Why Is it Important to Control Costs in a Restaurant?

As we all know, running a restaurant is not the easiest way to make a profit.

Statistics show that the average restaurant only makes 6% of its revenue in net profit. The bulk of your revenue goes towards 3 things:

  • Your food and beverage COGS
  • Your labour costs
  • Of course your overheads.

It only takes one of factors to be out by a couple of percent to completely throw out your profit margins, which could result in your restaurant being forced to close its doors.

Of course, renting services from Alsco such as linen, safety mats, uniforms are a great way to save on cost when compared to buying them outright. Find out how here.

Know the History

Once upon a time, working off a rough 30% rule, was enough to ensure that your business would be profitable. These days with the increase in the cost of living and of course the introduction of GST if you divide your costs into 30% COGS, labour and overheads, the 10% that used to be your profit, now goes straight to the government.

Pair that with the increase in wages and food over time and it has never been more important to accurately track and manage every cost in your business, in order to ensure your business is as profitable as possible.

Thankfully with the rise of technology, cost reporting is much easier than the excel spreadsheets, and manual calculations most restaurants have come to rely on.

There are multiple solutions available now which can help you track and manage the individual cost centres of your business.

Rostering and payroll solutions to reduce your labour costs and industry specific inventory management systems to reduce your cost of goods, are just two examples of solutions that can not only assist with managing costs, but also integrate with your existing processes such as your Point Of Sale and Accounting Software to give you better budgeting, reporting and forecasting capabilities than you could ever have imagined.

Now, I know that most people look at all these additional programs, as just another cost that they need to pay for in an already struggling business, but, most programs these days are by subscription, so there is no upfront cost, and if your restaurant is getting plenty of turnover, but you are just not seeing the profits, often these subscriptions will be paid for in the profit increase they result in.

A Good Example

Let’s look at a scenario: A relatively small, but popular café currently turns over about $100,000 per month.

They do not have any systems in place to monitor their costs other than their POS and their Accounting Software and as a result they are only making a net profit of around $1,000 per month, which is only 1% of their revenue, far below the average revenue of a café, and barely enough to keep the café running.

They currently have only 10 staff members and they pay roughly $30,000 per month on wages, their food and beverage costs are on average $45,000 per month and they pay $7,000 per month to rent their café space.

After these big expenses and GST they are only left with $8,000 per month to pay all the utilities and other miscellaneous costs, such as cleaning products, crockery, takeaway packaging and so on, resulting in only $1,000 per month being pocketed as profit.

They decide to invest on software for both Food and Staff costs, which costs them a total of $200 per month. This allows them to see areas that they are wasting money:

  • Too many staff on at times that there are no customers
  • Food that is being prepared for their display counters, but more often than not is wasted instead of sold

After 3 months of using these software tools, they have adjusted their roster to suit their busiest times and reduced the amount of food they prepare to be on display and increased the amount of food that be ordered fresh to order. As a result they have reduced their food costs to $35,000 and their staff costs to $29,000.

As you can see, even though they only saved $1,000 per month of their labour costs, this is still 5 times more savings than the costs of both programs and overall their costs have reduced by $11,000 per month. Suddenly their average of only $1,000 per month profit has turned into a $12,000 per month profit, without ever increasing the amount of revenue coming in.

After just three months, the time and money spent implementing and maintaining these programs seems like nothing, and if they continue to monitor these costs, they can ensure that they will always be making a profit.

So in answer to my original question, Why is it Important To Control Costs in a Restaurant? The answer is quite simple, if you reduce your costs, you increase your profits. Big, small or in between, there is hidden costs in any business, and in an industry as tough as Hospitality, every cent counts.

There are so many different solutions available to control your costs now that you are bound to find one that suits your individual business’s requirements, and most now integrate with your Accounting Packages and/or Point of Sale meaning that not only to you reduce your food and labour costs but also save on data entry and minimise the amount of human error within your paperwork.

So why not take a look at what is out there, and see how much you could save by investing in Software.

To learn more about cost control systems and kitchen manager software, check out Cooking the Books. It has a range of solutions to give Hospitality Businesses the Financial Control & Consistency they need.

Alsco rental solutions are a great solution for businesses avoiding the need for huge capital outlay at the outset and providing a tax-deductible expenditure making them cost effective. Get a free quote for Alsco linen for your restaurant today


Cooking the Books

Article written by: Kiri Paterson,  the Sales and Business Development Manager at Cooking the Books Enterprises. 1300 911 282

Photo Courtesy: Pixabay