Restaurant owners need to know how much things cost so they can be sure their business is profitable. This blog post will go over the typical restaurant overhead costs and expenses, including rent, utilities, labor wages for employees, licenses and permits, food cost percentages, and more. The information in this blog post will give you a clearer idea of what your budget should look like and help you make decisions about how to spend your money wisely.
Overhead costs are your everyday expenses. Overhead costs refer to ongoing expenses such as advertising, utilities, and rent which make running an eatery possible in addition to raw materials and food for goods production.
There are several types of restaurants, and running a profitable restaurant is not an easy job, but the rewards make it worth all the extra arduous work that goes into opening and maintaining one. Sometimes, a steady stream of obligations can make a restaurant owner feel like they are drowning in paperwork or just moving from kitchen disaster to customer complaint without any time for themselves. But after everything settles down again, you get this overwhelming rush of pride knowing how far your business has come from its humble beginnings. Understanding your restaurant's overhead cost is particularly important.
Operating expenses, which are not related to production, are overhead costs. Even if the business is successful and receives many orders, these are still costs required for it to function. These costs include everything from expenses related to facilities and utilities, such as utility and maintenance costs, to items unrelated to production, such as supplies.
There are three types of overhead expenses, namely:
The overhead cost of your restaurant depends on the type of restaurant you run in the restaurant industry. For instance, a bar will have the following overhead costs:
To calculate your overhead cost or total overhead cost, you add all costs not related to making drinks or food together. These include things like rent, utilities, salaries, etc. You should also calculate your overhead rate, which compares your overhead costs to revenue.
The overhead rate formula is:
Overhead Rate = Overhead Costs / Income from Sales
To calculate overhead costs, let's assume that the overhead cost of your bar restaurant consists of the following:
To get your total overhead cost, you will add them up.
Total Overhead Cost = Rent + Utilities + Taxes + Licenses
Total Overhead Cost = $14,000 + $8,045 + $9,400 + $1,000
Total Overhead Cost = $32,445
Assuming your sales for last year were $235,000, you can calculate your overhead rate as follows:
Overhead Rate = Overhead Costs/Income from Sales
Overhead Rate = $32,445/$235,000
Overhead Rate = 0.138 or 13.8%
What this means is that you spent 13.8 cents on overhead costs for every dollar you made.
If you have something to offer in compensation, most property owners will be willing to renegotiate the terms of your contract. For instance, if you commit to remain in the location for an extended period, your property owner might be willing to cut your rent and assist you in making a greater profit. You can always sublease a portion of your venue and make money that way if they are not willing to cooperate.
You can reduce your POS systems cost by researching and comparing the prices of various vendors. While we understand that you want to run a tight ship, ensure you do the research and that the company you choose is reputable (check reviews online) and has a solution that is right for your restaurant. A solution that provides only the features you need with the option to upgrade as you scale. In the end, that is far more important than cutting corners to reduce your actual costs. Find software that can offer these features:
Review sites like Yelp, TripAdvisor, and Zomato can have a major effect on your business and help you bring in more customers to offset your overhead costs. Many people use online reviews to help them make decisions, which means that getting more reviews on your site's page can result in more business for your establishment. Here are some tips to keep in mind with interacting with reviews:
Overhead costs can eat away a substantial amount of your profits each month, but managing your expenses is possible, and it can help you boost profits. The most important thing to keep in mind to drive down your overhead costs is to consistently monitor and track your spending while keeping an eye out for cost-saving opportunities.
Marketing does not need to be expensive to succeed, there are cheaper advertising solutions. The most direct and efficient way to save money is to do all the work in-house, but it takes a lot of time and effort to become skilled at effective marketing techniques, especially if you must do everything related to your business. This can be done using free ads, low-cost ads, and by contracting with small, low-cost marketing firms.
BNG Point-of-Sale are POS solutions that improve your bottom line. With a full selection of POS systems for bars, restaurants, and retail businesses, you'll find the right tool to grow your business with the personalized support you need. Connect with us HERE to learn more.