Biggest Operating Costs for Restaurants

expenses
// By Jordan Brydges // , Dec 11, 2019

Topics: Restaurant Management

Broken refrigerator, money out.  Rent and utilities, money out.  Spending money on marketing to get people in the door, money out, although hoping for a lot of money in.  Paying staff, money out.  Ah, the joys of running a restaurant and the constant expenses piling up daily.  As you can imagine operating costs for restaurants seem never ending, but there is good news, even though it might be a challenge, reducing some of these costs can be done.  In this blog post we are going to highlight some of the top operating costs restaurants face and some ways to help lower them. 

 

Top Operating Costs 

 

Every restaurant is going to incur costs, some higher than others depending on size, location, and concept.  In a previous blog post we talked about the two biggest operating costs, food and labor, which together make up about half the operating budget.  Other top operating costs for a bar or restaurant include:

  • Kitchen Equipment 
  • POS System 
  • Occupancy  
  • Marketing  
  • Repairs and Maintenance 

 

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Kitchen Equipment 

 

Kitchen supplies and equipment includes anything from dishware to utensils, refrigerators and stoves, down to tables and chairs.  Kitchen and bar equipment averages around $115,655 but is dependent on the size, location and quality of products.  These expenses are typically a one-time cost, pending unexpected repairs and maintenance.  They can easily creep up, so some of the alternatives to buying new equipment include buying used or leasing, both options leaving more wiggle room in the budget. 

 

Buying Used Equipment  

 

Sure getting new and shiny kitchen equipment is as exciting as Christmas morning for restaurant operators, but not always necessary.  Buying used equipment can work just as well as new equipment and can take place of less used pieces.  If you are a speciality wood fired pizza establishment, you probably will not want to buy a used pizza oven, but other equipment you could consider buying used would be your prep table or refrigerator. If you do choose to purchase new equipment having it serviced regularly will help to prevent any unexpected breakages or expenses. 

 

Leasing Equipment

 

Leasing can be another option for kitchen equipment because rather than a large price tag upfront to buy, you can budget for monthly installments with no down payment.  Another pro for leasing, the maintenance agreement, meaning that if the equipment breaks down, you do not have to search for someone to fix it or spend more.  You also have the option at the end of your lease agreement to upgrade to purchase the equipment, end the lease or upgrade to a newer model.

 

POS System 

 

The right POS system can make or break your restaurant, not only because it tracks sales and records payments, but it can also provide you with employee management (time clocks), customer relationship management (CRM), and loyalty program management. Basically, there are two kinds of POS systems: Cloud Based Systems and the traditional POS system and both of their costs vary depending on your restaurants needs. 

 

Cloud Based Systems 

 

Cloud Based Systems store data on remote servers where the data can be accessed anywhere with internet connection.  They have significantly smaller upfront fees, typically starting at $1,000 but require a monthly subscription depending on the additional features included.  They are also available with mobile tablets, as well as stationary terminals. 

 

On-Premise System 

 

The traditional or on-premise POS system stores the data on the servers in the restaurant and run on their own internal network.  These are typically more costly upfront because of the licensing fees and the hardware equipment and can run anywhere from $3,000-5,000.  They are only available as stationary terminals and require maintenance fees for software updates that need to be done manually.   

 

Occupancy 

 

Occupancy costs are any costs that come from the physical building you take up.  These include your monthly rent payments or mortgage, property taxes and insurance, utilities, security system, and disposal services.  Typically, healthy occupancy costs should not be more than 6-10% of your gross sales. 

 

While most of the occupancy costs are fixed, utilities can be a mix of fixed and variable costs.  Your water, phone, and internet should be relatively fixed overtime, but the gas and electricity are the ones that will fluctuate month to month, mostly due to heat or AC. 

 

There are different ways to reducing your utilities as easy as remembering to turn off all the lights or regulate temperatures.  One study found that a 20% reduction in energy costs translates to an additional 1% in profits.  1% may not seem like a lot but for an industry with extremely slim profit margins that could be significant. 

 

Marketing 

 

One of the biggest ways to market restaurants is with a digital presence.  The easiest and cheapest way to promote your restaurant is through social media.  Using social media platforms allows you to continue develop relationships with customers, grow your audience using your own content, and spark an interest in potential customers with promoted ads running a couple hundred dollars.  

 

Restaurants are the most searched industry on mobile, so utilize Google and Search Engine Ads to get to the top of the search page to convert searchers into customers.  A highly functional website can result in a new customer, with high quality photos of menu items and reviews. 

 

Other more traditional ways of marketing include email marketing and direct mail marketing.  Both are good for more hyperlocal restaurants, but include getting an email either in-person or from an online form and the design, print, and distribution of direct mail, which can be costly.      

 

Repairs and Maintenance  

 

Preventative maintenance is much less expensive than replacing or repairing equipment by regular cleanings and servicing of equipment properly, rather than waiting around until something breaks down. 

 

When you regularly schedule cleanings and maintenance you can build those costs into your budget as well as create an emergency fund for any unexpected expenses.  You can do this on a spreadsheet with each piece of equipment listed and the suggested repair or maintenance and frequency.  A healthy budget of 1-3% of sales set aside for regular repairs is pretty average in the industry.  

Jordan Brydges

About the author, Jordan Brydges

Jordan is a marketing intern at Backbar and a business student studying marketing. She has been working in the restaurant industry for 8 years and developed a passion for cooking and a love of red wine.

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