Cutting overhead costs remains a top priority for most restaurateurs, given the rising costs of raw materials, utilities, and real estate. While raising the costs of offerings might seem like a straightforward solution to rising expenses, it’s not a healthy option when it comes to customer satisfaction and retention. Restaurateurs must look to minimize their overhead costs to make the best of their business and extend their margins. Read on to know more about overhead costs for a commercial food business, and intuitive ways on how you can limit these costs to a minimum.
What Are Overhead Costs?
Overhead costs or operating cost is the amount of money required to keep your restaurant functioning. It includes everything you need to put food on the table for your guests. Costs ranging from rent, utilities, raw material costs, equipment maintenance, insurance, and sanitation are some of the main elements that make up the overhead for a restaurant. You might also want to consider categorizing these under fixed, variable, and mixed costs. While fixed overhead costs remain the same month-on-month, variable costs tend to fluctuate each month. Mixed costs, on the other hand, involve both fixed and variable components. Considering all types of expenses is essential to calculating overhead costs accurately. Arriving at the percentage of overhead costs will tell you how much of your revenue you will be using for operating the business.
Intuitive Ways to Reduce Restaurant Overhead Costs
Cutting overhead costs is one of the best ways to improve your margins from the business. Here are some intuitive methods to reduce your restaurant’s overhead costs:
Deploy Inventory Management Software
Inventory management software can help you track the stock of your restaurant’s items in real-time, including the material that is close to expiry. This helps you order only when absolutely necessary, and also avoid spoilage of items by using them in time, preventing unwanted expenses & wastage. Some inventory management systems also allow you to track price changes in real time, helping you reach out to your suppliers to understand the increased cost of an item.
Cut Out Food Waste
Restaurants generate over 30 billion pounds of wasted food each year. Reducing food wastage in your establishment is an essential part of cutting the overhead costs for your business. While utilizing scraps is a strategy deployed by most establishments, you must find intuitive ways to use up every last bit of your ingredients. Utilizing leftover scraps from meat or produce can make up for the requirements when you’re preparing specials on any given day. Another important tip for reducing food waste is to structure your menu around your inventory instead of buying ingredients to serve a menu.
Find Smart Menu Workarounds
Since increasing costs for your offerings isn’t the best option, you need to figure out ways to optimize your menu. Using inexpensive produce varieties across dishes is among the go-to methods to cut costs for preparing the existing items on your restaurant’s menu. The same goes for cuts of meat you use to prepare your dishes. Using cost-effective ingredients is a viable option, as customers are unlikely to experience any difference. Another method would be to design your menu to incorporate common ingredients across dishes to save on material costs.
Invest In Quality Equipment
The quality of your restaurant’s equipment directly affects the quality of the food you serve at your establishment. It is important to undertake sufficient research when buying new equipment for restaurants and other commercial food businesses. Even if you’re on a tight budget, look for the pieces of equipment that are the best in your range. Poor quality equipment becomes a financial burden in the long run due to frequent maintenance, upkeep, and replacement costs.
Look For Cost-effective Suppliers
Restaurants dedicate an important portion of their overhead costs to procuring food and raw material to prepare their offerings. Food suppliers offer attractive discounts to establishments that place bulk orders – this proves far more economical for restaurants that purchase their supplies from a supermarket. You can also get in touch with local farmers to procure produce and other ingredients directly. Local producers offer both attractive prices and allow you to enhance your restaurant’s sustainability quotient.
Manage Utility Costs
Since restaurants are a resource-intensive business, utilities take up a fair share of the overhead costs each month. Being mindful of consumption will go a long way in bringing down your electricity and water bills. Speak with your staff to report leaky pipes, and to turn off appliances that are not in use. Also, consider using energy-efficient lighting and purchasing kitchen equipment certified by Energy Star to save on energy costs and apply for rebates.
Involve Your Employees
Involving your employees in the endeavor to reduce overhead costs goes a long way in enabling you to cut costs wherever possible. Due to existing responsibilities as an owner, you can delegate certain tasks involved in the cost identification process to your employees so you can focus on the ways & means to achieve your target overhead costs. Employees also have essential insights on where your establishment can save money, given their increased exposure to the day-to-day activity in the kitchen and front-house area. Incentivizing the process can also go a long way in making the undertaking more fruitful.
While reducing overhead costs, make sure you take into consideration every aspect of your establishment’s functioning, and what effect these cuts will have on your offerings. When looking for costs to avoid, it’s important to remember that not all costs can be reduced, so shift your focus to those that can be reduced to find what works best for you.
Author BIO: Damon Shrauner, Senior Sales Consultant and VP on B2B Sales at CKitchen, working in the food service equipment sector since 1994. With his expertise in market analysis, product placement, sales, and project management, he will always tell you what to do for the best of your business.