Managing the financial aspect of your restaurant is critical for your success. With rising and varied operating costs, cost reduction becomes a key issue that requires regular evaluation and management. Doing so can ensure a sustainable and profitable business.
Restaurant and coffee shop owners face a significant challenge: maintaining the quality of food and service while reducing costs, all without compromising on quality or customer satisfaction.
If a restaurant succeeds in reducing its costs, it can reinvest its savings to improve service quality.
With tech advancements and a growing reliance on restaurant management systems, restaurants and cafes can easily reduce waste and theft via modern point-of-sale (POS) systems and inventory management systems.
In this article, we will explore what financial management is and identify the largest areas of spending. We’ll also explore 7 effective strategies for reducing operating costs for restaurants.
What is financial management in restaurants?
Financial management in restaurants refers to the processes involved in planning, organizing, controlling, and directing all financial resources in a dining concept. This encompasses tracking revenues and expenses, managing cash flows, setting budgets, and analyzing financial performance through accounting reports.
The primary goal of financial management is to ensure long-term profitability and sustainability. By making informed decisions based on accurate data and forecasts, restaurants can improve operational efficiency and deliver greater value to their customers.
What are the biggest Restaurant Operating Costs?
Restaurants have lots of expenses. Often, a significant portion of their revenue is allocated to covering basic operating costs.
Here are the major sources of expenditure for restaurants:
Cost of consumables and food ingredients
Consumables include expenses related to purchasing all food items, beverages, and other essential ingredients needed to run a successful coffee shop or restaurant.
These costs account for approximately 25% to 35% of total revenue. The exact percentage can vary based on the size and type of restaurant and the effectiveness of expense management.
Employee wages
Employee wages and salaries represent the second-largest expense for restaurants and cafés. They can significantly impact the quality of service provided and often increase during expansion or peak seasons.
These expenses include basic salaries, allowances, bonuses, and social insurance for employees across all teams.
In many cases, these costs can account for 30% or more of a restaurant’s total revenue. The geographical location of the business also affects wage levels, as salaries tend to be higher in major cities and tourist destinations due to the higher cost of living.
Utility and energy bills
Utility bills, which include expenses for electricity, water, and gas, are also a major expense for restaurants. Particularly those with high customer traffic throughout the day.
Kitchens in large restaurants rely on high-powered appliances such as ovens, refrigerators, and ventilation systems, leading to increased electricity consumption. Additionally, a larger dining area can result in higher electricity usage.
High water consumption for cleaning and food preparation also contributes to significantly higher water bills. Furthermore, cooking and heating food typically involve gas, which adds to operating costs.
Rent and maintenance
Rent is a fixed monthly expense that constitutes a significant portion of a restaurant’s revenue. The selection of a location can substantially impact rental costs. Strategic, high-traffic, or densely populated areas have higher rents.
For instance, restaurants and coffee shops in busy areas, such as shopping malls and main streets, often pay 20% higher rents than those in less crowded locations.
Regular maintenance costs are another example of operational costs for restaurants. This includes maintenance of equipment, facilities, utilities, ventilation and air conditioning systems, kitchen appliances, and other amenities.
Sometimes, these facilities may also require emergency maintenance, which can be quite costly.
Packaging materials
Packaging poses another cost for restaurants, particularly due to the rise in delivery services and customer demand for hot, well-packaged, and high-quality meals.
There are many factors that can influence the cost of packaging materials. From the type and quality of the materials used, which can drive prices higher, to the variety of packaging options.
In cloud kitchens, packaging becomes an even more critical and expensive element, as they rely heavily on packaging compared to traditional restaurants.
Further reading: How to Grow Your Restaurant with a Cloud Kitchen
Marketing and advertising
Marketing and advertising are crucial components of a restaurant’s success, as they significantly contribute to brand awareness and customer attraction.
Whether you opt for social media or traditional advertising methods, marketing can come at a high cost. Especially if you are opening a new location or introducing promotions and discounts.
Restaurant financial management: Strategies for reducing restaurant operating costs
So, how can restaurants reduce restaurant operating costs? Here are 7 strategies to try, with examples.
-
Efficient inventory management
Inventory management is a critical aspect when considering financial management strategies for restaurants.
Using modern inventory management software, restaurant owners can effectively manage their stock, track costs, and prevent theft. These systems monitor the movement of materials and can automate sending alerts when items are about to run out or have reached their expiration dates.
Modern POS systems also provide detailed sales reports that help restaurant owners accurately determine the quantities of materials needed for each menu item. By continuously tracking expiration dates, these systems not only reduce spoilage and waste but also help lower overall costs.
-
Employee Training
Training your restaurant’s workforce can improve productivity and service provided. It can also help optimize the use of ingredients.
Here are several ways to improve employee efficiency:
- Cross-training: By training employees to multi-task, you enhance work flexibility and can better manage staff shortages due to leaves or unexpected absences.
- Effective scheduling: Setting work schedules that identify peak and slow times helps to optimize labor costs. This allows you to reduce staffing during slower periods or seasons, thus improving profitability.
- Using restaurant software: This involves using various restaurant systems, such as those offered by Foodics, can help streamline operations and reduce labor without disrupting workflow. Here are a few examples:
- Self-service Kiosks improve order efficiency and accuracy by allowing customers to order and pay easily at fast-food and quick-service restaurants (QSRs). They also reduce queues and order errors without the need for additional staff.
- Pay-at-Table is a payment solution from Foodics that offers a convenient and fast payment experience for customers. It enhances operational efficiency by reducing wait times, increasing table turnover, and synchronizing payments in real-time with the cashier.
- Kitchen display systems (KDS) aim to boost efficiency and productivity in restaurant kitchens. The KDS provide detailed reports to monitor team performance and minimize errors. It can also seamless integrate with other Foodics solutions, such as the cashier system and self-ordering solution, making it an economical choice for all types of restaurants.
-
Reduce energy and utility costs in Restaurants
Utility costs are a challenge, but you can improve efficiency and achieve energy savings without sacrificing quality. Here are some strategies to help reduce costs while promoting environmental sustainability:
-
- Invest in energy-efficient appliances: Make sure the appliances you use help you save up on energy. Investing in energy-efficient appliances can significantly lower your restaurant’s monthly utility bills.
- Perform regular maintenance: By conducting regular maintenance of your various appliances and facilities, you can ensure they operate efficiently, which can help reduce energy consumption and minimize water waste.
- Use water-saving technologies: Install leak detectors and temperature sensors in refrigerators to prevent waste and improve overall water consumption.
-
Supplier negotiations
You can reduce your restaurant’s expenses by negotiating better deals with your suppliers. Here are a few ideas:
- Bulk purchases: Negotiate to buy large quantities at wholesale prices to lower your expenses.
- Explore multiple supplier offers: Compare prices and offers from different suppliers to find the best deals. You can also sign up for supplier management platforms that provide real-time price comparisons and notifications about discounts, such as Kaso. This app can be downloaded from the Foodics marketplace and integrated with your inventory management system.
- Enhance restaurant operations
Using restaurant technology like the portable cashier or POS terminal, self-ordering kiosks, and others, can improve the customer experience and streamline workflows, including ordering, payment, and accounting processes.
You can also simplify your menu by reducing the number of items and remove low-demand options to reduce costs.
6. Cost-effective marketing for Reducing Restaurant Operating Costs
There are many inexpensive and effective restaurant marketing tactics restaurant and coffee shop owners can use. These include using social media platforms like Facebook, Instagram, and TikTok.
These platforms help you identify and reach your target audience without incurring significant costs.
Moreover, creating a loyalty program can motivate customers and encourage repeat visits by allowing them to earn points and access special offers on your loyalty app.
Further reading: What Are the Benefits of Loyalty Programs for Restaurants and Coffee Shops?
7. Waste management
Effective waste management is essential for obtaining licenses for restaurants and coffee shops in many cities and countries. Implementing good waste management practices can help reduce operating costs and improve your restaurant’s financial performance.
To manage waste effectively, start by identifying the largest sources of waste in your restaurant. These may include leftover dishes, customer waste, among others.
Review inventory reports to determine why ingredients may become unwholesome or spoil. This can help minimize both waste and costs.
Consider participating in food recycling programs to further reduce waste and increase its value. These programs may involve sending surplus food to local farms for repurposing, which can lower disposal costs.
You can also partner with local food banks to distribute perishable items before they spoil, ensuring that food is used effectively rather than wasted.
Wrapping it up for Restaurant Operating Costs
It’s important you always keep an eye on your operating costs. Sometimes they’ll rise and sometimes they’ll fall. This may be a seasonal change. Implementing cost-reduction or cost-optimization strategies allows you to decrease expenses without compromising the quality of the dining experience. This approach can also help you reinvest resources into team development, system improvements, or enhancing operational efficiency. So, make sure you prioritize managing and tracking operating costs from day 1, not just when these expenses begin to rise.
While reducing costs is important, it is crucial to maintain the highest standards of food and service quality. Customers should always feel they are receiving the best, not the least.
This commitment is the key to building customer loyalty and ensuring the sustainability of your brand in a competitive market.
If you’re looking for a solution that can help you reduce restaurant operating costs and enhance inventory and restaurant management, then explore Foodics restaurant management system.
