Using Restaurant Analytics to Increase Profits

Restaurant analytics is the first step that leads to control and eventually to improvement. If you don’t have the analytics, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.

“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.” – H. James Harrington, author, Business Process Improvement

The restaurant industry is currently experiencing two things.

1. The competition has never been higher.
2. The technology available to help restaurants increase profit has never been more advanced.

So even though it can be tough to make it in the industry, the clever use of technology can now help you overcome the modern-day obstacles associated with owning a restaurant.

You just need to know how to use the tools at your disposal.

“Big data” used to be an intimidating term. So many people thought they needed to be a data scientist to extract meaningful information from big data analytics. This may have been the case a few years ago for restaurants, but times have changed: now everyone who’s willing to look at analytics can use it to generate more profit for their business.

In this section, we’ll take you through the basics of big data analytics and how to use it for:

• Sales analysis
• Menu tweaking
• Staffing decisions
• Customer engagement
• Operational efficiency

You’ll walk away from this section knowing how to gather, organize, and make sense of your restaurant analytics and how to apply it to the decisions you make every day about your business. The knowledge you gain from this section will set you up for massive advantages over your competition.

Big Data Analytics for Restaurants

Big data analytics is a collection of information from various traditional and digital sources, inside and outside your business.

The reason experts have coined the term “big data” is that volume of information is key to meaningful analysis. You need a lot of data to be able to say, with confidence, that x influences y.

Big data analytics is characterized by the following “three Vs”:

Volume

As mentioned before, you need a large amount of data at your disposal to be able to trust the insights you get from it. Think of volume as a sample size in a scientific experiment: the larger the sample size, the more credible the results.

Velocity

To get the most out of your restaurant analytics, you need to know that the information you’re working with is current and quickly actionable. Velocity is the speed with which data is processed, and businesses are now just as concerned with reaction time – how quickly they can analyze data – as they are about volume.

Variety

You need restaurant analytics from a lot of sources and in a variety of formats to get a clear sense of outcomes. You don’t want, for instance, to only be measuring sales data from your POS when you’re assessing ways to grow your business; you’ll also want to look at labor data to determine which one of your staff members is selling the most items. Contrasting and comparing data sets will give you a much clearer picture of how your business is performing on multiple fronts.

Every restaurant produces data. Think about what happens in a restaurant every day: transactions are processed in a variety of ways; customers order a certain number of items; suppliers deliver a variety of goods; and staff work a certain number of hours and sell a certain number of items that fall within a variety of menu categories.

Once you open your restaurant, it will be bursting with restaurant analytics.

So how do you gather your restaurant analytics and use it to increase profit?

How Do I Gather My Restaurant Analytics?

Gathering restaurant analytics used to be a manual process. Similar to counting inventory, restaurateurs would sit down with documents, receipts, a calculator, and probably a drink to sort through the mountain of data contained on physical pieces of paper.

That time has passed, and most data gathering is now automated.

When your restaurant opens, your day-to-day operations will create your restaurant analytics. Every time an order is rung through, a customer collects loyalty points, your staff switch shifts, or a payment is made with a credit card versus cash, data has been gathered.

So you won’t so much need to collect the data itself as make sure you know where to pull it from when you need to analyze it. The data has already been gathered – you just need to know where to look so you can use it to your advantage.

Here are your main sources of data for your restaurant.

Point of sale (POS) system

Your POS is the operating system for your restaurant. It’s also your biggest source of restaurant analytics about your business.

The thing is, most restaurateurs aren’t using the data generated by their POS to their advantage. The data is being collected, sure, but most of the time it sits there, unviewed and underutilized.

When you’re shopping for a POS, you’ll want a system that collects and presents the following restaurant analytics:

• Total sales
• Top sales categories
• Sales by menu item
• Sales by restaurant section (patio vs. dining room)
• Top upsells
• Labor costs
• Sales by server
• Menu item sales by category and promotion
• Average spend per customer
• Average number of customers
• Payments and payment types
• Discounts, voids, and deletions
• Taxes and general accounting
• End-of-day summary reports

Sophisticated POS systems will allow you to access your data offsite. Most data lives within cloud-based systems that allow people access from anywhere through an account.

note: to get the most out of your pos data, you’ll need to set yourself up for success from the beginning. make sure your menu on your pos is categorized properly going in, so that your restaurant analytics comes out “clean” on the other side.

Accounting and finance

Your accounting and finance spreadsheets and/or software will contain crucial data about the health of your business. Some POS systems integrate with accounting software so that all information is kept in one place, which is ideal for proper data analysis.

Software integrations help ensure your data is “clean”, meaning that data sets from two different sources are “talking to each other” to keep data accurate and current.

You should walk away from your accounting and finance data knowing the overall health of your restaurant. Your accounting and finance data will show you:

• Costs
• Revenue
• Profit margins

While financial data is the most important information set for you to know inside out, also know that it’s only part of the story: you’ll need to compare your financial data to your POS data to make sound decisions about the future of your business.

Inventory

Your inventory data may be housed within your POS, but sometimes restaurant owners use a separate software or system for tracking inventory.

As described in the Restaurant Inventory Management: A Beginner’s Guide section, you should be collecting the following data about your flow of goods:

• Time period
• Food category
• Item name, to live within their respective food category
• Unit of measure (ex. lb., oz.)
• Unit cost: the cost for one unit of measure of the ingredient
• Quantity in stock: the current number of units for each ingredient in your restaurant
• Inventory value: the number you get when you multiply your unit cost by your quantity in stock
• Reorder level: the number of units that indicate a need to reorder the item
• Total inventory value

Your inventory data is inherently linked to your POS data and your financial data – because the movement of your inventory is what drives data creation in the first place.

The speed with which you move inventory out of your business is an indicator of profit, so you’ll need to make sure you’re measuring accurate inventory levels in real-time. As mentioned before, using POS software with inventory tracking is your best bet to ensuring you have clean data to work with.

Suppliers

Outside of your restaurant, your suppliers will have information about their stock and your orders, which will eventually feed back into your inventory data. Some inventory tracking software allows you to access supplier data for an easier flow of information, which is especially useful for keeping supplier pricing information current.

This is what you’ll want to look for when tracking data through your account with your supplier:

• Product availability
• Prices
• Order status
• Order recurrence
• Average order price

Access to your data will be different for every supplier you work with. When you’re sourcing quotes from suppliers, ask about their data management system and how you’ll be able to access your information.

Labor

Some restaurants keep track of their staff management with spreadsheets, while others use software that automates the process in a variety of ways.

For those who use software, POS systems will usually have features that offer up data on your staff, such as your cost of labor, staff overtime hours, and the performance of each staff member based on sales, voids, and discounts.

Here are some of the data points you should have at your disposal to properly track labor costs and staff performance:

• Wages/salary
• Shifts
• Staff tips
• Sales, voids, and discounts per staff member

Customer loyalty

Customer loyalty programs are becoming increasingly popular to encourage repeat business and average amount spent per visit.

A loyalty program that tracks customer information is quickly becoming a “must have” rather than a “nice to have”. Restaurants are investing heavily in loyalty programs that provide the following information:

• Customer behavior: number of visits, amount spent, frequency of visits
• Customer contact information
• Customer birthdays and special occasions
• Customer preferences

Some POS systems integrate with a customer loyalty program, making it easy to house all their data within one system. Find out more about customer loyalty here.

Using your Restaurant Analytics

Now that you know where to extract the data you need, you’ll need to know how to use it to make decisions about your business.

In the age of what can sometimes feel like too much information, meaningful data analysis is a challenge. With such a high volume of data at our disposal, you can make some pretty ridiculous correlations.

Like did you know divorce rates in Maine are pretty well correlated with the state’s per capita consumption of margarine? But does this mean that margarine is a cause of divorce? Most likely not.

So how do you look at data, understand what it means, and extract meaningful conclusions? Here we’ll tell you where to direct your attention when you have the following goals: increasing profits, revising your menu, decreasing labor costs, increasing customer engagement, and improving operational efficiency.

Increase Profits

There are two ways to use data to increase your sales:

• At-a-glance, on-shift reports from your POS
• Long-term historical reporting from your POS or sales tracking spreadsheets

Here’s what you can do to increase sales right away, during service.

1. If you know your sales are tracking lower than they should be based on your sales data from previous periods, you can quickly encourage your staff to focus on upselling for the next two hours. Set a goal and challenge your staff to meet it – “gamify” the task with incentives to add urgency.
2. If you notice your labor/sales ratio is high, you may want to send a server home early to reduce your expenses, so you make more of a profit.
3. If you notice an unusual number of voids, you can investigate further and find out whether one of your servers is having a bad day and making mistakes that are costing your business in wasted inventory. A quick chat can make all the difference in improving customer service on the spot.

Here’s 4 ways you can use more robust, historical reports to make long-term decisions about your business.

1. Know exactly when to run a promotion.

Look at your sales by hour over time to identify your slowest periods. Cross-reference your reports by section, sales category, menu category, and menu item on the same hourly breakdown to pinpoint your ideal time for a promotion. If your restaurant is empty between 4:00 pm and 6:00 pm, run an after-work special with half-price apps to get people in the door.

2. Know your venue’s average traffic.

Check size and number of customers per table by the hour indicate your venue’s traffic rate. You’ll need to know these data points to know your customers’ habits – and effectively amplify their experience.

For example, if you learn you seat significantly more couples on weeknights than weekends, consider introducing a sharing menu from Monday to Friday. Or if you realize your patrons rarely spend more than $20 at lunch, try pairing soup with one of your entrees as a special for $25 – no one can say no to a good deal.

These are ways to encourage slight increase in check sizes that your business will benefit from over time.

3. Know what to offer as your next special.

Restaurants offer specials for many reasons: you want to keep your kitchen staff inspired, you’re trying to make use of inventory that’s about to expire, or you’re looking for creative ways to increase your revenue.

Whatever the reason, data can help you make the call. For example, your menu item sales reports may show your chicken burritos are flying off the shelf; meanwhile, your beer sales are at an all-time low. Consider offering a burrito and beer special. Your chicken burritos will continue to sell like hotcakes, and you’ll finally be able to move some of that excess beer inventory.

4. Know your staff rock stars.

Assess staff performance: compare staff sales reports to hours worked and find out whether your rockstars are working the most hours. If not, you may want to consider bumping up their hours to keep customers happy and ultimately increase sales.

Revise your Menu

Data can help you re-evaluate your menu.

When using data to know where to take your menu, the best place to start would be with a food cost report alongside a sales report per menu item. This will show you what’s selling and what’s falling flat.

You may be able to boost best selling items by adding pictures of them on your menu or calling them out as popular, which can entice more sales. Or you may need to make some tough choices about your menu to make sure your offerings resonate as much as they can with your customers.

Here are some decisions you can make after you know what’s selling and what’s not.

1. Decide on seasonal specials.

Was there a summer dish from last year that knocked it out of the park? Iterate on that dish this year and know you’re on the right track with your seasonal menu.

2. Tweak food modifiers.

That blue cheese burger add-on hasn’t sold well in months. It doesn’t need to be on your list of modifiers and taking up space in your refrigerator . But you have noticed that people love your pear and brie flatbread – consider adding ‘brie’ as a burger topping to see how it performs.

3. Design your holiday prix fixe.

Last year’s Valentine’s Day menu was a hit, so you may want to make sure you have some of the same dishes on this year’s menu.

Decrease labor costs

The restaurant industry is becoming more competitive, and it can be a lot more difficult to generate a profit. One of the most common ways to increase profit is to lower your labor costs.

Check your labor reports regularly against seasons, holidays, times of days, etc. to make sure you schedule the exact amount of staff when you need them – and not when you don’t.

Especially when you first open your restaurant, you’re probably going to over- and under-project the amount of staff you need for special events. So you’ll want to be diligent about checking your labor reports against sales to keep an eye on your labor ratio.

For example, you may have overprojected your staffing needs during a Superbowl event, and your labor report from that time can remind you not to schedule as many bartenders this year.

You can also save in smaller ways that will build up over time, such as cutting back on the number of staff you schedule at 5:00pm, when everyone is just starting dinner and only ordering drinks. Scheduling the bulk of your dinner staff just an hour later can save on labor costs in the long run.

Increase customer engagement

Related to increasing sales, your customer engagement and loyalty can be measured with data.

As we mentioned above, investing in a loyalty program will put you in a great position to better engage with customers and encourage them to spend more at your restaurant when they’re there. But even if you don’t have a loyalty program, your sales data can also help you improve customer experience.

Here are some ways data can help you increase customer engagement.

1. Customize your customer experience.

When you know your customers, you’re truly in the realm of building meaningful relationships by personalizing their experience with your restaurant’s brand.

An effective loyalty program aggregates data on how your customers are responding to promotional offers and gathering rewards. For example, if most of your customers come back on their birthdays to redeem their offers, you know you have a shot at getting them to spend more once they’re in the door. You may want to amplify their birthday experience by offering them a free menu item if they spend a certain dollar amount at your restaurant on their birthday or during their birthday month.

2. Make smart floor plan decisions.

If you need to move tables in the dining room for an event or party, you’ll want to know that you’re moving the right tables.

Check your sales by table reports to see which areas in your venue do better than others. Leave these sections in tact so they can continue to shine during your special event.

3. Set customer expectations.

Check your low inventory totals report or available menu item report to know what to watch during a dinner shift – and avoid the ordering of an 86’d item (an item you’ve run out of).

Improve operational efficiency

On top of improving customer experience and increasing sales, data can simply help improve efficiency. You’re always going to want to be tweaking your operations to make things just a little bit better or faster or easier for you and your staff. Data can help you with this, and here’s how.

1. Know whether your staff is stressed.

The details of your void and discount reports can shed light on some not-so-obvious staff stressors.

For example, if you notice a surge in discounts during your Thursday night shift, jump into your reports. You could discover a number of things. Maybe your kitchen was short-staffed and stressing to keep up with demand. Or you were down to two servers on the floor from your regular three, resulting in an influx of customer complaints – hence the voids or discounts to keep them happy.

From there you can make the necessary changes to your scheduling to make sure the situation doesn’t repeat itself down the road.

2. Manage inventory. The days of having to 86 a menu item mid-service are over. Ingredient-level inventory tracking helps you make granular purchase order decisions so you have enough to sell – with minimal waste.
3. Identity theft.Look at menu item sales reporting to know what you’ve sold and compare it against your inventory reports. This combination of reports can show you any discrepancy – which might point to sticky fingers.

Knowledge is power – and knowledge is now measured, more than ever, by the amount of analytics you have at your disposal. Operating a restaurant without analytics is like trying to drive a car with a blindfold on. When you use analytics to optimize your menu, empower top-performing staff, and map out the future of your restaurant, you’ll be doing everything you can to make sure your restaurant succeeds in a world that is increasingly producing and relying on analytics. In such a competitive industry, analytics is now necessary to increase sales and lower costs, understand your customer and improve their experience, and ultimately make informed business decisions.