How to cut restaurant costs without sacrificing service or growth
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Between rising food prices, labor shortages, and increasingly expensive equipment, running a restaurant is more expensive than ever.
For café owners, fast food restaurant operators, and other small business owners in the food-service industry, juggling these expenses while keeping customers happy can be challenging. And just one unexpected incident could tear into profits.
So, how can a restaurant owner save money and grow their business without forgoing quality or cutting staff? Well, there are a few ways. From prioritizing food management and operational efficiency to increasing employee safety and reducing everyday risks, this guide breaks down the most impactful steps you can take to get started.
- Start by identifying your biggest restaurant expenses
- Reduce food costs through smarter inventory management
- How to reduce labor costs in a restaurant without cutting shifts
- Lower restaurant overhead costs with operational improvements
- Use technology to control costs and improve efficiency
- Reduce insurance and risk-related expenses
- Take advantage of tax deductions available to restaurants
- Focus on long-term cost control instead of short-term cuts
- Protect your profits with the right coverage through Insureon
Start by identifying your biggest restaurant expenses
To effectively cut costs, you need to know where your money’s going. For most food-service businesses, the main expenses include:
- Food and inventory: With rampant food waste, spoilage, and employee theft, food is easily one of the largest expenses for restaurants. Tracking your cost of goods sold (COGS), which is what you spend on ingredients relative to what you bring in, is the foundation of food cost control.
- Labor: Employee shortages, workplace injuries, and the hidden costs of staff turnover make labor the second largest expense. Monitoring your labor cost percentage helps you understand whether your staffing levels are sustainable with your revenue.
- Operations and overhead: Fixed costs like rent and utility bills, equipment upkeep, point-of-sale (POS) system upgrades, and vendor contracts can make everyday operations another large expense.
By understanding how much you're spending to run your restaurant, you can begin to assess where you can reduce spending.
Reduce food costs through smarter inventory management
While food is likely your biggest expense, it’s also your biggest opportunity to save money. Here are a few key opportunities to trim your budget:
- Track inventory regularly: Weekly or daily counts of higher-priced ingredients help you track your food cost percentage, identify food waste, and spot shrinkage early. Even a basic spreadsheet can make a difference if you're not using inventory software.
- Follow first-in, first-out (FIFO) practices: Storing new stock behind old stock ensures older ingredients get used first, helping to reduce food spoilage, prevent serving expired food, and provide customers with fresh ingredients.
- Standardize recipes and portion control: Recipe costing and regulated portion sizes will improve consistency, reduce food waste, prevent over-ordering, and provide a clearer picture of your true food cost percentage on every menu item.
- Simplify your menu: Removing low-performing dishes and choosing recipes that use similar ingredients can help improve your purchasing efficiency and cut down on food waste and spoilage.
- Negotiate with suppliers: Shop around for the best pricing, consolidate purchases when possible, and take advantage of vendor discounts to trim your ordering budget significantly.
How to reduce labor costs in a restaurant without cutting shifts
Reducing labor costs doesn’t have to mean cutting staff. Improving employee safety, productivity, and morale can increase retention and create long-term savings. Here’s how to save money and manage staffing needs without sacrificing customer demand.
Build schedules around sales data
Most point-of-sale systems capture historical sales data by day, shift, and hour. You can use this data to improve staff scheduling, helping you to:
- Review past sales trends to identify your busy and slow periods
- Match staff levels to customer demand, so you’re not overstaffing during slower times
- Avoid hidden costs of understaffing during rushes
Cross-train employees
When employees understand multiple roles and responsibilities across the operation, your team will be better equipped to cover for sick co-workers, keep things running smoothly during busy periods, and help other staff members when they have downtime.
Cross-training employees is especially helpful for smaller operations, where resources are limited, and it’s more cost-efficient for everyone on staff to wear multiple hats.
Improve employee retention
Hiring and training new employees is expensive, especially when you're constantly having to replace staff members. Taking care of your employees and creating a positive work environment can save you money in the long run. You can do this by:
- Being upfront about schedules, expectations, and any changes that impact staff
- Providing opportunities for career growth and professional development
- Acknowledging good work and ensuring employees feel valued
Invest in employee safety training
- Preventing employee injuries. Keeping floors clean and dry, properly maintaining equipment, and regularly training staff on proper lifting and other safety protocols can increase workplace safety and reduce the risk of incidents.
- Reducing workers’ compensation claims. If an employee gets hurt and you file a workers’ comp claim, medical coverage, disability benefits, and other provisions will kick in. All of this can affect your costs, making a safer kitchen a cheaper route.
- Lowering your insurance premiums. A history of multiple claims can cause insurers to label your restaurant as high-risk, which can mean higher rates. Keeping your claims history clean can lead to lower premiums and potential discounts from your insurer.
Lower restaurant overhead costs with operational improvements
Between utilities, service contracts, and equipment needs, overhead costs can quickly eat into your profits. Here are some steps you can take to improve your operations and save money:
Reduce utility expenses
Energy and water are some of the easiest overhead costs to control in a restaurant. For example:
- Switch to energy-efficient lighting: LED lighting uses significantly less electricity than fluorescent or incandescent options, and lasts longer, reducing energy bills and replacement costs.
- Keep refrigeration equipment maintained: Refrigeration units will work harder with dirty condenser coils and worn-out door seals. Regularly cleaning and inspecting your equipment can keep it running efficiently.
- Monitor usage: Installing smart meters and closely reviewing utility bills can help you identify when and what is driving up costs so you can make necessary adjustments.
Review service contracts annually
Recurring contracts are easy to forget about, which is why vendors rarely offer a lower rate. Reviewing contracts every year and negotiating lower rates or discounts can help lower bills for waste management, linen services, pest control, internet, and payment processing providers, and more.
Maintain equipment
Fixing a broken commercial oven or walk-in cooler during the dinner rush is typically more expensive than preventive upkeep costs. Here are some strategies to take care of your equipment and avoid expensive emergencies:
- Schedule regular maintenance for ovens, fryers, refrigerators, and other important equipment to extend their lifespan and flag small problems before they become costly issues.
- Budget for maintenance: Treating maintenance as a fixed operational cost will help reduce the number of service emergencies and surprise expenses.
- Get equipment breakdown coverage: Protecting your business against equipment breakdowns will help cover the high costs of repairing or replacing dishwashers, ovens, and other machinery that fails.
Consider certified pre-owned equipment
You can easily save money by purchasing certain items secondhand, like prep tables, shelving, and mixers. The key is finding equipment that’s been professionally inspected or refurbished. It’s also important to buy used items with a manufacturer’s warranty or dealer guarantee, so you’re not sacrificing quality for a low sticker price.
Use technology to control costs and improve efficiency
Technology can provide visibility into where your money is going and help you handle small issues before they get expensive. This includes:
- Leveraging POS reporting tools: Your point-of-sale system tracks sales data by day, shift, and season. Use this information to spot top-performing menu items, apply menu engineering principles, forecast sales, and make more accurate food and staffing decisions.
- Automating routine administrative tasks: Payroll software, scheduling tools, and inventory tracking software can reduce errors, avoid over-ordering, and build shifts based on demand.
- Monitoring food and labor costs in real time: Having real-time dashboards makes it easy to cut shifts early, scale back orders, and spot creeping ingredient costs on the fly.
- Reducing front-of-house labor: QR code menus, online ordering, and self-service kiosks can reduce the number of employees needed to take orders, speed up table turns, and cut printing costs.
A customer injury, kitchen fire, or food safety complaint can be significant expenses for restaurant owners. Having a risk management strategy can help reduce unexpected costs and possibly lower insurance costs over time, such as:
Implement workplace safety programs
Having a documented safety program protects employees and shows insurance providers that your restaurant is well managed, which can be highly beneficial at renewal time. This program should include:
- Employee training on safe handling, lifting, equipment usage, and emergency protocols.
- Written safety procedures that provide staff with a clear point of reference and create accountability.
- Incident reporting processes to ensure all injuries and incidents are logged, investigated, and learned from.
Protect against common liability risks
From front-of-house to the kitchen, restaurants face many liability exposures. Here are a few ways to address these risks proactively:
- Preventing slip-and-fall accidents: Keeping floors clear and dry, fixing uneven surfaces, and providing clear signage can help prevent guests and employees from falling and getting hurt.
- Establishing food safety protocols: Proper food handling, storage, and temperature control will reduce the risk of contamination claims. Also, it's important to stay compliant with your state's food handler licensing requirements.
- Maintaining equipment: Malfunctioning refrigeration or heating equipment can cause food spoilage, foodborne illness, or fire, all of which can create expensive liability claims.
Bundle insurance policies when possible
Many insurance companies offer discounts when you purchase more than one policy. For example, a business owner’s policy (BOP) bundles general liability insurance with commercial property insurance at a lower rate than purchasing each policy separately.
Restaurant owners can customize a BOP to include important add-ons like liquor liability, food spoilage, or business interruption coverage.
Review coverage annually
As your business evolves, your insurance needs will change. Scheduling an annual review of your policies can ensure your coverage matches your business risks, eliminates coverage gaps, and removes unnecessary costs.
You can also shop around and compare quotes at renewal time, since rates and policy terms vary across carriers.
Take advantage of tax deductions available to restaurants
Another way to save money at your food-service business is to reduce your tax bill through deductions. Here are a few ways to get savvy about taxes and deductions:
Track deductible operating expenses
Many of the everyday operational costs are qualified business expenses, including equipment purchases, software costs, and fees for professional service providers like lawyers, accountants, and consultants.
Keeping organized records and receipts will make it substantially easier to claim these deductions at tax time, rather than compiling all of your expenses at the end of the year.
Work with a qualified tax professional
Business taxes can be complicated. Hiring a tax professional who understands the food industry can help you maximize deductions, stay compliant, and identify savings opportunities you might miss.
Focus on long-term cost control instead of short-term cuts
Sustainable operations and long-term cost control require a system, not reactive, one-time decisions. You can effectively manage expenses by:
- Measuring profitability by category: Break down your financials by food, labor, and overhead costs to see where your money is going—and where you can save. Tracking each expense as a percentage of revenue, versus total spend, will reveal inefficiencies a monthly summary may hide.
- Setting regular expense reviews: Regular financial reviews will allow you to compare actual expenses to expected ones, check on vendor pricing and contracts, and review insurance policies to avoid overpaying for or not having enough coverage.
- Building a cost-conscious culture: Sharing cost data with restaurant management and staff, prioritizing waste reduction, and recognizing employees who identify savings or improvements will strengthen your cost-cutting measures across your operation.
Protect your profits with the right coverage through Insureon
The most successful restaurants don’t just cut costs. They manage them strategically by improving inventory practices, optimizing labor, investing in employee safety, reducing waste, and strengthening their risk management plan. Combining smart operations with proactive protection can help your food-service business boost profitability without sacrificing quality.
Insureon’s licensed insurance agents can help you secure affordable insurance coverage for all of your small business needs. With just one easy online application, you can compare quotes for general liability and product liability coverage from our top-rated insurance partners.
Once you find the right policies, you can typically begin coverage and get a certificate of insurance (COI) for your small business in less than 24 hours.
Julie Watt, Content Editor
Julie writes blog posts and site content that breaks down complex topics, provides expert advice, and helps connect small business owners with the best insurance solutions. Before joining the Insureon team, Julie worked as a copywriter and content strategist for ad agencies and in-house creative marketing teams to bring brand stories to life and connect loyal consumers with quality products. She’s built and led copy teams at companies such as T.J.Maxx, Amazon, and BISSELL.
