Restaurant Cost Control Guide

Executive summary

Implementing cost control measures can save you money and help you protect your restaurant’s profit margins.
Controlling costs in your restaurant starts with categorizing your costs to allow for simpler tracking and set the foundation for data-driven decisions.
Some cost control measures include menu engineering, inventory management, and labor cost management strategies.
A staffing solution like Qwick helps you optimize staffing based on demand and control costs.

Restaurants face a unique challenge, as they are constantly working to serve their customers a quality experience while also keeping up with rising costs and protecting profit margins. On average, the food cost percentage is up to 28-32% for many full-service and quick-service restaurants. Meanwhile, food prices have risen 6.3% from this point last year in 2022, creating a challenge for restaurants trying to control costs.

Now more than ever, protecting profit margins can be a fine line to walk, but implementing effective cost-control measures allows you to gain more control of your revenue and boost profit margins. This guide highlights some excellent and often-overlooked ways to control costs in your restaurant so you can run a smooth operation and maximize returns.

Understanding your restaurant costs

The first step to controlling your costs is understanding your costs. Building an understanding of your costs will put you in position to better manage them and provide you with a baseline you can improve upon.

Types of costs

To fully understand your costs, you should start by categorizing your expenses by type. Breaking your expenses into categories will allow you to be more mindful of cost control measures and specify areas of improvement.

The main types of costs for a restaurant can be broken down into three categories:

Fixed costs – Fixed costs stay constant regardless of restaurant demand and function. These can include rent, health or property insurance premiums, and salaries for salaried staff.
Variable costs – Variable costs are those that constantly fluctuate. Some examples of variable costs include the cost of ingredients, hourly wages for your team, and utility bills. You can estimate these costs but cannot fully predict them as they depend on sales and demand.
Semi-variable costs – Semi-variable costs are those that are mixed between fixed and variable. Examples of semi-variable costs include certain utilities, bills, and maintenance and repair costs. Parts of the costs in each category may change, while others may stay the same.

Importance of categorizing expenses

With an understanding of the above categories, you can then figure out how to better manage the costs in each. Categorizing your expenses is an essential step for budgeting and tracking them, and collecting data for each category builds a foundation for informed decision-making that improves your cost control.

By categorizing your expenses and tracking them more closely, you’ll be able to better control where your money is going and make more informed decisions. For example, closer tracking empowers you to make adjustments if you notice that spending in certain categories is too high and pinpoint areas of improvement. Sort your frequent expenses into the above categories so you can boost your awareness of your spending and implement more effective cost-control strategies.

Effective restaurant cost-control strategies

Running a restaurant comes with many unpredictable factors that make it hard to manage your spending. On the bright side, you do have a level of control over managing costs, and following a few strategies can make all the difference.

Inventory management

Controlling your inventory is a crucial key to keeping costs low and avoiding overspending. One study found that 4 to 10% of food purchased by restaurants never gets to the customer—this amount totals approximately a staggering $1,000 of the company’s revenue per 3.3 pounds of food waste. Keeping a close eye on your inventory and having a strategy for managing it ensures that your inventory is properly put to use so you can maximize your returns.

Thoughtful inventory management offers the following benefits for effective cost control:

Allows you to adjust and set PAR levels to understand your consistent ordering needs
Gives you a clear understanding of which items are popular or not so popular
Prevents you from overordering and buying supplies you don’t need
Prevents unnecessary food waste

On top of cost savings, inventory management also helps you run a more efficient operation and enjoy greater returns. Some strategies to consider for effective inventory management include:

First-In, First-Out (FIFO) – This strategy involves placing old inventory items in front of new ones, which helps you use those first and avoid unnecessary spoilage or waste.
ABC inventory – The ABC model involves categorizing your inventory into three categories based on their value, helping you implement proper strategies to protect your inventory.
Just-in-time (JIT) inventory – The just-in-time inventory model ensures that inventory stock arrives only as needed for production, helping you minimize the inventory you carry so you only have what you need and aren’t overspending on unnecessary items or allowing them to go to waste.
Waste reduction strategies – Waste reduction helps you control your inventory and protect spending. You can keep waste amounts low by properly storing food, having a clear labeling system, controlling portion sizes, and monitoring expiration dates.

Labor cost management

It’s crucial to understand how much of your staff you need on any given day and create a budget that accounts for this. Labor costs often average between 25 and 35% of a restaurant’s revenue. However, this number can vary depending on the restaurant type and location. To calculate your labor costs, use this formula:

Labor Cost Percentage = (Total Labor Cost ÷ Total Revenue) x 100

After building a strategic budget, optimizing your staffing levels is a valuable second step for managing labor costs and protecting your bottom line. That said, staffing is a tricky balancing act, as you need staff for busy periods but can’t predict the slow periods.

Fortunately, a few strategies can help you stay staffed while controlling costs:

Analyze historical data – Looking at last year’s business trends, sales, and revenue can give you insight into when you can expect higher foot traffic and might need more staff or when you can keep staffing light.
Use a POS system integration – A POS system integration keeps track of your sales numbers so you can assess your staffing needs based on the time and day of the week.
Staff with freelancers – Qwick connects you with freelancers to fill shifts when needed, allowing you to staff based on demand and only carry the number of staff necessary to run the restaurant.

Well-trained and motivated staff will also ensure greater productivity and give you more output, helping you make the most of the staff you have and manage your labor costs. When thinking about your labor cost management strategy, consider ways to motivate your team and be open to their feedback so you can figure out what they need to succeed.

Take charge of your profit margins.

Qwick connects you to qualified freelancers to fill shifts fast, allowing you to optimize your staffing based on demand and maintain more control over your labor costs.

POST A SHIFT

Maintain strong supplier and vendor relations.

Since your inventory and supply are some of your most significant needs, this area is one of the best places to control costs. Because inventory is a regular and consistent cost, it’s easy to treat it like a fixed cost and not think about ways to save. However, restaurant managers often have more control over their supply costs than they think.

Some ways to control and manage your supply costs include:

Request quotes from multiple suppliers and vendors to compare prices and choose the most cost-effective option
Negotiate with suppliers for better pricing and contract terms
Review invoices and shipments for discrepancies during deliveries
Monitor invoices for changing prices regularly to stay aware of your spending

You should assess all your options to ensure you’re getting the best possible deal, but you may consider consolidating all your purchases with one supplier. Building a long-term relationship with your vendor can also bring discounts and more favorable pricing, as some suppliers may offer distinct advantages for long-term contracts or bulk ordering.

Menu engineering

Menu engineering involves creating and adjusting your menu to maximize revenue and profitability. Menu engineering is a subtle art form that can pay huge dividends when done right.

The primary key to menu engineering is offering dishes that are not only enjoyable but also profitable. Being strategic about your menu offerings will help you control costs. You can start by using your POS system or other strategies to gather data on your sales so you can determine the most popular menu items and how to adjust your menu and inventory for the greatest returns.

Some additional strategies for influencing cost control through menu engineering include:

Keep a narrow inventory of items you can use across multiple dishes
Remove menu items that aren’t very popular so you don’t overspend on inventory or labor
Prioritize menu items you have an abundance of by making them more prominent on the menu
Incorporate more pictures of the dishes that bring you the highest revenue return
Influence customer choices by including strong descriptions of profitable menu items

Although menu engineering is an effective tool, try to avoid frequent menu changes so you can maintain a higher level of predictability surrounding your costs.

As you develop your menu, you’ll also need to consider the best way to set your prices based on what works for you. The most common strategies for setting menu prices are cost-plus and value-based pricing.

Cost-plus pricing considers the menu price by adding a markup to the total cost of producing a menu item, including factors like ingredients, labor, and desired profit margin.
Value-based pricing encourages setting prices based on the perceived value of a meal to a customer, considering factors like customer preferences, competition prices, and market positioning.

Cut unnecessary costs

When it comes to controlling costs in your restaurant, every bit counts. Your restaurant may be losing money without you realizing it due to unnecessary spending. Pay attention to your spending and evaluate your budget to assess for unnecessary expenses you’re making.

Some common areas where restaurants overspend include:

Excessive menu items – Carrying unnecessary menu items and buying inventory you don’t need adds up. Always ensure the sales from each menu item outweigh the costs to produce them. If not, consider cutting them.
Expensive suppliers – Even if you have a set supplier, the market is constantly changing. Don’t be afraid to compare rates between multiple suppliers regularly and negotiate your costs to ensure you get the best prices.
Materials – The costs for materials like plasticware, packaging, and other materials can add up. Some are necessary, but you may be able to reduce spending in this area. For example, maximizing your use of reusable dishes inside the restaurant can save on single-use materials.
New equipment – One of the biggest costs for restaurants is new equipment, which can be incredibly expensive. On the bright side, regular maintenance can extend your equipment’s lifespan. Although there are some upfront costs for equipment maintenance, they’re far lower than buying new equipment entirely.

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Staff training and motivation

Cost control is a team effort. Training your staff and keeping morale high will ensure that you have a coordinated effort toward reducing costs and improving revenue returns for the entire team's benefit.

Be sure to train staff specifically on cost-saving behaviors and set clear expectations for what measures your team should implement. These ideas should be a part of training for new employees and reinforced with periodic training.

In addition to training, you should create an environment where employees feel motivated to join the effort. Some ways to motivate staff include:

Building a positive and supportive work environment that fosters team success
Incentivizing employees for strong performance
Recognizing and praising team members who have demonstrated success
Rewarding employees who follow cost-saving behaviors
Being open to feedback from staff for improving the workplace

Maintain energy efficiency

Maintaining an energy-efficient restaurant is an often-overlooked way to control costs. Energy costs add up—by paying closer attention to the energy you’re using, you can reduce overconsumption and its costs. Not to mention, you can make your restaurant more sustainable, too!

Some strategies for maintaining an energy-efficient restaurant include:

Upgrade to energy-saving and energy-efficient equipment in the kitchen
Maintain all equipment regularly to keep it in the most efficient working order
Consider using LED lighting throughout the restaurant, which uses less energy
Use a smart thermostat to align with business hours and reduce energy consumption outside of peak times
Turn off the lights in the restaurant and display cases each night
Train staff to be more conscious of energy-saving habits

Control your costs with Qwick.

Effective cost control can be a challenge for any restaurant, and there are many factors you just can’t predict. However, with a mindful approach and a few strategies, you can control your costs and protect profits. From optimizing your staffing to implementing inventory management strategies, there are many simple steps you can take.

Qwick can help you optimize your staffing. By connecting you to our network of vetted, qualified freelancers, our platform allows you to staff based on demand and avoid unnecessary labor costs. Whether you need to fill shifts same day, adjust your weekly staffing needs, or staff up for a future event, Qwick has you covered. Sign up today to post a shift.

We also have a wealth of resources to help you optimize your operations—explore our business resources to get a leg up on your path to restaurant success.