6 categories to audit for better restaurant cost control

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The restaurant industry is famous for tight profit margins, largely due to high overhead and numerous additional operating expenses. So, saving money wherever possible is crucial to improving a restaurant’s bottom line and ensuring a business remains profitable. With rising prices all over the place, including labor costs and food costs, restaurateurs have to get clever in finding ways to navigate a changing marketplace. Finding workable ways to implement a solid restaurant cost control plan is not optional—it’s a must.

Fortunately, there are a number of places restaurant owners can look to cut down on unnecessary costs. Smart restaurant management practices can make the difference between just scraping by and thriving. So, let’s look at some ways to implement restaurant cost savings that are workable and can be done right now.

To get a clear picture of what areas can be targeted by restaurant businesses for savings, consider breaking down the big picture into smaller bits. These targeted cost-saving areas include:

1. Labor costs
2. Food costs
3. Utilities
4. Taxes
5. Equipment and maintenance
6. Restaurant software and POS systems

Let’s break these 6 factors down so you can work toward being more profitable.

Labor costs

Hiring and retaining good staff is one of the trickiest parts of restaurant operations. But since running a restaurant is very much a team sport, ensuring your staff are both skilled at their jobs and working well together is critical to a restaurant’s success. Unfortunately, the restaurant industry is notorious for high turnover, with rates around 70% in many cases and north of 120% in quick-service restaurants, according to Cornell. Rising minimum wages will push up labor costs for restaurant owners, who may find themselves in a pinch, especially if staff ditch your establishment for one that pays better.

Meanwhile, hiring and training new staff can cost $6,000 per staff member, according to Cornell.

So, while the average labor cost of 30% of total operating costs for restaurants is a good target to aim for, it often doesn’t take into account training and hiring, as well as overtime paid for workers.

A few takeaways come into focus here:

• Retaining good staff is an excellent way to reduce extraneous labor costs in training and hiring.
• Paying staff as much as possible is the best way to keep them happy.
• Offering perks like staff meals, flexible scheduling, and paid time off can help keep staff morale high and help maintain loyalty.
• Scheduling staff wisely can help reduce labor costs by not overstaffing on less-than-busy days.

Generally speaking, if you find your labor costs are in the 30% ballpark, you’ll be doing OK. But if you find yourself significantly over that, you’ll either need to cut shifts or reduce headcount.

Restaurant food costs

Keeping a lid on your food costs is a key way to reduce your overall expenditures and boost your profits. We’ve gone into detail on food cost percentage and strategies to reduce food costs, but it bears discussion here as well.

First, you’ll want to take a good look at your menu items and know them backwards and forwards. For example, knowing the cost of goods sold (COGS) in each dish can give you an idea of which dishes are your most and least profitable. A good rule of thumb is that the menu price of a dish should be on average three times the cost of the recipe cost, though there’s some wiggle room for loss leaders and other strategies.

To get a hold of food cost control, you’ll want to ensure you’re not spending too much on ingredients. Here are a few strategies to manage food costs:

• Keep your menu small to help with inventory management and reduce food waste, as ballooning inventories inevitably lead to spoilage.
• Pay close attention to standardized portion sizes to ensure actual food costs don’t go over what you’ve intended.
• Don’t overserve. If you notice customers consistently leaving with leftovers, consider reducing the amount of food you serve.
• Practice smart menu engineering to steer customers towards profitable yet tasty dishes that keep both customers and your pocketbook happy.
• Maintain a first-in, first-out (FIFO) inventory tracking practice, in which ingredients get used in the order they were purchased.
• Get good at forecasting sales to know how much you’ll need to order so you don’t overorder.
• Shop around for restaurant suppliers or local farms for better prices at the wholesale level.
• If your food prices go up, consider re-pricing your menu. Rising costs are everywhere, and customers are unfortunately used to such changes.
• Repurpose excess inventory or low-cost items into specials and advertise them on social media.

If you find that some menu items are consistently out of whack with your ideal food costs or are difficult to manage in terms of portion control, consider streamlining your menu by 86’ing those dishes. Consistently cross-referencing your cost of food with your longitudinal sales data will give you insight into what’s working and what’s not.

Utilities

You’ve got to have the lights on and the water running in a restaurant. That’s non-negotiable. What is negotiable, however, is how you use your electricity and water. One excellent way to reduce utility costs is to switch to energy-efficient appliances like refrigerators, dishwashers, and ovens when possible. Although initial cost outlays may be daunting, if you have enough capital to upgrade your equipment, doing so can save you a bundle in the long term.

Similarly, ensure that waste is minimal by practicing simple things like ensuring lights are off at night, refrigerators and freezers are set correctly, air conditioning or heating are minimized at night, and there are no leaks in water pipes.

Taxes

There are a number of tax benefits and breaks restaurants should absolutely take advantage of. We’ve gone into detail on restaurant tax deductions, but here are some brief takeaways to get the ball rolling on this idea. Ask a tax professional about the following deductions:

• Labor costs
• Operating costs like rent, supplies, utilities, and other must-haves
• Advertising expenses
• Food costs
• Employee meals
• Transportation costs
• Asset purchases and improvements
• Repairs and maintenance
• Charitable donations
• Insurance and professional fees like the services of lawyers and accountants

Be sure to work with a local accountant who knows the ins and outs of tax laws specific to your area, since tax codes can change significantly by location.

Equipment and maintenance

Restaurant equipment can be seriously expensive. Large kitchen equipment items like refrigerators, ovens, dishwashers, ranges, and so on can be one of the biggest costs for a restaurant. Then there’s furniture, silverware, and so on. A restaurant needs a lot of stuff to do its job!

Not all equipment has to be bought brand new, however. Restaurant auctions can be a great way to do some cost-cutting on these large items, as a second-hand range can work just fine. Usually, restaurant auctions take equipment from recently closed food service establishments and resell them significantly cheaper than they can be bought new.

Naturally, buying second-hand comes with its own risks. However, there are plenty of opportunities to pick up top-notch equipment on the cheap if you get lucky. If you’re interested in buying a large piece of equipment, we recommend you take your chef or manager with you for inspections before making a purchase.

Keeping equipment running well is just as important as getting it in the first place. Although it’s often tempting to put off pricey repairs and maintenance, doing so promptly will save money in the long run—since repairing a piece of equipment is almost always cheaper than replacing it. If you hear complaints from your staff about important equipment, don’t delay in repairing it.

Restaurant software and POS systems

Running a modern restaurant well goes much smoother with modern restaurant software. This includes point-of-sale systems as well as front-of-house (FOH) management tools. Going for the best in the business can help make the lives of your staff easier while improving the customer experience, too. So what should you look for?

First, you’ll want an FOH system that pairs with the most popular POS systems out there. Most FOH systems, like Yelp Guest Manager, will do this. But there’s a lot more, too. Yelp Guest Manager makes it easy for customers to make reservations, hop on your waitlist, and check themselves in. It also allows for real-time, two-way communication between your establishment and customers. No-shows on reservations can be a real drag on a restaurant’s bottom line, since they end up losing you business from the customers who made the reservation as well as other would-be customers.

Fortunately, Yelp Guest Manager customers have average no-show rates below 10%.* That can be a game changer for restaurants who have been burned before.

Furthermore, Yelp Guest Manager keeps track of all sorts of benchmarks and sales data, from food sales all the way down to individual menu items, total sales, and plenty of other restaurant accounting features. It also pairs with popular inventory management systems and online ordering platforms that can further boost sales. If you’re looking to streamline your restaurant management software into one easy-to-use package, you couldn’t do much better.

Then there’s the cost. Yelp comes in at a lower cost than both Resy and OpenTable. Yelp Guest Manager starts at a flat fee of $99 with a personal onboarding manager to help you get set up. Compare that to Resy, starting at $249 a month, or OpenTable, at $149 a month plus setup fees. On top of that, Yelp doesn’t charge per cover, whereas OpenTable charges between $1-$1.50 per cover. For busy restaurants, that cover charge can quickly add up.

Look also to ways software can help with automation. Yelp Kiosk, for example, can take the place of a traditional host and let customers check-in and seat themselves, freeing up your hosts’ time and making the dining experience less hassle for customers.

Ready to control those costs?

If all the above sounds like something you’d be interested in, reach out to us for a free demo of Yelp Guest Manager. A successful restaurant has a lot of moving parts, and getting them all in one place can be a godsend for busy restaurateurs.