CashFirst, a quick introduction to the different types of costs:
Fixed costs: These are costs that are consistent from month to month.
Variable costs: These fluctuate depending on circumstances. As a result, these costs can be a bit trickier to predict.
Example: Food inventory
Semi-variable costs: These are a combination of fixed and variable costs.
Example: Labor (some employees might be paid hourly, while others are salary)
1. Food Costs
For pizzerias, food can account for as much as 35% of a restaurant’s expenses. Although food costs can be one of the largest expenses for your restaurant, it also has the most potential for flexibility. This requires you to consistently track your inventory for unexpected costs, opportunities for improvement. Once you determine the cost of each item, regularly compare it to your sales figures. Look for menu items that perform well, the most popular deals or features, unexpected costs, and opportunities to improve. For example, think about how you can bundle items together to save on delivery costs while maximizing your cost-per-order ratio. In contrast, analyze your best-selling items to see if profit margins could be wider; think about if cheaper, quality ingredients could be used, or they could be sold with less packaging. If profit margins are slim, consider removing the item as a feature entirely.
Profit-draining warning signs:
- You count your stock infrequently
- You have no portion control on the make line
- You do not keep track of waste
- You carry inventory for more than a week
- Your prep plan is not based on a sales forecast
Another major cost component of a restaurant is labor. Accounting for approximately 25% of a fast-food restaurant’s expenses, labor costs include employee salaries, hourly wages, and benefits. Keeping labor costs under control can be challenging but ensuring that your employees are paid fairly while also staying within your budget is equally as important. To help manage labor costs, consider using POS software with scheduling tools to help automate some of your employee management duties.
Profit Drain Warning Signs:
- You are often understaffed or overstaffed
- You have no time clock controls
- Payroll is your only way to track labor costs
- You are not using a sales forecast to schedule your staff
3. Rent and Utilities
Rent and utilities are considered fixed costs, and should be no more than 10% of your restaurant’s expenses. Because they’re a fixed expense, it can be challenging to find solutions to lower these bills. If you need to minimize these costs, consider looking for ways to reduce your utility bills, such as by switching to more energy-efficient appliances, or adjusting your HVAC system to run more efficiently.
4. Marketing and Advertising
The U.S. Small Business Administration recommends dedicating approximately 7% of gross revenue toward marketing and advertising–things like blogs, email marketing, local promotions, your website, and social media advertising. When executed properly, your marketing strategy can drive sales while attracting new customers. However, it’s easy to make common marketing mistakes that quickly become a bottomless money pit. Be sure to start with the basic questions; consider who your target audience is, the channels they’re most likely to use to learn more about your business, and what sort of deals or meals they’d be most interested in. As you build out your marketing plan, it's important that you know which strategies are working the best. Track where your business is coming from, and continue to test and revise your tactics for optimal results.
5. Equipment and Supplies
The final category of common expenses found in a restaurant is equipment and supplies. Equipment essentials for your restaurant include everything from kitchen appliances and tableware to cleaning supplies and your pizza POS software. This is another variable expense category where you can decide where you want to invest your hard-earned money. Weigh the costs and benefits of materials that may be affordable upfront but will undoubtedly add up over time. Take the time to research what other pizza restaurant owners are saying about equipment and supplies to get an idea of what’s worth the price before you invest.
Although every restaurant operates differently, it’s important to analyze each component of your restaurant and break down costs to leave no doubt as to where your hard-earned cash is being spent. The five key expense categories to consider are food, labor, rent and utilities, marketing and advertising, and equipment and supplies. In doing so, you can optimize your restaurant’s financial and operational performance while equipping you with the insights to make informed business decisions. To learn more about how you can track and optimize your restaurant’s expenses, read Find Out Where Your Restaurant Profits Are Going and How to Get Them Back.
Posted on Thu, Feb 09, 2023 @ 08:02 AM.
Updated on February 9, 2023 @ 4:00 PM PST.