Compeat’s Guide to Reducing Variable Costs in your Operation – Part 1

This guide will discuss the foundational practices that need to be in place to track and lower food, labor, and overhead costs.

Part 1: Budget

Let’s start at the top with budgeting. Every business has both fixed costs (uncontrollable) and variable costs (controllable). Your fixed costs are your set costs that do not fluctuate month to month such as rent, manager salaries, utilities, taxes, insurance, etc. These costs are completely independent of sales and are (for the most part) considered uncontrollable. The major variable costs that impact your bottom line in a restaurant are food cost, hourly labor, and overhead.

A good budget will help you understand where every penny is being spent, allowing you to set realistic financial goals and monitor your progress toward those goals. There are many great budgeting software applications out there. These can be as simple or as complex as you see fit for your business. You can even get by with your own spreadsheet, but the reporting features that come with a software package will make your job so much easier.

In a typical restaurant budget food costs will run about 20-30%, labor is approximately 30-35% and overhead is 15-20% (please note that these vary for each business model). Once you have all of your expenses added up, you can see what your revenue needs to be to cover these basic expenses. This is your breakeven point. If your sales are not meeting your breakeven point, then you need to adjust your expenses accordingly or you are losing money.

Budgets come in all shapes and sizes. The more detailed you add, the better you can see where your money is going. Once your budget is established, it is important to review your actual expenses against your budget daily and be aware of where your expenses are greater than you anticipated. This will enable you to make small adjustments based on real-time information so there are no surprises at the end of the month.

Treat your restaurant’s budget as if it is your personal money. If you have $50 left in your bank account at the end of the month, you certainly are not going to try to pay for a $85 jacket with your debit card. But people seem to forget that when it is a business. For example, let’s say sales were lower than projected this month. Unfortunately, you are also out of salmon. If you don’t place an order you will have to 86 your most popular special this weekend. You know that doing so will impact your profitability even further as it is a high margin dish. Plus, you may be disappointing customers and therefore affecting future repeat business. What do you do? Adjust your budget in another variable category, such as labor, to find that money. Can you run with one less host on the morning shift? One less bar back? Do not just spend the money without adjusting for it somewhere else.

Also, think of your budget as more than a map of what you are spending; it also shows you where you could be cutting back on a daily basis. Whether you are the owner of a local restaurant or an entry-level manager for a major chain, understanding how to use budget knowledge to make better decisions in order to increase profitability will make you more successful in your career.

Download the Full Guide Here.

Read also:

Restaurant Guide to Menu Engineering

Restaurant Fraud Prevention Checklist

Complete Guide to Running a Restaurant