How to Save Money in the Restaurant Business Without Raising Prices
Profit is the name of the game for many a restaurant, whether it is an independent business or part of a chain.
When profits are high, you’re happy.
On the other hand, when they plateau or decrease, you could be scrambling for solutions. Often, an immediate answer is to raise your prices. Before you do that, though, you should first explore a few other possibilities to save money.
Redefining Labor Costs
Labor costs vary from restaurant to restaurant and from source to source, but consulting firm BDO put them at 30.5 percent of sales in 2016, an increase of 0.8 percent. Ideally, labor costs should be no more than 28 percent to 30 percent of sales, although that percentage excludes employee benefits, which could constitute up to 6 percent of sales.
So how do you make labor costs work for you?
In some situations, you may need to invest even more money upfront. For example, if you are chronically understaffed, your customers will be waiting longer for their food and will become frustrated. As such, they’re not likely to come back, which will make it hard to keep employee morale high. You could solve this problem by bringing a few more employees onboard, or by scheduling more efficiently. In just a few days, you could see your profits increase again.
In general, it is a good move to track the timing of your sales and how they relate to shifts and staffing levels. This can give you an idea of whether you are understaffed, overstaffed, or just miss-staffed.
Lowering Food Costs
Your food costs could be high for any number of reasons, such as overflowing portions, suboptimal inventory control or supplier issues, to name a few. According to BDO data, the average food cost in 2016 was 29.1 percent of revenues. Whether this figure is appropriate for your establishment will depend.
A fast-food place or a family-oriented pizza eatery should expect to have lower food costs, while those restaurants that pride themselves on serving high-quality food could have food costs that account for up to 40 percent of their revenue.
In any case, there are a few things you can do to drive these costs down. For instance, you could negotiate with suppliers for better prices, or establish and enforce quality guidelines for what is acceptable at your restaurant. If you’ve been accepting some spoiled food as a cost of doing business, for example, then it’s time to stop.
Also, get a few heads together and go over your menu.
Which dishes sell well?
Experiment with removing poor-selling, high-cost items from the menu. It’s also important to re-educate your staffers about keeping food costs down. To set up firm guidelines, you may need to observe how the chefs or line cooks do their jobs (is burning food and having to re-cook an issue?) and how your manager does inventory control.
Revamping Accounting Procedures
Changing up your accounting procedures can make a big difference in every aspect of restaurant operations. Whether your weak spot is inventory control, an accurate picture of real-time operations or something else entirely, getting a better handle on your accounts receivable and accounts payable is likely to help.
For example, suppose you have a program that lets you see costs as they unfold in real time.
- More easily identify outliers
- Track top-performing items
- Search invoices by number, date paid, payment status and a host of other categories
In fact, changing your accounting procedures can lead to significant savings in food costs, labor costs and other areas.
It can also improve morale.
Your manager is liable to smile more when he or she has new options that cut down on overdue accounts receivable and that may even eliminate late payments. If you want to set up a new location (or several!), this type of system can also help you scale beautifully.