KPI Keep Contractors on Track

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By Ann Roebuck

The foodservice contractor that manages your dining operations seems to be doing OK. They are abiding by the contract that is in place and seem to be responsive to your comments and/or concerns, but are they really doing a good job?

The best way to answer this question is to examine their KPI or Key Performance Indicators. KPI are performance measures that are a benchmark for the contractors’ level of performance. The figures allow a contract administrator to flag any areas of the operation that may not be performing at an optimal level. The KPI scores also allow the contract administrator and the contractor to have meaningful discussions about the operation and a definitive understanding of how the operation is doing in comparison to performance projections and the budget. Some KPI can be tracked monthly, while others would be tracked quarterly or on a semester basis depending upon what performance indicators are being tracked or how closely the operation is being monitored.

KPI are often tied to an ‘at risk’ portion of the contractor’s fee. If the contractor does not meet their KPI, they do not receive an agreed portion of their fee. But if they meet their KPI, they receive that portion of their fee plus a bonus. 

The KPI that are utilized in monitoring a contract can be from a wide area range and should be derived based on the contract in place as well as the areas that are of most importance to the success of the dining program/organization. It is important to also limit the KPI that will help your dining program/organization to achieve its goals. KPI should be set for each dining operation as well as for the entire dining program. Without setting standards or boundaries, some examples of basic KPI include: 

Sales
 Daily Sales – Measures daily sales
 Average Check – Measures sales divided by customer count
 Revenue per Employee/Student – Measures sales divided by building population or student population
 Revenue per Square Feet – Measures sales divided by facility square footage

Participation
 Daily Transactions – Measures daily number of transactions for comparison by day, week, month, year
 Capture Rate – Customer count divided by building/student population

Productivity
 Transactions per Labor Hour – Measures transactions divided by total labor hours
 Labor Cost Percentage – Labor cost as a percentage of sales

Cost Management
 Food & Beverage Cost Percentage – Food & beverage cost as a percentage of sales
 Food & Beverage Cost per Meal Served – Food & beverage cost divided by the numbers of meals served
 Subsidy per Employee/Student – Subsidy divided by building/student population

Customer Satisfaction
 Food Quality – Food quality survey score
 Price/Value – Price/value survey score
 Food Variety – Food variety survey score
 Speed of Service – Speed of service survey score
 Queue Times – Time customer spends in line 
 Equipment – No equipment failure that affects the customer for more than 24 hours

Marketing
 Implementation of Marketing Plan Action Item (this would be a specific marking imitative)
 Implementation of Marketing Plan Action Item  (this would be a specific marking imitative)
 Secret Shopper – positive report (or minimum rating score) from secret shopper
 Website Matches Menus 100%

Operations
 Managers Visible – Managers visible to customers during meal periods
 Daily Special – Daily special advertised description with cost
 Daily Healthy Item – daily healthy item advertised description with cost
   
Once an area of measurement has been identified, the KPI goal must be set. When setting the goal, it is important to clearly define the goal and any parameters for measurement. For example: 

A poorly defined goal: Decrease the customer wait time.

A better defined goal: Decrease the customer wait time at the cashier station to less than 60 seconds. Time records to be taken during peak half hour for lunch and dinner. A five-day average for lunch and a five-day average for dinner will be taken to obtain the measurement. Averages to be calculated and reported weekly.  
 
Once you have identified and limited the KPI that will contribute to the goals of your dining program/organization, you’ve developed clearly defined Key Performance Indicators and their measurements. What do you do now? You use the measurements from the KPI as a management tool and as an incentive. 

The KPI give everyone involved a clear picture of the goals and how near or far the contractor is from those goals. It is important to establish a timeframe to obtain these goals, and it is now the contractor’s responsibility to meet those goals.  Offering an incentive is a great motivator for any operator. It would be ideal if the incentive could be built into the contract as either a true incentive or as an "at risk" portion of the contractor’s fee. When using an "at risk" portion of the fee, each KPI should represent a percentage of that total "at risk" fee and a defined timeframe must be determined. If there are five KPI identified and each KPI is equally weighted, then each KPI would be worth 20 percent of the "at risk" fee for the determined timeframe, which could be quarterly as an example. 

Once you obtain the KPI data, what do you do with it? Place each KPI and the results from multiple dates on a line and see if there is a trend, either positive or negative. If it is a positive trend then the contractor is going a good job. If they have met their KPI goal, then they should be rewarded with a predetermined incentive or obtain a percentage of the "at risk" fee. If the trend is negative, then it would be appropriate to have a direct discussion with your contractor on how they plan to address the problem and the timeframe for action and results. 

Having the KPI data will also allow you to benchmark your contractor’s performance against industry averages and other dining programs. This will be particularly important if you are new to KPI and do not have much historical data.