Measure These KPIs to Improve Profitability

Michael Tipps at the 2017 NCB Show
Michael Tipps speaking at Nightclub & Bar Show. Image: Getty

Last week, two hospitality industry experts who will be presenting at Nightclub & Bar Show 2020 participated in our Profitability Survival Guide webinar.

Dave Nitzel, a consultant and Barmetrix principal, and Michael Tipps, co-founder of Invictus Hospitality, shared their insights into several metrics that affect a bar or restaurant’s profitability.

Nitzel and Tipps share insights—they’re not in the business of snake oil. Therefore, neither provided a so-called “silver bullet” for making a business profitable.

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Instead, Nitzel and Tipps explained their preferred metrics and why a high-performance, highly motivated team is crucial to an operator’s success.

Employee Turnover

Addressing key performance indicators (KPI), Nitzel prefers leading indicators to lagging indicators. The reason is simple: the former shows what’s going on in the moment so an operation can adjust while the latter show what happened after the fact.

However, Nitzel didn’t spend too much time on leading versus lagging indicators. What he was more eager to address was employee turnover.

“We’re in an industry where a lot of places have 100 percent employee turnover in a year,” said Nitzel.

In comparison to other businesses in the United States, the average turnover rate is 12 to 14 percent. That’s a staggering difference and stark realization. If a team is constantly turning over, they can’t come together and benefit from shared experience, learning what works.

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Tipps recommends that owners look at their employees like a sports franchise. What’s something the MLB, NBA, NFL and NHL have in common on the business side? Salary caps. What’s a byproduct of salary caps? Owners must learn to get the most out of every player on their teams.

Owners can approach increases in minimum wage like a salary cap. It’s far more efficient—and therefore profitable in the long run—for an owner to look at recruiting, hiring and training as investments. That mindset will help them develop policies and practices that get the maximum out of the investments they’ve made in people.

Implementing the Gallup Q12 Employee Engagement Survey or a 360-degree employee evaluation survey (SurveyMonkey offers free versions) can help an operator not just measure their employee turnover rate but make improvements to lower that rate and retain more top performers.

If an owner, operator or manager only treats their employees like commodities and not valuable team members, explained Nitzel, they won’t develop any sense of loyalty. Without loyalty, turnover rates skyrocket.

Nitzel suggested mentoring team members who show an interest in the business to increase the odds of retaining them. Tipps concurred, stating that showing the team they’re cherished is a crucial element of running a profitable operation. Treating them as well as guests are treated is key to his operations strategy.

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Another hot tip? Recognition and rewards for top performers. People, he said, love to be recognized, even when they find it embarrassing. The key is discipline—operators can’t succeed if they announce an employee rewards program and then don’t deliver on it consistently.

Guest Experience

A common KPI in this industry is revenue. It makes sense on the surface—if revenue is “going through the roof,” guests must be loving their experiences. If they love the experience, an operation must be doing everything right, so surely the business is on its way profitability.

Nitzel believes that’s flawed thinking. In fact, it’s one reason he much prefers leading indicators to their lagging counterparts. As he explained, just because revenue is through the roof doesn’t mean guests aren’t disappointed. And if they’re disappointed, they’re most likely not going to return, taking future revenue with them.

Tipps has several methods for measuring the guest experience. He referred to them as old school but also swears by them: guest count and length of stay. “We live and die by guest count,” he said.

“What does it matter if I had a thousand people in the bar but they left in three minutes?” said Tipps. If hundreds of guests walk in and walk right back out, something about the guest experience is very wrong and must be addressed.

When Tipps discovers a short length of stay in a client’s venue or his own, he knows he has a problem. He also has tools for measuring the guest experience to find a solution. While he hates the term, he does believe in third-party secret shopper programs if they use people with actual F&B industry experience and aren’t friends with anyone in the operation.

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Tipps also uses POS system-integrated loyalty rewards programs. Another tactic takes him out of his four walls: visiting other bars and restaurants to reinforce the guest experience. After all, the old saying that if someone is too close to a problem they can’t always see the best solution is often true. Operators who become disconnected from the guest experience are in the wrong industry, warned Tipps.

On Demand

If you missed our Profitability Survival Guide webinar on February 26, don’t worry—it’s now on demand! Nitzel and Tipps shared additional insights that can help owners, operators and managers gain a competitive edge and run a profitable business.

Is an hour of your time worth coming away with one or more insights you can implement today to change your future for the better? If so, follow this link.

Get even more insights to take your business down the path of success. Dave Nitzel is speaking at Nightclub & Bar Show 2020, presenting the session “Creating Scalable Leadership in Your Business.” Michael Tipps will also be speaking alongside the Invictus Hospitality team during “The Jedi Perspective & Controlling the Domino Effect” and “Journey of First-Time NCB Attendee to Opening the Bar ‘Broke & Famous.’” Register today to take control of your business and improve your leadership skills!

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