Restopro.uk – Mastering Restaurant Expenses

The Anatomy of Restaurant Expenses

Restaurant costs typically fall into four main categories, each requiring different management strategies. Controlling these expenses is what separates thriving establishments from struggling ones.

Food Costs 28-35% of food revenue
Beverage Costs 20-25% of beverage revenue
Labor Costs 25-35% of total revenue
Other Operating Costs 15-25% of total revenue

Prime Cost (food + beverage + labor) should typically represent 55-65% of total revenue in a healthy restaurant operation.

Cost Category Deep Dive

Food Cost Management

Target: 28-35% of food sales

Key Control Points:

  • Recipe standardization and portion control
  • Inventory rotation (FIFO system)
  • Weekly food cost calculations
  • Supplier price comparisons
  • Waste tracking and reduction

Red Flags: Food cost exceeding 35%, inconsistent portion sizes, high waste percentages

Beverage Cost Control

Target: 20-25% of beverage sales

Key Control Points:

  • Standardized pour sizes with measured tools
  • Regular inventory audits (especially liquor)
  • Bottle tracking for premium spirits
  • Happy hour profitability analysis
  • Theft prevention measures

Red Flags: Beverage cost exceeding 30%, inconsistent drink quality, missing inventory

Labor Cost Optimization

Target: 25-35% of total revenue

Key Control Points:

  • Sales forecasting for scheduling
  • Cross-training staff for flexibility
  • Overtime monitoring and control
  • Productivity benchmarks (covers/server)
  • Turnover reduction strategies

Red Flags: Labor cost exceeding 35%, frequent overtime, low covers per labor hour

Other Operating Expenses

Target: 15-25% of total revenue

Key Categories:

  • Rent/Lease: 5-10% of sales
  • Utilities: 2-4% of sales
  • Marketing: 3-5% of sales
  • Repairs/Maintenance: 1-3% of sales
  • Administrative: 1-2% of sales

Red Flags: Any category growing faster than revenue

Cost Control Strategies

Proactive approaches to manage each expense category:

Food Cost Strategies

  • Menu Engineering: Highlight high-profit items and adjust portion sizes on low-margin dishes
  • Seasonal Purchasing: Build menus around what’s in season and plentiful
  • Waste Tracking: Implement a waste log to identify problem areas
  • Inventory Management: Use the PAR (periodic automatic replacement) system

Beverage Cost Strategies

  • Pour Control: Use measured pour spouts and jiggers
  • Menu Design: Feature high-margin cocktails and wines
  • Inventory Control: Conduct surprise liquor counts
  • Supplier Negotiation: Leverage volume discounts

Labor Cost Strategies

  • Scheduling Software: Match labor to forecasted demand
  • Cross-Training: Develop flexible staff who can work multiple positions
  • Performance Incentives: Reward productivity and upsell success
  • Turnover Reduction: Invest in staff development and retention

Operating Cost Strategies

  • Energy Efficiency: LED lighting, ENERGY STAR equipment
  • Preventive Maintenance: Regular equipment servicing
  • Vendor Audits: Review all recurring services annually
  • Technology Adoption: POS systems that reduce administrative work

Remember: Cost control isn’t about cutting corners—it’s about eliminating waste and inefficiency while maintaining quality standards.

The Cost-Percentage Mindset

Successful restaurateurs think in percentages, not just absolute numbers:

Why Percentages Matter

  • Allow comparison across different sales volumes
  • Help identify trends over time
  • Provide industry benchmarking capability
  • Enable menu price adjustments based on cost changes

Key Percentage Formulas

  • Food Cost %: (Cost of Food Sold / Food Revenue) × 100
  • Beverage Cost %: (Cost of Beverage Sold / Beverage Revenue) × 100
  • Labor Cost %: (Total Labor Cost / Total Revenue) × 100
  • Prime Cost %: (Food Cost + Beverage Cost + Labor Cost) / Total Revenue × 100

Track these percentages weekly. A 1% reduction in food cost on £1M in annual sales equals £10,000 straight to your bottom line.

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