“A penny saved is a penny earned” couldn’t ring more true than in the restaurant industry. On average, the net profit margin is 5%-15%. That’s tight. Why? Because COGS (cost of goods sold) is high: the payroll, rent, utilities, credit fees, and food add up.
Here’s 10 tips on how you can reduce the cost of running your restaurant and, ultimately, increase your bottom line.
Operations Cost Savings
1. Stop Wasting Food
The average restaurant wastes up to 75,000 pounds of food annually. With food being one of the biggest variable costs in running a restaurant, making the best use of it can maximize your margins. One way to do this is by planning. Your chef should have a detailed prep list — what ingredients they need, how much, and when — every day. Adjusting weekly trends from your POS (point-of-sale) data can help make estimates strong and reliable. In addition, have the kitchen and wait staff abide by the “first in, first out” principle. Clearly label containers and stack items like a grocery store, putting the old in the front and the new in the back.
2. Turn It Off
Utility costs average between 2.5-4.5% of overall sales. We live in a time of smart houses and smart kitchens. Take advantage of it. Most commercial thermostats have times that give you control. You can set a schedule for heating and cooling to coincide with your hours. Another quick fix? Turn off the burners, fryers, and ovens when your staff isn’t using them.
3. Buy Used
The restaurant business has a relatively high failure rate: take advantage of it. New equipment loses value like a new car driving off of the lot. When it comes to buying big, industrial items, buying used is buying smart. Vetted equipment sites like BOE is a great resource for used tools and appliances.
4. Go Digital
Introducing...tablets! Using digital menus and receipts save you money in overhead for those receipt rolls. It can also save you labor costs; going digital with your cash register allows you to easily track credit transactions and waiter tips without wading through the physical receipts. A bonus? Customers love it. 73% of diners agree that technology elevates their restaurant experience.
Labor Cost Savings
5. Track Employee Hours
One of the biggest costs of a restaurant is the people: the bussers, the hostesses, the waitresses, the chefs, the managers. It’s the payroll. Overtime is one of the fastest ways costs add up. Holidays and busy times can cause miscalculations in payment that can cost you money. Hiring a manager to track schedules and instill employee clock enforcements can help save money and keep employees from racking up too many unauthorized hours. Additionally, hiring an accountant or purchasing software to manage Holiday Pay and other unique circumstances can streamline the process and minimize human errors.
6. Schedule Smarter
The restaurant business is not repetitive, so neither should be your employee schedule. Use your POS system to learn when—throughout the day, week, month, and year—your restaurant is busiest and when it’s not. Make adjustments to your weekly template to fit the restaurant's needs. Every week, create a labor schedule based on estimated sales and customer counts. This can boost your bottom line and your staff’s morale. Overcrowded shifts can cause employees to get lower tables and fewer tips, and fewer tips means unhappy employees. With employee retention at a low 60% in the industry and an average annual cost is around $146,600 due to training (and training and training), improving employee retention can cut costs. A stagnant schedule will mean higher upfront (and hidden) costs.
7. Be Transparent with Employees
A common practice in restaurants is to count the money each night to square up the cash in the register with the receipts. Don’t make it about theft, make it about procedure; clarify with your employees that you trust them, but it’s necessary for your account book. No one wants to work under “Big Brother.” If employees feel on edge at work, they will be more likely to leave (hello employee retention again!)
Marketing Cost Savings
8. Get Social
You can thank the millennial generation for this one. A very cost-effective way to generate a buzz about your restaurant is through social media. Instagram social influencers for the restaurant industry are not a scarcity, and their fees—at $271/post on average—are lower than traditional marketing like billboards or print. They also have the young, trend-setting audience that can help increase the word-of-mouth of your restaurant. Investing in social platforms—Facebook, Instagram, Twitter, and Google—over the more traditional methods can be a cheap way to boost your food’s cool factor and drive traffic.
9. Make Friends
Building relationships with other local businesses is a great way to get free marketing (and potentially more customers). Partner with neighborhood businesses to co-advertise each other. Build business by building community. An easy way to do this is by offering to place business cards at your cash register in exchange for a poster in their lobby. It’s a win, win situation.
10. Be Creative
Marketing doesn’t have to mean commercials or ads. Rather it means experiences and engagements. For example, a way to engage your local radio station is to offer interviews with your chef for a weekly or monthly interview program. You give them programming and they give you free sponsored content. Again, it’s a win, win! Or you can engage your foot traffic guests by putting out a sidewalk easel with a quirky message. They'll have an idea of your restaurant's vibe before they even walk through the door.