Reducing Your Restaurants Overhead Costs and Expenses

Running a business means reducing costs wherever possible. Because the food industry and restaurant business has more overhead costs and monthly expenses than many other types of businesses, it’s incredibly important to know how to reduce those costs.

Overhead, in simple terms, is all the money you must spend each month to simply keep the doors open and your restaurant in business. Things like rent, insurance, salaries, food costs, maintenance, utilities, internet, and so on.

“But most of my expenses are fixed costs, how can I reduce them?”

It is true that many costs in the restaurant business are fixed but that doesn’t mean that you cannot get the fixed amount changed. Little things like simply talking to and negotiating with suppliers can make a huge difference on a month to month basis. Improving the quality and energy efficiency of your appliances like refrigerators, freezers, changing to LED lighting — most power companies offer rebates and other incentives to you to make your business more energy efficient.

Do Some Calculations

Overhead costs can be looked at in a few ways, monthly, daily, bi-weekly, quarterly, and yearly and even hourly. It’s a good idea to know how each day pans out all the way up to each year in terms of expenses —  the reason why is because it shows the progress over time. If you save a little money on a day to day basis that adds up substantially by the end of the year.

To start our calculations we’re going to look at the most common marker, monthly costs. Firstly, break things down into different categories like:

• rent
• salaries
• taxes
• equipment
• utilities
• repairs
• menu printing,
• food cost averages

Then total those figures. When you have the monthly figures of your expenses you can easily look at how profitable any one month has been.

Next, use this basic formula:

Total Monthly Overhead Costs – Total Monthly Profit = Restaurants Monthly Profitability

 

No matter how much money was made for profit for any given month, it’s important to also track the monthly costs on a consistent basis. Not all costs will fluctuate but things like cost of utilities, your advertising and marketing, or needed repairs can change profit margins and your monthly costs.

How To Lower Your Restaurant’s Monthly Rent

Because a restaurant’s rent is typically the largest monthly expense, finding a way to reduce it will make the biggest difference in your overhead costs. It is not always easy to get this reduced as there is usually a signed lease for a said period of time that locks that cost in. Nonetheless, it’s never a bad idea to try to talk to your landlord about renegotiating your lease or contract terms, especially if you plan to keep that location for a long time.

New leases or expiring leases also provide an opportunity. Now is the perfect time to make a decision and talk to your landlord. If you’re happy with the location and our business is doing well, it may be a good idea to try and negotiate the monthly price lower with consideration for the length of time on the contract or lease. For example, if you’re paying $6,000 a month for a 1 or 2 year lease, see if they will reduce it to $5,000 or $5,500 for a 3 or 4 year lease. Very often they will and that can save you several thousand dollars a year.

Subletting or Subleasing Your Space

Have an attached banquet hall that you don’t use on weekdays or other specific times of the month? This is a great opportunity to sublease it out to catering businesses or individual parties. You can even sublet your kitchen or bar space after hours or at different times.

A good example of this would be cooking classes. When your restaurant isn’t actually open you can be making some extra income by allowing other businesses to use your kitchen, bar or other area (with conditions you set contractually with the client).

Using Low Cost Marketing & Advertising

Marketing doesn’t have to be incredibly difficult or expensive if done properly. Doing the work in-house is the biggest way to save money, however it can be very specific and time consuming to learn effective marketing skills, especially when focusing on running all aspects of your business.

Free ads, low cost ads, and hiring small low cost marketing firms is a great way to do this.

Get Your Social Media On

Facebook, Instagram, and Twitter are a great free way to promote your business and engage with your customers and fans. It lets people check-in, provide reviews, and chat amongst others about their thoughts on your restaurant — it’s very important to have a social media presence in today’s day and age.

Other things you can display on your social media pages are the daily or weekly menu, the changing bar menu, or special events that you have; all for FREE!.

Energy Saving Appliances

Appliance costs are some of the largest costs that restaurants face. An old freezer may use up to 3x the amount of energy than a new energy efficient freezer will use. This is not only bad for the environment, but is wasteful to your overhead costs as well. Making a few modernization changes to your appliances is a great and straightforward way to reduce your restaurant’s costs.

Saving money is important to restaurants because saving money means making more money, it’s that simple. The more you can reduce your monthly and yearly overhead operating costs the better off your restaurant will be.

So be sure to start thinking about the changes you can make right away and then start planning for the larger money saving changes that you’d like to see done in the medium and long term.

Following these tips can help reduce your restaurants overhead costs and expenses as well as take your restaurant to new levels.