Restaurants are costly operations to run, and some of the largest expenses go toward paying overhead. Overhead refers to ongoing expenses that come with running a business, such as rent, utilities, advertising, and salaries. It is important to note though, that overhead only applies to expenses that are not directly related to producing goods, so the cost of ingredients and raw materials do not factor into overhead costs.
Many of the expenses that factor into a restaurant’s costs are fixed expenditures, but there are some actions you can take to reduce overhead costs. Taking steps like negotiating with suppliers and landlords or buying newer, more efficient appliances can have a big impact on your bottom line. By tracking and looking for cost-saving opportunities in your rent, advertising, equipment, and utility bills, you can lower expenses and boost profits in your restaurant.
How to Calculate Overhead
Most of the time overhead is calculated monthly though some do it by year we feel it’s best to do it monthly. Before you can reduce your overhead you have to know what your overhead currently is in order to know what you can do to lower it.
To calculate your overhead you need to write all of your expenses down on a list and categorize them in categories like Rent/Lease or Mortgage, taxes, salaries, advertising, accountant fees and any payments for software, restaurant point of sale systems and other monthly fees.
Once you know your overhead you will know the profitability of your restaurant for the period you choose. You can reference the image on the right to help calculate the percentage and if that number is below 35-38% your restaurant is running efficiently. If your number is above that then you seriously need to look at your overhead numbers and consider ways to cut some cost to lower your overhead or find ways to increase sells during that period like selling in different channels like increasing order sizes or starting a online ordering promotion.
It’s important to regularly check your numbers each period as some expenses may go up during certain times of the year like utilities or new expenses for different marketing programs or equipment payments.
Affordable Advertising and Marketing Techniques
I think we can all agree that marketing and advertising is a must in the restaurant industry and just a small investment in the correct type can bring a huge return on investment. Let’s talk about some of the best marketing types for your business as well as some free ways to market your restaurant to boost your sales.
Social Media Marketing
Social Media is my opinion should be the most important part of your marketing mix since the average adult uses at least one form of social media and the average person spends more that 4 hours a day on social media so our take on it is to go where your customers are spending their time to offer them an opportunity to engage with your restaurant. Instagram, Facebook, Snap Chat, YouTube and Twitter is jam packed with images and videos of food related post of customers engaging with places they are meeting friends and family. Do some engaging post or promotions in house to offer specials if customers post images of food with tagging your company or recommending your restaurant on Facebook.
Online Review Sites and Industry Reviews
Online reviews can do a couple things for your restaurant some are great and some can hurt your business so they need to be taken serious. In 2018 research tells us that around 90% of consumers and higher than that for the millennial generation read online reviews before visiting a business they have never visited. This can be good if you have a great review score on sites like Yelp, Trip Advisory, Facebook and Google. Now lets be honest for a minute and come to the realization that some people we just can’t make happy but that is life and we have to be proactive to help over shadow the reviews that are not so good.
Testimonials can be powerful tool
Customer testimonials can be a powerful tool so make your restaurant available to accept testimonials either through video or posting on social media with hashtags that you have branded your restaurant with on the web.
The Don't Do of Testimonials and Reviews
As restaurant owners we work hard running our business day in and day out. Most customers don’t realize how hard we work or how many hours we put into trying to give them the best experience. The issue I see with some business when dealing with review is they let their emotions take over because their heart has so much invested and it usually makes the situation worse. As restaurant owners we should apologize for the bad experience and offer a way to redeem yourself by offering the next visit on you or get address to send them a gift card. Some owners don’t think the same as I do and that is ok but i’ve always been a man that things long term value of that customer and the customers they may bring with them. Can you really put a price on that?
I have faith in my business enough to know they will have a better experience the next time around and will post a better review because it has actually happened to my restaurant several times. In my experience they always note in second review that management reached out invited them back and it was awesome experience. The second review not only speaks for the experience it speaks for the type of business we are that we cared enough to respond in a way that didn’t but blame on anyone.
It’s a job in itself to keep up with all the reviews from all of the review sites. You have to have logins to each, go to each, sort reviews in order by date not to mention actually reading them. That’s a lot of time to do every day. SpotOn Inc. has built a software that comes free with their platform that allows merchants to use the SpotOn Manager App to view all reviews as they come in and this saves alot of time and energy allowing you to spend your time responding to negative reviews to try and make customer happy so that hopefully they will edit bad review or delete because you reached out. It’s important to reach out with 48 hours with response from what my research says.
How to Lower Your Utility Bills
- Turn off lights in areas that aren’t being used and also replace bulbs with LED bulbs.
- Thaw frozen food in refrigerator vs running it under water
- Run large loads in the dishwater rather than doing several small loads because most dishwashers cost per load and plus you won’t waste water and chemicals
- Turn off dishwasher at night so that it doesn’t keep heating water while not in use.
- Don’t overstock your walkin coolers because the air can’t circulate and forces the fridge to work harder to keep temperature, costing you more money.
Overhead cost can take away your profits each month, but managing your numbers is possible and can help you boost profits by adjusting your overhead accordingly. Most important is to keep an eye on your expenses and look for opportunity for cost-saving opportunities while purchasing supplies and equipment. Don’t be afraid to spend money on marketing and equipment that will increase your sales which in return lowerest your percentage of overhead vs sales.