):
So you never want to be in thatposition, and that's why labor
cost, in my mind, is more of anoperational KPI than a financial
KPI, because we're not focusedon getting that cost down as low
as possible.
We're focused on getting thebest possible labor cost that
does not negatively impact ouroperation.
(16:22):
And that kind of takes us rightto the second, to the next two
points or KPIs to watch for inyour operational KPIs Average
ticket times and sales per laborhour.
So let's go sales per labor hourfirst.
Labor cost sales per labor hour.
That's giving you an idea ofhow many people you need to sell
something.
And by measuring sales perlabor hour.
(16:44):
So what we're taking is we'rejust taking the number of hours
that we're working and we'redividing sales by that number.
You can break this down a lotof ways.
You could say just front ofhouse employees.
You could say just your serverhow efficient are your servers?
How much can they sell in anhour and what you will find nine
times out of 10, as long asyou're busy enough that you are
(17:05):
reaching your maximum capacity,you can measure roughly what
your maximum capacity is.
How much sales can one laborhour produce front of house or
behind the bar or in the kitchen?
And once you know that, you canuse your forecasting to predict
your scheduling in a way thatyou never have too many folks on
(17:28):
staff at a given time but youalso never have too few.
Often, when we look at sales perlabor hour and we run all this
math and we get into it deep,something you will find is that
you need a little bit more laborthan you think you do.
And even with a little bit morelabor than you think you need,
you still have an hour or twothat are crazy balls to the wall
(17:48):
weeded and everybody's losingtheir mind.
It's hard to avoid that, butsales per labor hour is going to
tell you what is your capacity.
And if you run sales per laborhour for each individual server
and bartender, you can learntheir individual capacity.
Because, let's be honest hereif your average server can
(18:09):
handle $250 worth of sales in anhour, let's say that means that
some people on your team coulddo $3, $3.50, $4.
In an hour.
Let's say that means that somepeople on your team could do
three, 350, 400 an hour, andsome people in your team are
really doing 150, 175, 200 anhour.
And so when you know this, notonly sales per labor hour as a
whole to help with yourforecasting and your scheduling,
(18:29):
but sales per labor hour basedon each individual that's
working for you, each individualthat's working for you that
gives you the opportunity totrain them, to work with them,
to get that number out and toget them able to handle more
sales.
It also gives you theopportunity to know who should
(18:49):
get scheduled on a busy nightand who shouldn't, and not just
I like this person or I thinkthis person works well.
No, you mathematically have ananswer of who is better able to
handle higher volume nights.
Now, when it comes to sales perlabor hour for your kitchen and
your bar.
One of the big things aboutwhat they're able to handle is
their ticket times, and if youguys have listened to this
(19:11):
podcast for a long time, youknow I love to talk about ticket
times because ticket times areabsolutely essential.
How long it takes an item toget out and ready to go to a
guest is important, and on mostfood items, we should be talking
eight to 12 minutes.
On most cocktails, we should betalking five, six minutes on a
ticket time max.
(19:31):
There isn't a reason why inmost bars, someone should have
to wait 20 minutes to get apiece of food, or never should
have to wait 20 minutes for acocktail.
Now, if you're doingparticularly fancy things, if
you are a very fancy bar thatdid advanced mixology and you're
smoking things and you'reinfusing things and you're doing
(19:52):
all this right in front of theguest, okay, yeah, maybe it's
going to take a little bitlonger, but understanding ticket
times helps us understand howefficient we are and how well
our operation's running, so it'sa very important thing to track
.
Now, the two other metrics wewant to look at under
operational are that I highlyrecommend that you measure, if
you aren't already, ourinventory, turnover rates and
(20:12):
waste tracking, and these gohand in hand as well.
So waste tracking is going tosay you know how much are we
wasting?
And when I say waste I meanspillage.
Right, because we all know, ona busy night and you got a
bottle of Jack Daniels, you'repouring a ton of Jack and Cokes.
You probably spilled some Nowthat we probably don't have to
worry about the little bit youspilled.
But if you drop that bottle andit shatters, we need to account
(20:36):
for that in our waste.
Otherwise it's going to throwoff our financial metric of
beverage costs.
So understanding our waste isimportant.
We need to write all this down.
The same can be said if we'redoing employee shift drinks or
employee meals on the food end.
We need to write this off inour books so that we understand
(20:57):
that that's not an excess costthat was incurred, that is in a
benefit we gave to our employees, or a bottle that we dropped
and broke.
That is in a benefit we gave toour employees or a bottle that
we dropped and broke.
And that way we can actuallyaccurately measure, on the
financial metric end, ourbeverage costs against actual,
against theoretical.
And then finally, like I said,we have inventory and inventory
matters here, because wasteobviously is going to increase
what you order.
(21:19):
But within inventory we wouldspecifically want to talk about
turnover rates and there is mathon turnover rates and you can
Google all that.
I want to avoid getting tooweeded right now because if
you've listened you know I havea tendency to do that.
But inventory turnover rateswe're basically saying how often
are things going in and out,and this is always a number of
(21:40):
days, and so you might haveenough vodka on hand, enough.
Well, vodka to last 21 daysGreat, 21 days is a long time
and most bars you're probablyordering vodka every week, twice
a week.
So you don't need 21 days worthof vodka, you need maybe 14,
(22:04):
maybe 10.
But that inventory turnoverrate, we want to get that number
down as low as possible and thereason behind this is inventory
is literal cash sitting onshelves and when you have a
bottle of vodka you don't havecash.
You have a bottle of vodka.
Now you sell that bottle ofvodka and you get cash for it,
(22:24):
so you can convert that bottleof vodka into cash.
But especially when we'retrying to maximize our ability
to use our finances and when, ifyou're not doing so hot in a
given month.
Having a bunch of money on theshelves doesn't help you.
You'd rather have that cash inthe bank.
So by getting our inventoryturnover as low as possible, by
(22:46):
ensuring that we are movinginventory as quickly as we can
and we don't have two months'worth of inventory we have a
week and a half or two weeks'worth of inventory we are
ensuring that our cash is ableto be spent and used on
something that we need to spendit on and isn't just sitting on
(23:06):
a shelf waiting for us toconvert it from booze back into
cash.
So now let's talk through guestexperience KPIs, and when we
started this episode, I said youknow that we got five KPIs for
each category.
I'll tell you what I lied.
We only have three for this one.
I wasn't looking far enoughdown my notes.
But for guest experience KPIs,we want to really measure three
things that are more importantthan anything else Customer
(23:29):
satisfaction, or NPS score.
Guest check average, or averagecheck size per guest, and then,
to the extent that we canreturn, customer frequency.
So let's talk through these.
The most important.
If you're going to measure oneKPI when it comes to your guest
experience, it is your NPS.
Your NPS score net promoterscore is essentially how much
(23:49):
customers enjoy your business,and a lot of people.
When you do guest surveys, youknow you ask 15 questions how is
the food, how is the service?
Are our bathrooms clean?
Blah, blah, blah, blah, blah.
And the problem is most peoplesorry they ain't going to fill
that out, and the reason they'renot going to fill it out is it
takes too much time.
You're asking too much of them.
(24:09):
So when you survey yourcustomers about their experience
, you want to make it as shortand concise as possible.
The easiest way to do that isto ask the net promoter score
question, which is one questionBased on your experience today,
how likely are you to recommendour bar to your friends and
(24:33):
family?
And then you let them rate itbetween 1 and 10.
9 and 10 is a positive promoter.
They are going to tell otherpeople about your business, talk
about how great theirexperience was and bring in
business for you.
They are out there marketing,working hard to bring people in
or at least when somebody asksthem, they're going to say good
things about it.
Seven and eight they like yourplace.
(24:54):
It's not their favorite.
Will they come back?
Probably Are they going to telltheir friends and family about
it?
Maybe, but generally thesefolks are totally neutral.
If they give you a 7 or 8 on a1 to 10 scale, when you ask them
, how likely are you torecommend our bar?
So 9s and 10s are great, theypromote you.
7s and 8s, they're there, theydidn't have a bad time, they
(25:19):
didn't have a great time.
You did not impress them enoughto get them to go say great
things about you all over theplace.
So they're neutral.
And then six or lower.
They didn't have a good timeand because they didn't have a
good time, they probably aren'tever going to say anything good
about you.
And if it's a one or a two or athree, well they're probably
(25:40):
going to tell people they didn'tenjoy their experience at your
bar and that other peopleshouldn't go there and tell
their friends to avoid you.
But anything six or less isnegative.
And there are very complex NPScalculations that you can use.
There are more simplistic ones.
You can just average it alltogether and see where that
score is.
You can Google those.
I'm not going to run throughthe weeds on NPS score
(26:01):
calculations today, but thepoint is this is the single most
important metric to measure tounderstand your guests Quite.
Possibly it's the single mostimportant metric to measure
period.
Because it doesn't matter howefficient your team is, it
doesn't matter how well youmanage your inventory, it
doesn't matter how well youmanage your finances.
(26:23):
If people don't like your bar,they aren't going to come in and
then your revenue goes to zeroand everything else doesn't
matter.
It's freaking irrelevant.
So the NPS score is probablythe single most important metric
to measure.
And again, that question is justbased on your experience today.
Would you recommend Arbara toyour friends and family?
One to 10.
And if you want to follow thatup with something, you can say
(26:44):
why.
You can also ask otherquestions on your survey, but I
always, if I'm going to design asurvey, put those two questions
first, based on your experience, and then why.
Because if somebody's going toanswer just one or two questions
, I want those answers.
Those, to me, are the ones thattell me are we being successful
?
Are we actually going to beable to grow this business?
Do our customers, do the peoplethat come in the door like what
(27:07):
the heck we're doing?
Now?
The other guest experience KPIsthat we want to look at are
guest check average and returncustomer.
Let's talk return customerfrequency first, because this
ties in the NPS score.
Obviously, those nines and tensyou're going to assume they're
going to come back.
And one thing that was reallyhard to measure even 10 years
ago was return customerfrequency Because, especially if
(27:27):
you're Midwest or South, 10years ago there was a lot more
cash than credit cards.
Today, most bars I mean thereare still people that are cash
only and I love that people canget away with that but most bars
are taking credit cards andmost customers are paying with
credit cards.
That means we can use the datain our POS to check guest
(27:51):
frequency and so if we have ahigh MPS score, we see guests
coming back over and over andover again.
I mean you can do this just byknowing people in your bar,
walking around and talking tothem and getting to know your
customers as well.
But when you see that returncustomer frequency is shot, you
know you're in a good spot,something you have to keep in
(28:12):
mind To be successful in thisindustry.
Generally speaking, you want tosee you walk out into your bar.
You want to see about 80% ofthose folks are return customers
and about 20% of them are newcustomers.
If you don't have 20% newcustomers in your bar at any
given time, your customers willmove, they'll die, they'll go
(28:36):
somewhere else and your businesswill slowly die.
So you need to have that 80%,that is solid regulars.
But then you need 20% new folksall the time.
So return customer frequency isimportant, but don't allow
yourself to be tricked intothinking that how often
customers come back and the factthat you have a large number of
(28:59):
customers that come in once,twice, three, four times a week
means you don't need a newcustomer.
But the thing I do like aboutreturn customer frequency is it
allows us to say I have ahundred customers that come in
two or more times a week, everyweek.
And when you go to forecast andyou go to analyze your
financials, it's really good toknow that, because then you know
, okay, I have a solid base.
(29:21):
I always used to say I had anumber of guys that came into my
bar every day and most of themwere retired.
They came in between two andsix in the afternoon and they
were there like clockwork.
They ordered the same thingevery day, paid the same amount
of money, tipped the same amountof money.
They were just golden.
And what I just always jokeabout with those guys is they
(29:44):
paid my utilities, they paid mylight bill, they paid my gas
bill, because just as much as Icould count on that electric
bill or that gas bill everymonth, I could count on that
revenue from them every month.
So measuring return customerslets you understand the
stability of your business.
But again, understand thestability does not mean that you
don't have to track new guests.
(30:06):
So the third guest experienceKPI I like to talk about is a
guest check average.
Now, you could call this afinancial KPI, you could call
this operational, but to meguest check average is an
indication of the guestexperience, because we're
talking about how long someoneis there.
Obviously, if I'm in a bar foran hour, I might have two drinks
, maybe three if I'm reallytrying to hit it hard.
(30:27):
If I'm in a bar for four orfive hours, I'm going to have at
least four or five drinks.
I might have seven or eight.
I mean, even if I'm trying tobe real responsible and I drove
somewhere and living where I doin southern Indiana, it's all
hills and windy roads.
Trust me, I am not gettinganywhere near legally drunken
(30:48):
driving because the roads are alittle sketchy for me, but in
four hours I can put down six orseven drinks, wait a half hour,
if I paste them out properly,and I'm pretty sober to drive
home.
I mean, I still have some BAC,but I'm well under 0.08.
And so that guest check averagegives you an indication of how
(31:09):
long people are there.
It also gives you an indicationof what people are spending and
it allows you to see how yourteam is impacting the guest
experience.
Now let's talk about that realquick, so you can look at guest
check average as a whole, whichof course, you should do.
You can also look at guestcheck average for each
individual bartender or for eachserver, and what you'll find a
lot of times is the servers andthe bartenders with the highest
(31:30):
guest check average are the bestat upselling, and upselling,
when done wrong, can be reallybad for the guest experience.
Right, because it feels like I'mtrying to push things on you.
You want a steak?
You want me to put asparaguswith that and some bernets and
some crab, and we can do it thatway.
Or do you want me to coat itwith pepper?
(31:50):
Or do you want this or do youwant that?
I'm just trying to sell you,hard sell you.
That's not cool.
But more often than not, a highguest check average is a mark of
a server or bartender thatknows just how to say oh, it's
after dinner, oh, you wantcoffee?
Oh, I can do this really coolcoffee cocktail that you're
going to love.
And it's not impacting theguest experience in a negative
way because they're hard sellingthese upsells Like it's some
(32:13):
kind of diner where they're justthrowing ideas at you right,
it's not hash browns at WaffleHouse, but what they're doing is
they're guiding and curatingthe experience for your guests.
And while guiding and curatingexperiences for guests may sound
like a strictly fine diningthing, trust me, you can do that
in a dive bar all day long aswell, and use subtle upsells and
recommendations to get thatguest check average higher.
(32:36):
So, yes, guest check averagedoesn't always indicate a great
customer experience, but higherguest check averages,
consistently with returningcustomers, almost always means
that bartender, that server, isdoing something different.
That's making the guestexperience better, and those
guests are either spending moremoney while they're there,
buying things that are moreexpensive, or they're sitting
(32:56):
there longer.
So guest check average is agreat indicator of guest
experience.
And for the record, if you haveone bartender that has a way
higher guest check average thanthe others, you need to figure
out why and then train everybodyelse to do whatever it is that
one bartender is doing, becausethey're doing something that
everyone else isn't.
They're making more money.
(33:17):
They're making you more moneyand you want everybody to be
able to make more money, becausethen you also make more money.
If everyone operates at thatlevel, everyone earns more.
You make more.
Everybody's happy.
So, to wrap this up for today,when you focus on these critical
KPIs and you track themconsistently, like when you
focus on these critical KPIs andyou track them consistently,
like I said, you don't have tonecessarily use all 13 KPIs we
(33:39):
discussed today.
Get done, pick one or twofinancial KPIs, one or two
operational KPIs, do an MPSscore, look at guest check
average, get your guestexperience KPI, and when you
track those consistently and youuse that data, it helps you
make better decisions.
You have information now thatyou didn't have before.
(34:00):
That lets you actually choosethe right path forward for your
business.
And so I will leave you withthis thought and I've said this
plenty of times before, but Iwill always say it because it is
always true what gets measured,so what you have KPIs for gets
managed, because your managersand you are going to try to make
those KPIs better.
What gets measured gets managed.
(34:21):
What gets managed gets done.
There's too many distractionsand unless you're actively
looking at those KPIs you willnot get things improving in your
statistics because it's notbeing managed and therefore it's
not getting done.
So get those KPIs in hand andremember what gets measured gets
(34:42):
managed, what gets managed getsdone.
That about wraps it up fortoday.
If you enjoyed today's insights, make sure you like, subscribe
and leave a review.
If you are ready to take yourbar to the next level, schedule
a strategy session with me byclicking the link in the show
notes below.
Until next time, have a greatday and we will talk again later
(35:03):
.
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