Restaurant operating expenses: How to boost your bottom line

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Running a successful restaurant requires more than delicious food and great guest experiences. Behind the scenes, it’s a constant battle to manage restaurant operating expenses and maximize profit margins.

This guide will break down the biggest expenses and offer practical strategies to optimize spending without compromising food quality or customer experiences.

The 3 categories of restaurant operating expenses

Restaurant expenses typically fall into three categories: fixed costs, variable costs, and semi-variable costs. Let’s examine each to better understand your day-to-day financial obligations.

1. Fixed costs

These expenses remain constant regardless of your restaurant’s sales volume:

• Rent or mortgage payments
• Kitchen equipment leases or purchases
• Insurance premiums, such as property, liability, workers’ compensation
• License fees and permits

2. Variable costs

These expenses fluctuate directly with your business volume:

• Food costs
• Beverage costs
• Disposable items, such as takeout containers and napkins
• Credit card processing fees

3. Semi-variable costs

These costs have both fixed and variable components:

• Total labor costs
• Utility costs (vary based on usage and seasonality)
• Marketing costs

What are the largest restaurant operating expenses?

The largest expenses for a restaurant are typically labor costs, food and beverage costs, and restaurant tech. Let’s take a closer look at each one.

Labor costs

Labor costs are the single largest operating expense for most restaurants, according to the National Restaurant Association. These costs include payroll and payroll taxes, employee health care and other benefits, and workers’ compensation.  A 2025 report from The James Beard Foundation shows that 59% of restaurant owners consider rising labor costs their biggest challenge.

Food and beverage costs

Food and beverage costs are all the ingredients that go into making your dishes or all the food products: everything from meat and vegetables to spices and soft drinks. Since they’re central to your business, food and beverage costs will have a significant impact on restaurant operating expenses.

Occupancy Costs

Whether you rent or own your space, costs associated with occupying your restaurant will account for a large percentage of your operating expenses. Expenses like rent, mortgage, utilities, property taxes, and property maintenance are all considered operating costs.

Strategies to reduce your restaurant operating costs

Grouping expenses into categories, like those listed above, can help restaurateurs identify areas for cost cutting. Let’s explore a few ways to reduce restaurant operating costs to strengthen profit margins and streamline restaurant operations.

How to control labor costs

Controlling labor costs doesn’t mean cutting down on staff. After all, 47-64% of customers say “their dining experience is more important than the price of the meal.” Your team members are the ones who create that experience for your guests.

Look for ways to support your team so they can spend their time providing top-notch service and generating more profits. The right tech and initiatives can help.

1. Implement scheduling software: Scheduling can be a time-intensive task, but modern scheduling tools can streamline it. Scheduling software matches staffing levels to anticipated demand to prevent overstaffing during slow periods. It can also assist with cost tracking and compliance with labor laws and break requirements.
2. Cross-train your team: Cross-training provides managers with flexibility and provides the staff with insights into other roles, empowering them to help out during peak hours. This improves your labor cost percentage while providing development opportunities for your team.
3. Focus on employee retention: Staff turnover is expensive. The cost of recruiting, hiring, and training new staff is substantial. Restaurateurs can create a positive work environment and encourage retention by offering competitive wages, providing proper training, and offering growth opportunities. In fact, providing career advancement opportunities could make retention by 3.5 times less difficult, according to the James Beard Foundation.
4. Automate where possible: There are many ways restaurants can automate day-to-day tasks and free up employees to focus on guest experiences. For example, use front-of-house tools like Yelp Kiosk and Yelp Guest Manager  to automate the check-in process, offer online reservations, and improve cover flow and table management.

How to reduce food and beverage costs

Reducing food and beverage costs doesn’t mean you have to buy cheaper, lower-quality ingredients. Customers love your food, and you don’t want to mess with success. Here are some other ways you can reduce your food-related costs instead:

1. Implement smart inventory management: Many restaurant management systems now include inventory tracking functionality that connects to your POS system. These tools can track ingredient usage in real time and reorder ingredients when supplies are low, resulting in reduced food waste and automated inventory management.
2. Analyze menu pricing: Run food cost percentage calculations to analyze which items are providing profitable margins and which items may need to be repriced. Tools like the James Beard Foundation’s Activity Based Costing Accounting Method Curriculum can help with menu pricing.
3. Monitor and reduce food waste: Keep track of what’s being thrown away or spoiling. Use that data to train staff on proper storage techniques, incorporate leftover ingredients into daily specials, or adjust portion sizes.
4. Engineer your menu: Menu layout and flow are essential to attracting customers’ focus to the most profitable menu items. By placing high-profit items in prominent positions on your menu, guests are more apt to order dishes that generate larger profits.

How to optimize occupancy costs

As a rule of thumb, occupancy costs should be 6-10% of gross sales. If you’re already within that range, you may be better off exploring the reduction options above or finding other areas where you can trim restaurant operating expenses, such as within your marketing budget.

However, if occupancy costs are higher than they should be, here are ways you may be able to lower or offset them:

1. Evaluate lease terms/mortgage rates: Conduct a lease audit to ensure all charges are in line with your lease agreement. When the lease is ready for renewal, take time to work with your landlord to renegotiate for a potentially lower rate or additional concessions like rent-free periods or reduced annual increases. If you own your property, reevaluate your mortgage rate to reduce your monthly payment.
2. Enhance energy efficiency: Investing in energy-efficient appliances and sustainable products like LED lighting and low-flow faucets are upfront costs that can have a positive impact on your monthly expenses. Also, having routine maintenance performed on your HVAC systems and kitchen equipment can help ensure they are running efficiently and saving money.
3. Perform regular property tax reviews: Consider appealing the valuation of your property if you think the property is overvalued. A property tax assessment is free and can save money if the property is overvalued.
4. Look for growth opportunities to offset the cost: In 2024, 85% of restaurants tested changes to their business model, including alternative revenue streams. Are there other revenue streams that can offset your occupancy costs? Consider subleasing part of your kitchen space to another business, hosting a pop-up event, having a booth at community events, or offering catering.

Create a cost management tracking standard

Developing a standardized approach to expense management can help you stay on track. It is crucial to conduct periodic reviews of all restaurant expenses:

• A weekly review of labor costs can keep restaurant owners and managers in tune with staffing and identify trends.
• A bi-weekly food analysis helps track waste and plan for food and supply ordering.
• A monthly review of all fixed costs can identify issues to address, like food supplier negotiations, technology needs, and overstaffing.

Data collected throughout the weeks and months should be given a deep analysis on a quarterly basis. This analysis can help develop strategies for improvement.

For further guidance on how to gauge financial performance, consider a tool like the National Restaurant Association’s Restaurant Operations Data Abstract. It can help you find cost discrepancies, streamline operations, and benchmark your performance against peers.

Use tech to reduce costs and better serve guests

Diving into business finances can be intimidating at times, but it is a necessary and worthwhile task. The most successful restaurant owners develop systems to regularly monitor and adjust their spending while staying focused on exceptional customer experiences and a positive work environment for their staff. By understanding your cost structure and implementing targeted strategies to reduce operating expenses, you can build a restaurant business that’s financially sustainable.

Yelp has many features that can help automate your business, resulting in reduced expenses. Book a demo today to see how Yelp Guest Manager can streamline your front-of-house operations with table, reservation, and waitlist management features.