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How to Upgrade Your Restaurant Cost Control for Peak Profitability
It’s no secret that keeping a restaurant running is a challenge. Soaring costs meant that, on average, 10 restaurants, pubs or clubs closed every day in the UK in 2023.
When facing such an uphill battle to stay profitable, restaurants are taking every step possible to control their costs.
If you’re in a similar position, you’ve come to the right place. Here are our top tips for upgrading restaurant cost control in your establishment and giving your business the best possible chance of success.
Impact of restaurant cost controls in maximising profitability
You’re probably already well aware of the industry’s razor-thin profit margins. Most food service businesses work with a margin below 10%, with many being as low as 2% to 6%.
Every penny you save makes a difference. The more you can reduce your costs, the more profitable your business will be. Of course, there’s more to restaurant cost control than simply watching your spending.
Cost control is a way of analysing your business’ financial performance. It involves making projections of how you expect your restaurant to perform and then comparing these against actual performance.
This allows you to set realistic, achievable financial benchmarks. You can then make informed decisions on spending so you’re not overreaching and risking profitability.
While cutting costs can be a valuable part of the process, it shouldn’t be the sole focus. If profits suddenly drop, it can be tempting to start slashing costs across the board to improve profit margins. The risk with this approach is that your customer experience is likely to suffer.
It’s true that sourcing lower-quality ingredients, reducing advertising spend, and skipping essential maintenance can save cash in the short term. But if it begins to negatively affect customers, you may soon find yourself in a downward spiral that you can’t get out of as word spreads about your business’s declining quality.
Steps to upgrade restaurant cost controls
So, if it’s not all about cutting costs, what can you do to upgrade cost controls and boost profitability? Here are our tips.
Analyse current expenses to find saving opportunities
A significant first step is to analyse current costs and identify areas where you could save money.
Start by compiling a list of expenses. Some might be obvious, while there may be others that could be easily overlooked. Your list could include:
- Rent
- Utilities
- Equipment (either purchasing or hiring)
- Repairs and maintenance
- Sourcing food and ingredients
- Food wastage
- Hiring staff
- Onboarding and training staff
- Advertising and marketing
Once you have your list, you can begin examining it for areas where you might be overspending. Chances are many of your costs will have increased in the last few years in line with the rest of the industry.
You might have overlooked some easily reduced costs. But you’ll likely need to do a bit of maths to find your best savings opportunities.
Thankfully, plenty of tools and technologies can help the mathematically challenged. Filling in a simple spreadsheet in Microsoft Office or Google Docs can quickly flag your biggest expenses.
That said, for a more holistic and detailed view, you should invest in software ERP cloud solutions. This enterprise resource planning software is based in the cloud, meaning you and your employees can access it from anywhere using virtually any device, which is particularly beneficial if you run a chain of restaurants.
It brings together data from across your restaurant, so you get a clear picture of all your expenses. Being able to access this data at the drop of a hat means you can react to changes in the business quickly off the back of real-time insights.
Establish realistic financial goals and budget allocation
Upgrading your cost control is much easier if you can establish realistic financial goals early in the process. Having targets to aim for will help you manage your expenses better and inform your spending decisions.
Budget allocation is another crucial aspect. Having a clear budget helps you prioritise spending on essential business areas while identifying areas where you can optimise costs. Budget management software can be particularly useful in this area, as the data it provides will help you allocate your budget more effectively.
Comparing your actual expenses against budgeted amounts will allow you to identify variances. From there, you can take corrective actions to keep your costs aligned with expectations.
Use inventory management software to track stock levels
Tracking your stock levels is another crucial part of restaurant cost control. After all, you can’t make money from dishes that you don’t have the ingredients to make. Similarly, there’s little point in spending money on ingredients that will go to waste.
The need for accurate and efficient inventory management has led many businesses to adopt inventory management software in recent years. Projections estimate that many more will adopt it in the years to come, with the global inventory management software market expected to grow throughout the decade continually.
Using inventory management software in your restaurant will help you to maintain your ideal stock levels. You’ll be able to keep enough in stock to avoid stockouts of your most popular dishes while simultaneously avoiding unnecessary overstock that’ll lead to wastage.
If you want to limit the number of different tools you’re using, it’s worth remembering that ERP software can manage your inventory, orders, and expenses. So, depending on your needs, this might be better as an all-in-one solution.
Training staff on how to use these tools effectively is essential. If you’re introducing new software into the business to manage stock levels better and save costs, you’ll want to develop an inventory management or ERP implementation training plan to bring your employees up to speed on how to use it to its full effect (more on training and development later).
Negotiate favourable terms with suppliers for procurement costs
One way that many restaurants can reduce their costs is to negotiate better prices with suppliers. Many restaurateurs make the mistake of thinking the cost of ingredients is fixed when in fact, it’s well within their control to find different, more affordable supplies.
Of course, it’s easier to negotiate with suppliers that you’ve built a strong relationship with. If you’ve proved you’re a consistent customer who’s in it for the long haul, a supplier might be persuaded to offer you discounts in return for the chance of a long-lasting relationship.
It can be tempting to opt for bulk discounts, but remember to weigh this carefully against your inventory management processes first. You might save some money by buying large volumes of stock, but if it’s going to sit on your shelf and go bad, it’s still money you could’ve saved instead.
Adjust menu pricing to maximise profitability
A big factor in how profitable individual menu items are is how much you charge for them. It’s important to analyse recipe costs carefully, breaking down the costs of different portions and individual ingredients to the penny. This helps you make sure that you’re never undercharging for a dish.
Maximising the profitability of your menu items is known as menu engineering. It gives you insight into which of your menu items are overpriced or underpriced, allowing you to make decisions about altering prices or revising recipes accordingly. This can be worked out manually, but if you’re struggling to spare the man-hours, there are also helpful menu engineering tools.
For instance, you might be selling large quantities of an item with a low-cost margin, which would increase your food cost percentage. You could make adjustments to either raise the menu price or reduce portion sizes to improve the cost margin of that item.
Optimise staffing schedules to minimise labour costs
Staffing costs are another area where you might be able to save significantly. Overstaffing during quiet times might mean you’re paying staff to do nothing. Meanwhile, understaffing at peak times might mean you put the customer experience at risk with long wait times.
On average, 23% of restaurants report being understaffed, with 15% saying they’re overstaffed.
Identify slow periods in your restaurant and ensure you have enough people on the floor for everyone to stay busy. If you use scheduling software, you can use your historical and projected sales data to assign shifts more accurately with an automatic scheduling function.
Educate and involve staff on cost-saving measures
Drawing up these cost-saving measures is pointless if you’re the only person who knows about them. Implementing them successfully requires the backing of all employees, so you’ll need to carry out training to ensure everybody’s on the same page.
For example, if one of your initiatives is to reduce portion sizes to reduce food waste, your back-of-house staff needs to be shown the new standards for each dish on the menu.
Adjust strategies to fit market and business changes
The restaurant cost control strategies you implement may work perfectly for a while, but we all know how rapidly things can change in restaurant management. So be flexible.
Don’t be afraid to pivot when necessary and adjust your strategies as changes in your restaurant and the wider market occur.
For example, as the food delivery market continues to grow, you might find a reduction in the number of dine-in customers but an increased demand for online orders and a home delivery service. This might necessitate a change in pricing and staffing structures to make sure your business remains profitable.
Key takeaways
Upgrading restaurant cost control is essential for ensuring peak profitability in today’s challenging food and beverage landscape. Profit margins are slim. That means every penny saved through strategic cost management can have a significant impact on your restaurant’s longevity.
That said, it’s crucial to remember that cost control extends beyond simply reducing expenses. Meticulous analysis, realistic goal-setting, and continuous adaptation to market dynamics are all essential too.
By implementing measures such as inventory management, menu pricing optimisation, and staff education on cost-saving initiatives, your restaurant operation can navigate financial constraints while maintaining product quality and customer satisfaction.
