Why Cost Control in Restaurants Matters

The Importance of Cost Control in Restaurants

Cost control is defined as the continuous process of reducing business expenses in order to increase profitability. Long term cost reduction is crucial for business longevity with the majority of restaurants operating on a very slim profit margin of only 3-5%.

On average, food and beverage costs make up about 32% of a restaurant's spending. With the standard costs of food rising each year, restaurant cost control requires consistent attention and budget project efforts. In fact, in the past 5 years alone the cost of food has increased by over 25%.

There are numerous variables to consider for food cost management including-

• Portion control
• Waste or theft
• Sale patterns
• Beginning and ending inventory
• Kitchen organization
• Employee training
• Menu pricing

There are many percentages that food industry professionals should calculate and monitor to better control important cost reduction variables. These figures range from the actual cost versus ideal cost percentage to calculating your restaurant's general food cost percentage.

80% of restaurants shut down within their first five years and 60% within the first year of operation. Food industry professionals must control important costs long term in order to maintain a successful restaurant establishment.

Rules to Live by for Restaurant Cost Control

Cost control management is a long term continuous process that not only uses corrective action but also preventative measures to keep a restaurant's cost performance optimal. Cost control best practice tips for restaurants include-

1. Developing a vendor relationship- Help your restaurant control costs by cultivating a great relationship with your food and beverage vendor. Establishing an annual contract can help you negotiate rates and better ensure consistent product quality.

2. Use the correct payment method- It is a common misconception that it is always better to make inventory purchases with cash. Using a credit card can buy your restaurant more time to pay off raw material costs with profits earned at a future date.

The typical credit period is 15-20 days. This time frame provides your business with the ability to save money buying products in bulk instead of using available cash to purchase fewer inventory products at a higher cost. Another great tip especially for small business owners is to look for a local purchasing group to join in order to score even lower raw material rates.

3. Track your inventory- Your inventory should be monitored and tracked every day. Keep your management cost low by investing in proper inventory management software that will automate the control process for your business.

Management software can also generate cost performance statistics that are helpful for developing and maintaining cost control initiatives. Some software will compare actual results and actual performance with projected future standard costs or ideal cost estimation in accordance with your budget.

4. Proper portion control- Any food cost budget project should carefully consider portion control. Oversized portions lead to incorrect pricing as well as unnecessary food waste.

5. Decrease employee turnover- Employee turnover rates are estimated to reach as high as 75% in the restaurant industry. Make your investment in your employee life cycle well worth it by hiring quality candidates who are a good fit for your restaurant.

Labor costs decrease when employee turnover is reduced. Regardless if you are a small business or a part of a large chain, make sure to provide great pay, benefits, and incentives to keep your staff members both motivated and productive.

6. Automate business processes- As previously mentioned, inventory management software is great for food cost control and budgeting. There is other software to consider to automate and control important business operations.

Restaurant management software automates a large range of tasks, from ordering to billing. Request demo software or a free trial period to help your restaurant find the best management software possible for your specific business needs and wants.

7. Consistent reporting- To maintain success and profitability, restaurants must have a long term cost management process in place. This includes a continuous process of generating reports to analyze where cost performance can be optimized.

Daily and weekly reporting help identify cost control issues and administer corrective action swiftly. The best way to control costs is through not only correcting cost control issues but looking to prevent them in the future.

Conclusion

• Cost control is the continuous process of decreasing business expenses in order to boost profitability.
• With food and beverage costs eating an average of 32% of a restaurant's revenue and food costs increasing over time, cost management is essential to long term business success and longevity.
• Best practice tips for restaurant cost control range from management software automation to decreasing employee turnover.
• The best cost reduction initiatives seek to not only correct cost control issues but also prevent them from occuring in future.