How to Reduce Costs in a Restaurant

If your restaurant is like most, you're always looking for ways to reduce spending and improve your bottom line;  

That said, we know there can be some reservations when it comes to cutting company costs, so we’ve served up a list of cost reduction strategies for restaurants, to help keep you running. 

Make a meal of your ingredients

A great way to cut costs in your eatery is to peel back your food waste production. For example, if you’re left with a lot of vegetable skins, why not make your own stock? Or why not use your spare salmon for a seafood stir-fry?

While some restaurant owners deem this technique an 'unnecessary effort', with meticulous menu planning, you can easily create dishes with ingredients that complement each other. Not only do you reduce the amount of waste going to landfill, but it’ll also save you money on having to buy these ingredients separately, as well as labour cost since you'll be using byproducts of previous processes.

Another top tip is to use all parts of your products where possible - for example, using chicken carcasses to make stock, or the skin of butternut squash to thicken your soup.

Cook up your costs

To work out your costs accurately, you need to calculate COGS. Calculating the cost of goods sold (COGS) is one of the most important metrics when it comes to restaurant profitability. 

Cost of Goods Sold is the cost of a product to a distributor, manufacturer or retailer. You should also calculate your gross profit, by subtracting your cost of goods sold from your restaurant’s total sales revenue. To keep your COGS percentage low, it’s important to plan your menus cleverly - choosing dishes that use cheaper ingredients without sacrificing taste or quality.

To keep track of your costs, you should come up with a cost of sales formula for your restaurant, consistently calculate your prices per portion, and look towards investing in business management tools such as Epos Now’s Restaurant POS System to store your transaction and sales data securely.

Batch job

It's easy to get careless or carried away when it comes to portioning food properly, especially around busy services like lunch and dinner. However, small inconsistencies in portion size here and there can actually have a prevalent impact on your profits.

To combat this, we suggest batch cooking. This cost-cutting strategy involves cooking a large batch of food at once, which can then be frozen and used for future meals. Not only does this help to reduce labour costs, but it also helps to keep your menu prices down. Pre-cooking also keeps costs consistent, as there will be less waste from portioning errors.

Probe your produce 

One of the most effective ways of reducing costs across your restaurant is staying hot on your menu’s heels and considering your ingredients carefully.

If you can, lessen the amount of perishable produce you’re buying, and switch to frozen or canned versions. While this might not be ideal for all items, it can work well for things like fruits and vegetables. This also cuts down payroll costs, since you save your employees preparation time.

Another way to save on produce is to settle deals with your suppliers - ask them for discounts or better offers on large orders. As a restauranteur, you have some bargaining power, so don’t be afraid to use it! You can also ask your suppliers for their ‘seconds’, which are items that may not look perfect but taste just as good.

Use should also aim to use local, seasonal produce. Not only will this help reduce costs, but it will also give a unique flair to your menu items. Seasonal ingredients are often easier on the wallet and can be found at farmer’s markets or grocery stores.

Reduce your stock

And no, we’re not talking about the broth. If you want to save money in your restaurant’s kitchen, over-ordering is what it really boils down to.

This might seem like an easy way to ensure that you always have ingredients on hand, but it can actually be a costly mistake.

Order what you need, when you need it and only stock items that are essential to your menu.

This will help reduce your food costs, as well as waste. When handling and portioning out products, staff will also be more diligent if they know there is a limited quantity of produce on hand.

Look at the long haul 

There are less obvious ways of cutting costs in your restaurant. Considering labour accounts for a large percentage of a restaurant’s costs, treating your workers well is one of them. 

While putting care and career happiness at the forefront of your restaurant's ethos creates a great working environment for your employees, it also creates a level of labourer loyalty that can benefit your business in the long run. 

Considering it costs 33% of a worker’s annual salary to replace them if they leave [1], it's worth putting in pounds now, to see the proof in the pudding down the line. You should also include crosstraining your team, as part of your restaurant labour cost formula, as this is another great way to reduce costs since it can help to avoid overtime payments.

While it may seem time-consuming initially, this cost-cutting strategy involves training your staff in multiple areas of the restaurant, so they can be flexible and cover different roles as needed. This not only reduces labour costs but also helps to improve morale and create a more efficient workplace.

Tend to your bar

If your restaurant serves alcohol, you need to set the bar high when it comes to your staff, and in more ways than one. Although you’d like to put complete trust in your employees, statistics show that globally, 75% of all inventory shrinkage happens as a result of theft in restaurants [2]. Here are some of the most common ways that bartenders steal:

Free drinks and over-pouring:

• It’s not unheard of for bartenders to invite friends and family to your restaurant on a night they’re working, over-pouring providing free drinks. This can quickly rack up, resulting in lost sales that significantly affect your margins. 

Substitution:

• Substitution is one of the most popular ways bartenders steal money from customers. When a customer order calls for a premium brand of liquor say, a bartender will fill it with a cheaper brand and pocket the difference.

Top-up technique:

• Some bartenders will conceal their thievery by replacing the amount of booze stolen with water.

The short pour:

• When bartenders pour less alcohol into a mixed drink than the recipe instructs, it's known as "short pouring." They'll sell the extra liquor to another customer and keep the money.

To combat these forms of theft, you can keep your alcohol locked in a cupboard or behind the bar, alongside implementing pour policies and regular audits. You should also ensure you have tight security measures in place, such as surveillance cameras and regular staff spot checks. Remember, the best way to avoid employee theft is by hiring trustworthy and qualified employees in the first place.

See your restaurant get a seat at the table with an award-winning POS system

Epos Now offers smart checkout systems for hospitality businesses. We let you choose the tools and insights to help your business achieve its goals. Designed to work as a complete business management system, you can control all vital aspects of your company from one cloud-based system:

• View sales analyses on profit margin, cash flow, and other expenses
• Review reports on peak times for better staff scheduling and floorplan management
• Access multi-award-winning inventory management systems that sync online sales and in-person sales for the most up-to-date stock levels
• Automate stock purchasing so you never miss a sales opportunity
• Integrate with the business automation apps that are right for your business
• Table management and booking system integrations available for an optimized service

If you’d like to learn more about our industry-leading software, get in touch with one of our experts.