Relevant KPIs for the hospitality industry

Staff Cost Ratio and Cost of Goods Sold: Which KPIs are Crucial for Catering Businesses?

In the hospitality industry, efficiency and profitability are crucial for staying competitive. One of the best ways to monitor the financial health of a business is by analysing key performance indicators, also known as KPI (Key Performance Indicators). Two of the most important KPIs in hospitality are the staff cost ratio and the cost of goods sold. In this article, we explain why these metrics are critical and how digital solutions like Sundae OS can help optimise these KPIs.

1. What is the Staff Cost Ratio?

The staff cost ratio indicates the proportion of staff costs to the total costs or revenue of a hospitality business. It is usually expressed as a percentage and helps assess the efficiency of staff deployment. A high staff cost ratio may indicate that the business is either overstaffed or not generating enough revenue to cover staff costs.

Calculating the Staff Cost Ratio

The formula for calculating the staff cost ratio is:

Staff Cost Ratio = Staff Costs : Revenue × 100 

In hospitality, a healthy staff cost ratio is typically between 25 and 35 percent, depending on the type of business. Restaurants with high service demands may have higher ratios, while fast-food and self-service establishments usually have lower ones.

2. The Cost of Goods Sold: An Important Metric

The cost of goods sold refers to the costs incurred for purchasing food and drinks. It is a crucial metric that indicates how much money a business spends on goods in relation to revenue. Efficient cost of goods sold is essential to ensure the profitability of a hospitality business.

Calculating the Cost of Goods Sold

The calculation of cost of goods sold is usually done as follows:

Cost of Goods Sold Ratio = Cost of Goods Sold : Revenue × 100

In hospitality, the cost of goods sold ratio varies depending on the type of business but often lies between 25 and 35 percent. An optimal cost of goods sold helps maximise profit margins while keeping costs in check.

3. Why are these KPIs Important?

Monitoring the staff cost ratio and the cost of goods sold allows hospitality businesses to make informed decisions. If either of the metrics falls outside the optimal range, it may indicate issues in the operation that need to be addressed. A low staff cost ratio, for example, may point to staff overwork or insufficient service quality. A high cost of goods sold may indicate inefficient inventory management, high food waste, or inadequate pricing strategies.

4. The Role of Sundae OS in Optimising KPIs

Digital solutions like Sundae OS can help hospitality businesses effectively monitor and optimise their KPIs. By integrating features for personnel management and inventory control, Sundae OS enables precise tracking and analysis of relevant data.

Automated Reporting

Sundae OS provides automated overviews that update data in real-time and allow operators to quickly access current figures. These reports display the staff cost ratio and cost of goods sold in real-time, enabling hospitality businesses to respond swiftly when a metric falls outside the desired range.

Efficient Staff Planning

With the staff planning features of Sundae OS, hospitality operators can optimise their staffing needs based on current revenue figures and expected visitor numbers. This helps maintain the staff cost ratio in check and minimises the risk of overstaffing.

Inventory Management and Control

Sundae OS also offers a comprehensive inventory management solution that allows for precise tracking of the cost of goods sold. By automating the ordering and inventory processes, operators can reduce food waste and enhance efficiency, leading to a better cost of goods sold.

Conclusion

Monitoring the staff cost ratio and the cost of goods sold is crucial for hospitality businesses to secure profitability and operate successfully in the market. Digital solutions like Sundae OS provide valuable support in efficiently capturing and optimising these KPI. By helping hospitality businesses automate their processes and make informed decisions, they contribute to enhancing efficiency and increasing competitiveness. Therefore, investing in such digital tools is not just a matter of modernisation but also a strategic step towards long-term success in the hospitality industry.