Getting your restaurant expenses under control will not only show you how to save money as a restaurant owner but will help you make your marginal operations more profitable. According to the Restaurant Resource Group the restaurant industry has some of the smallest profit margins of any business with only 4 to 7 percent. Food and labor costs play a role in any restaurant’s success and failure. Developing cost cutting techniques for restaurants are some of the big responsibilities that an owner has. Restaurant owners who manage their expenses can prevent themselves from overspending on staff, supplies and items without compromising on the quality of service and food.
Controlling food costs in restaurants is essential to the success and even survival of the business itself. Removing certain items from a menu and/or reformulating a recipe to omit a few ingredients can save you thousands of dollars. Although some of the best ways to improve margins and increase sales may entail purchasing high margin products such as commercial furniture and other indispensable restaurant equipment; many of which you can lease. When is a good time to make various cutbacks on expenses? Should you ignore costs when business is reaching its highest peak? Or should you wait until warning signals of a low sales point become transparent? There is never a good or a bad time to start contemplating about various cost reduction strategies in restaurants. A cost cutting analysis should always be in development and no postponed till your business is hanging on a thread. In fact, many restaurants are having a head start in deploying cost cutting strategies even before announcing their grand opening. If your business is currently operational, it’s never too late for you to learn how to reduce expenses in a restaurant. One of the key elements in protecting your restaurant is not to wait till your business is tanking to plug even the slightest leakage in profits.
No business is lacking expenses, especially when searching for alternatives to save money. It really depends on the restaurant itself and the effects of cutting costs have on the business. Reducing business hours, scaling back operations, closing certain parts of a restaurant such as a bar, or going dark when business reaches a standstill are several ways to reduce fixed costs. Restaurateurs can compensate for slow periods affected by various seasonal factors through limiting hours of service, reducing employees, or (temporarily) cutting salaries till sales improve. Cost cutting techniques for restaurants to use are:
- Keep track of utility charge and changing providers to reduce expenses if need be.
- Replacing HVAC system with humidifiers and dehumidifiers which require less energy and make the facility more comfortable for patrons.
- (Re)Negotiating contracts and prices with your consultants, suppliers, and landlord.
- Training your staff to perform multiple tasks.
- Monitoring when employees sign in and out before and after their shifts.
- Examining food costs regularly and downsizing menus to only feature the most profitable dishes.
- Avoid interest fees by paying with cash
- Cutting laundry expenses by doing laundry in-house rather than using a laundry service.
- Using facilities before or after hours to generate additional revenue by holding cooking classes, renting your kitchen to caterers, or hosting private events.
- Changing insurers or install a security system to reduce insurance costs and premiums
- Using free technology to promote your restaurant
Unfortunately, restaurants lose approximately 4 percent from their total sales to theft and food waste. Most of this percentage comes from staff stealing but primarily from servers who do not ring up orders made for their friends. Managers should reaffirm the company’s policy on theft as well as its consequences to employees and take security measures to install cameras. They should also tighten their grips on cash handling procedures by having a cashier ring up sales and issue receipts rather than allowing a waiter to handle the entire process.
In addition to preventing theft, using ordering, inventory and security techniques can reduce food waste. You can best prepare yourself for sales peaks and valleys by tracking monthly and annual traffic to better project demand. Record the number and reasons for returned dishes during service to determine if the problem lies with a particular cook or whether if these dishes need to be removed from the menu altogether. While buying in bulk can save you money, it can also lead to food waste especially when it spoils from not being used. Coordinate with your suppliers to receive orders in multiple shipments. Ask your servers to check each dish against the corresponding ticket to prevent them from misunderstanding orders and serving the wrong dish to customers.
POS systems can help restaurant managers cut variable costs in the simplest way by helping them identify waste, detect theft, keep tighter inventories, reducing kitchen mistakes, and providing them with multiple strategies to cut food costs. Below are some of the best practices for reducing variable costs:
- Monitoring expenses
- Adapting frugal habits
- Retrain staff periodically
- Taking advantage of free publicity
- Avoiding overstaffing
Costs change at a rapid pace behooving managers to review their expenses regularly. Monitoring expenses will help them determine areas they need to cut costs. The most ordered items on the menu can become less profitable in a short matter of time due to price hikes so regulating menu costs is crucial. Theft and waste often go undetected causing profits to plummet. POS systems keep managers alert and aware of the problems and make adjustments when needed.
Sadly, restaurants waste thousands of dollars by giving customers more than what they ordered – condiments in particular. They can instead try self-packing condiments in bulk and ask customers how many packets they need or providing extras upon request.
Veteran employees become careless overtime and forget their training. You can monitor employee performance by scheduling evaluations and reviews, providing remedial training when necessary, and introducing them to new cost cutting techniques.
Restaurant loyalty programs, social media channels, and free blogs can be used to promote your restaurant and reduce advertisement costs at the same time. Reward customers for promoting your business by spreading the good word. Explore current advertising options to find which tool is more effective.
Managers can increase their profit margins by reducing labor costs. Over staffing will have the opposite result. Labor costs are high up on the list of restaurant expenses. Furthermore, recruiting more staff doesn’t always eliminate problems nor does it make service run more smoothly. Cross training your most competent employees will allow you to schedule fewer staff while maintaining your standards in quality of service.