Welcome to the latest edition of the Hot Potato Newsletter! Now guys, has anyone been absolutely melting away in this heat? Things are truly hotting up out there.

Just like the temperature outside, the restaurant industry is heating up with competition. Today, we'll be diving into the numbers that truly matter, the metrics that separate the thriving restaurants from those barely scraping by. If you're running on gut feeling alone, you're essentially flying blind in one of the most data-rich industries on the planet.

There is a widely believed myth that claims 90% of restaurants fail in their first year, UC Berkeley research reveals only 17% actually do. That's still 1 in 6, but far from the doom-and-gloom narrative. The real challenge? About 50% shut down by year five, and the difference between survivors and casualties often comes down to one thing: understanding your numbers.

From the financial foundations that keep your doors open, to the operational efficiencies that maximise every seat, plus the customer insights that turn one-time diners into lifelong advocates, we explore the metrics that could transform how you measure (and achieve) success.

P.S. Before we dive into these game-changing metrics, I've got something special for you. Between now and the end of this year, I'm opening up my calendar for FREE one-on-one consultancy sessions with Hot Potato readers. Whether you're struggling with revenue plateaus, need a fresh perspective on your brand positioning, want to crack the code on marketing channels or have operational bottlenecks hurting your profitability – I'm here to help. Ready to unlock your hospitality business's potential? Fill out this form here!

In today’s email: From Gut Feeling to Gold Standard: The Metrics That Matter Most

Read Time: Approx 3-4 mins

Financial KPIs: The Foundation of Your Empire

Source: Orderable / Binwise / Restaurant365

Let's be brutally honest – without solid financial metrics, you're not running a restaurant, you're running an expensive hobby. With average restaurant profit margins ranging from just 3-5%, every percentage point matters. These four KPIs will tell you whether you're building a sustainable business or heading for Gordon Ramsay’s Kitchen Nightmares.

• Food Cost Percentage: The food cost percentage measures the cost of food ingredients used as a percentage of overall food sales. Industry benchmarks suggest 28-35% of food sales. Those who manage their food costs focus on smart sourcing, portion control, and strategic menu engineering.

• Labour Cost Percentage: Labour typically represents your largest expense after food costs. In hospitality, typical labour costs represent around 20–30% of total sales. The best way to manage this cost is not about cutting staff, it's about maximising productivity. With restaurant industry turnover rates averaging 79.6% over the past decade, every retained employee saves you money.

• Gross Profit Margin: For financially viable restaurants, gross profit hovers around 70%, meaning that for every £100 a guest spends, £70 is gross profit. This shows what's left after your direct costs to cover rent, utilities, marketing – everything else that keeps your lights on.

• Average Order Value (AOV): This metric reveals whether your team are order-takers or revenue-generators. Higher AOV indicates successful upselling and smart menu psychology. Every pound increase in AOV drops straight to your bottom line, no additional overhead required. AOV directly impacts your financial health by showing how much revenue each transaction generates.

Companies like Toast, provide all-in-one restaurant management tools that gives you visibility on your day-to-day sales, AOV, gross profit and labour costs.

Operational KPIs: Maximising Every Opportunity

Source: Lightspeed / Touchbistro / Pour My Beer

Operations is where the magic happens - turning your space, staff, and systems into a revenue-generating machine. These metrics reveal whether you're run like a well-oiled machine or a sinking ship.

• Revenue Per Available Seat Hour (RevPASH) Revenue per available seat hour tells you how much revenue you generate from each seat in your space. This is pure gold for operators because it shows the exact money-making potential of every seat. Calculate it as Total Revenue ÷ (Number of Seats × Operating Hours). If you've got empty seats during peak hours, you're literally watching money walk out the door.

• Table Turnover Rate: For a typical family restaurant, the average table turnover rate is 3. During the dinner period of 5 p.m. to 10 p.m., this translates to each table flipping after an hour and a half. The goal is finding that sweet spot where efficiency meets satisfaction. Simply put, the more guests you serve, the more revenue you generate.

• Inventory Turnover Rate: This is all about how quickly you move through your inventory, which directly impacts profitability. A higher inventory turnover rate shows improved performance, especially for perishable items. Calculate it as Cost of Goods Sold ÷ Average Inventory. Poor inventory management is one of the most cited reasons for restaurant failures.

Platforms like Apicbase help with inventory management, recipe costing and purchasing, giving you more visibility on your inventory and costs. I also recently came across Supy, who have just launched in the UK from the Middle East and it sounds like they’re doing some great work too in that space.

Customer-Centric KPIs: Building Your Loyal Army

Source: Emerging/ Retently / Solink

Here's what separates good restaurants from legendary ones; understanding that customers aren't just transactions, they're the foundation of sustainable growth.

• Net Promoter Score (NPS): Over two-thirds of Fortune 1000 companies use this important score to keep track of customer loyalty and engagement. Ask one simple question: "On a scale of 0-10, how likely are you to recommend us?"

  The average score for those in the fast-food category is 30. A high score for these concepts is 53 and above. Restaurants with scores higher than 60 are considered excellent.

• Customer Satisfaction Rate (CSAT): Direct feedback from guests about their experience, usually via post-visit surveys. CSAT measures immediate satisfaction with specific interactions, while NPS focuses on long-term loyalty. Track both to get a complete picture of customer sentiment.

  Customer Retention Rate: Tracks the percentage of customers who return over a set period. Higher retention means more repeat business and stable revenue. Regular customers can make up to 80% of a restaurant's profits, making this metric crucial for sustainable growth.

  Online Review Scores: Aggregated ratings from platforms like Google and TripAdvisor, reflecting public perception and influencing new customer acquisition. 41% of customers research a restaurant's social media before choosing it, and four out of every seven Gen Zs have visited a new restaurant based purely on favourable online reviews. Platforms like HGEM make it straightforward for you to understand your customer’s insights and feedback.

I was recently out for dinner at El Pastor and when paying the bill, they bought over this device made by a company called Yumpingo. It asked me for feedback at the end of the meal and was super straightforward. I thought it was a useful way to collect important guest insights.

Here's the thing about metrics – they're only as powerful as the actions they inspire. The restaurant operators who understand this will be the ones writing the next great success stories. What's the one metric you're going to start tracking in more depth this week?

In our next edition, we’re going to explore whether subscription models are really worth it. The subscription model has quietly reshaping UK hospitality, creating two very different types of businesses: those with predictable monthly revenue and those still gambling on daily sales. While some restaurant subscription programs are generating thousands in guaranteed income each month, others have spectacularly failed, offering crucial lessons about what works and what doesn't.

Ready to get the lowdown on whether subscription models actually work? Subscribe now to have our next edition delivered straight to your inbox!

Bon appétit,

Max Shipman, Founder, Hot Potato

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