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How to Manage, Control, and Reduce Costs in a Restaurant

December 16, 2020
Table of Contents

Those in the restaurant industry are familiar with the oft-repeated stat:

Nearly 60% of restaurants fail within the first year, and 80% go under within their first five years.

Restaurant failure rates are high, there’s no two ways about it. So how do you give your business the best chance to succeed?

Sure, you can fall back on well-worn strategies like “offer great customer service,” or “try to increase check size.” But sometimes those strategies aren’t enough.

In addition to learning how to increase restaurant sales, consider your cost drivers. Cost drivers include the expenses that cut into your bottom line. They’re usually lumped into three groups: food costs, labor costs, and operational costs.

Learn how to manage costs for a restaurant business, and you’ll learn how to increase your restaurant profit margin.

How to Reduce Cost In a Restaurant: Labor Costs

Forecast Sales and Schedule Strategically

Your staff schedule should be directly tied to forecasted traffic and sales volume. Always. If it’s not, you’re missing the single easiest opportunity to reduce labor costs. If you've looked at restaurant marketing plan examples, you'll know that it's easy to predict waves of traffic from promotions.

There are a lot of inventory management and sales forecasting tools out there for hospitality businesses. BinWise Pro being one of the industry leaders in leveraging historical sales and purchasing data for sales forecasting. 

But the important part here is not to start copying and pasting your staff schedule week after week. Your weeks won’t be the same, and your schedule shouldn’t be the same.

When your labor costs make up a third of all costs, it makes sense to minimize them. After all, a single percentage in labor cost savings can equate to around $800 a month in savings for the average full-service restaurant.

And when your forecasts don’t pan out and you’ve got a bunch of servers standing around waiting to be cut, just cut ‘em. Your closing servers will be more than happy for the extra sales. They’ve gotta be there anyway.

Tie Bonuses to Labor Cost, not Sales

Try incentivizing management to meet labor cost goals instead of sales goals. If they’re able to avoid paying overtime and run at an optimized labor cost. All while driving adequate revenue? Maybe they should get a little something extra.

Hire the Right People

This is the most obvious but hardest to get right. You must hire the right restaurant and bar staff.

So what is “right”? Who are these mythical people?

That depends on your bar or restaurant. But as the hiring manager or proprietor, you know the culture you want for your restaurant. You know what personalities will mesh well with the existing employees.

There’s no hard-and-fast rule here. You’ve got to hire the best people you can. And ferreting those out of the woodwork is what makes a good bar manager a good bar manager.

But here’s a tip:

Don’t put too high a premium on experience. People can be trained. Positivity and enthusiasm are worth five times more. Because they can’t be taught.

Hire bright-eyed folks who are actually happy to walk into work and invest in them with training. They'll save you on overhead expenses in the long run.

How to Control Costs in a Restaurant: Food Costs

Use a Food Cost Calculator  👈

We’ve got an entire post 👆 written about calculating and lowering food cost, and you should check it out. It’s detailed and has a bunch of actionable information.

Use a Pour Cost Calculator 👈

We’ve got another post 👆 about calculating and lowering pour cost, too! Click through, give it a read, and try to do what it says. You’ll save a lot of money on your beverage program.

How to Manage Costs in a Restaurant: Operational Costs

Implement a VoC Program

VoC stands for Voice of Customer. It helps restaurants listen to what customers have to say about a business and implement changes based on it. 

And while it obviously has implications for customer satisfaction in the restaurant industry, it can be used to reduce operational costs, too.

The right VoC program excites staff about providing excellent service. If an employee receives positive feedback, they’re rewarded. Doing so not only encourages the right behavior, but it’s been shown to lower employee turnover, too.

A VoC program also helps allocate training to the most impactful areas. By reviewing customer feedback, operators can assign training programs on the operational aspects with the biggest areas of opportunity. That means you save time and money on unnecessarily providing comprehensive training too often. Shorter, more precise operational education will make the biggest impact fastest.

Reduce Energy Usage

While residential customers are experiencing the first declining electricity costs in over a decade, restaurant energy costs continue to surge on.

Why? Restaurants are wiring up. As more and more restaurant operations become automated, it makes sense that we have more things plugged in.

So, what’s an operator to do? The first order of business is to tackle the low-hanging fruit, like replacing conventional bulbs with LED bulbs and setting up smart thermostats.

Consider switching to energy-efficient kitchen equipment that, while costly at first, will pay you back via energy-cost savings in the long run. ENERGY STAR, a government-backed energy conservation organization, has an entire resource dedicated to energy-efficient commercial food service equipment.

Then go through this energy conservation checklist:

  • Keep a regular cleaning and maintenance schedule
  • Check seals and gaskets often
  • Clean refrigerator condenser coils
  • Shut off unused equipment
  • Use OEM commercial kitchen parts

Drive a Hard Rent Bargain

An average commercial price per square foot is around $30 in the U.S. $50 in the big cities. So it’s important to keep an eye on your rent or lease to make sure you aren’t forced into closure with a space you can no longer afford.

The best thing you can do? Be prepared. When negotiating a new lease or space, be crystal clear on what is included. Like what the terms are and what your escape clauses look like. Once you are locked into an agreement, getting out can be difficult and costly.

Worrying about skyrocketing rent? If your lease permits it, consider subletting your space. A sublet is a great option if you can spare the room and are looking for another way to cover your costs.

These are just a few of the ideas that you can implement in your restaurant operation. They’ll help control runaway cost drivers and firm up your restaurant’s bottom line.

Get Those Costs Outta Here

“Do better” is classic and terrible advice that a lot of people get on the internet when asking for help. And that’s what a lot of tips about increasing restaurant and bar profitability amount to.

Sell more.

Have better food.

“Great, anyone care to tell me how?” you ask.

But the great thing about lowering costs is that it’s actionable. (Actually, our How to Upsell post is actionable, too.) And it does the same thing as increasing sales: it generates more profit.

Instead of focusing on getting unsustainably bigger, try cleaning up your business around the margins, running lean, and being strategic.

That stuff adds up, believe it.