Restaurant Expenses: How to Manage the 6 Leading Costs

While owning a restaurant might be your dream, it is not always easy. The costs associated with restaurant ownership are plentiful, but whether you’re a new or veteran restaurateur, there are ways to work smarter to lower your costs. How can you keep up with restaurant operating expenses and still make a profit? The key is balance and proper planning. We will walk you through the leading costs for restaurants and how to manage each of them.

Labor Costs            

Labor costs include paying all employees in the restaurant, including servers, hosts, kitchen crew, and management. There are different opinions on how much of your revenue should go toward labor, but a good rule of thumb is to keep it under 30 percent.

Restaurants almost always have slow periods of the year—often during holidays and during the winter months. You can track those peak times of business through data analytics. Take care to account for any unusual circumstances as the raw statistics may not reflect the state of affairs in the world. To keep the labor costs less than 30 percent of your total revenue, adjust your staffing to fit the needs of your business during those times. By refining the amount of labor in your restaurant, you’re also optimizing your bottom line. In addition to this, you may want to utilize technology that will help you create better schedules and a more efficient kitchen, eliminating excess labor.

Goods Sold

The cost of goods sold includes all food and beverage sold at your restaurant. Try to keep this under one-third of your total revenue by utilizing the following methods:

• Labeling items by date and using older items first
• Comparison shopping
• Adjusting your menu to include dishes that use many of the same ingredients
• Not overstocking items
• Eliminating low-performing menu items

One of the critical factors in reducing the money spent on goods is food waste management. The less you waste, the more you typically save.

Paper Goods

Filed under administrative costs, office supplies like paper can add up quickly. When restaurants choose to print tickets rather than utilizing technology like kitchen display or table management systems, it can be the initial cost saving that is quickly eaten up by replacing paper and ink.

Besides, kitchen printers aren’t able to more efficiently organize the kitchen, including the coursing of meals and routing items to the right place. Transitioning from paper to more adaptive technology can do more than lower the cost of paper—it can affect a host of other areas.

Occupancy                    

Occupancy expenses are the rent, property taxes, and utilities you pay for hosting your restaurant. Location is a big consideration when opening any restaurant—buildings with higher foot traffic may be much more expensive, and it’s up to you to decide how worthwhile it is to pay the extra costs associated with prime real estate. You should give this particular operating expense a lot of thought as it can potentially make or break your restaurant.

Marketing

Marketing includes anything a restaurant uses to get guests through the door, including:

• Ads
• Social media presence
• Reservation and waitlist apps

There are several marketing techniques that your restaurant can use to boost your community and online presence. An accessible way to market is through social media, which you can manage through scheduling tools without the need to hire new staff.

Technology

Choosing restaurant technology requires careful consideration. You can measure your traffic to help determine what type of technological solutions you might need in your restaurant. When you read technology, you might think about kitchen appliances or the other tech that goes into the general operation of any business. Restaurant technology though is typically one of the following: 

• Kitchen Display System (KDS)
• Point of Sale (POS)
• Guest Management Platform

A kitchen display system is the heart of your restaurant, an order management system that connects your front and back-of-house. A KDS lowers table turns through intuitive order routing and replaces the need for paper tickets. The coronavirus pandemic has illustrated the need for off-premise options, so consider a KDS that integrates with other systems and provides opportunities for efficient delivery routing. 

When it comes to restaurant reservation systems, take a look at both the flat rate per month and the guest rate. If you’re paying up to a dollar per guest seated using the app, consider changing to something more budget-friendly. For POS platforms, make sure that whatever you get correctly integrates with the rest of your tech stack. You might also consider researching which POS has the best API, which is how third-party delivery services and your business often interact. 

Managing Costs During a Pandemic

Before we go, let’s address the elephant in the room: the impact of COVID-19 on the industry. The coronavirus pandemic has demonstrated that you never know what tomorrow holds, but that planning now can help you later. 

• Labor Costs: These costs are likely at a minimum right now, as on-premise dining has been barred to curb the spread of COVID-19. Still, this decrease in traffic and the subsequent hit to your labor is an ideal time to evaluate your overall staffing needs
• Occupancy: Some restaurateurs speculate that the guests of tomorrow may want more room between guests, lowering your overall table count. Take that into consideration as well when determining your overall costs, whether that’s in establishing a new restaurant or enhancing an existing operation.
• Marketing: While it may not seem like it, restaurant marketing has proven invaluable under the COVID-19 pandemic.

If you’re struggling, feel free to use our COVID-19 resources page for information on how you can get help as soon as possible. 

Conclusion

Managing your restaurant’s expenses may seem like a lot to juggle, but it is essential to keep a thriving business. Take time to consider each operating expense and evaluate how to manage each of them.  Keep these tips in mind, whether you’re restarting your business, working to stay above water now, or opening up a fresh concept in the future. 

Editor’s note: This post was originally published on May 1, 2020, and has been updated for accuracy, relevance, and comprehensiveness. Subscribe to the blog for more interesting restaurant content!

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About the Author

Emily Wimpsett was a Content & Social Media Specialist at QSR Automations. Emily was born and raised in Louisville but considers herself a die-hard University of Kentucky fan. For college, Emily attended Indiana University Southeast and obtained a degree in Communications with a track in Advertising. In her free time, Emily enjoys just about every water-related activity, but she is partial to kayaking and whitewater rafting.