Controlling Expenses in Restaurants

Getting a handle on restaurant expenses helps to make marginal operations more profitable and often prevents closing the doors. Regardless of restaurant, restaurateurs rewrite business plans, change suppliers, overhaul menus and downsize to make restaurants profitable. Even chain operations change their focus, and many restaurants have borrowed from Subway’s business plan of operating with minimal overhead and payroll costs. Restaurateurs might have noticed that several fast food chains have remodeled to reduce square footage to save on utilities and maintenance.

Controlling the Uncontrollable

No restaurant expense is untouchable when searching for ways to save money. It all depends on the restaurant and the effects of cutting costs. Reducing hours, going dark on slow days, closing parts of a restaurant or scaling back operations can reduce fixed costs. Restaurant managers can compensate for seasonal slow periods by limiting hours, reducing staff or cutting salaries until sales improve. Strategies for reducing even fixed costs include:

  • Staying on top of utility charges and changing providers to generate savings
  • Using humidifiers and dehumidifiers to make interiors more comfortable with less energy instead of relying on HVAC system
  • Renegotiating contracts and prices with suppliers, landlords and consultants
  • Training staff members to multitask
  • Monitoring when workers clock-in and clock-out after each shift
  • Reviewing food costs and downsizing menus to include only the most profitable items
  • Using facilities after hours to generate alternative revenue with such strategies as holding cooking classes, private parties or renting kitchens to caterers
  • Paying cash for items instead of paying interest
  • Reducing insurance costs by changing insurers or installing security or sprinkler systems to reduce premiums
  • Determining banking fees and reducing them by maintaining certain minimum balances
  • Taking advantage of free technologies to replace paid services
  • Cutting laundry expenses by doing laundry in-house
  • Negotiating lower payments on leased equipment

Variable Costs Offer Simpler Ways to Cut Costs

Restaurant managers can cut variable costs by using POS systems to identify waste and theft, keeping tighter inventories, reducing kitchen errors and cutting food costs through multiple strategies. For example, mixing high-cost and low-cost ingredients in any recipe is a bad idea. Best practices for reducing variable costs include:

  1. Monitoring Costs
    Costs change rapidly, so managers need to review costs regularly to determine areas to cut costs. Formerly profitable menu items can quickly become less profitable due to price increases, so regular costing of menu items is essential. Waste and theft often diminish restaurant profits and go undetected. Software and POS systems help managers stay on spot problems and make adjustments when necessary.
  2. Maintaining Frugal Habits
    Restaurants waste money by giving customers more than they ask for—especially condiments to go. Try self-packing bulk condiments, asking customers how many packets they want or providing extras only on request.
  3. Retrain Periodically
    Long-term employees become careless or forget their training. Monitor employee performance by scheduling reviews, requiring remedial training when needed and teaching employees new cost-cutting techniques.
  4. Take Advantage of Free Publicity
    Try using restaurant loyalty programs, social media forums and free blogs to promote specials and reduce advertising costs. Encourage customers to promote the restaurant by word-of-mouth to earn rewards. Analyze current advertising to find out what works best and cut ineffective advertising from the budget.
  5. Avoid Overstaffing
    Managers can avoid overstaffing and reduce labor costs while increasing profits. Labor costs are one of a restaurant’s highest expenses, and adding extra people doesn’t always eliminate problems or make service go more smoothly. Cross-training the most efficient people allows managers to schedule fewer workers while maintaining quality standards.

Instituting and reviewing an annual budget throughout the year allows managers to determine when costs have become unsustainable. Quick action can limit loss, strengthen operations and keep restaurants in business when competitors close. Nothing evolves as rapidly or generates as many pitfalls as restaurant costs, but controlling expenses provides the best chance for business success.