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Ways to Reduce Restaurant Overhead Costs During COVID-19

 Ways to Reduce Restaurant Overhead Costs During COVID-19

We don't have to tell you that times are tough for restaurants during the COVID-19 outbreak.  If you own a restaurant, you're already feeling the pinch.  The combination of at-home-quarantining, reduced capacity regulations, and increased need for health and sanitation are all cutting deeply into restaurants' profits.

For most restaurants, the key to staying profitable - or staying in business at all - will be in lowering your overhead.  Find ways to reduce your operating costs, so that you can keep the lights on despite the economic downturn.

This won't be easy, but in this guide, we'll try to give you some help in understanding your overhead, managing it, and finding ways to reduce those costs.

I. Understanding and calculating your restaurant overhead costs

Before you can start reducing overhead costs, you need to understand what those costs are in the first place.  Some restaurant owners, particularly those with good accounting software, may already be on top of this item.  For everyone else, if you haven't been keeping close tabs on where your money is going, now is definitely the time to dig into your finances!

Simply put, "overhead" covers all the expenses that come with running your restaurant.  These can include, but are not limited to:

  • Water, electricity, Internet, and other utility bills
  • Employee salaries, benefits, etc
  • Rent or mortgage payments
  • Advertising
  • Insurance
  • Licensing, taxes, and other bureaucratic fees

It's worth mentioning that your perishable food supplies are generally not considered "overhead" in strict accounting terms.  However, we'll touch on that as well.

So, step one is simply to calculate your monthly expenses by adding up all of the recurring payments you make which are necessary to keep your doors open.  You can potentially calculate your expenses according to any time period (per week, per year, etc.) but in general, tracking costs month-to-month is usually most useful.

Then, compare your overhead against your monthly revenues.  Hopefully, you're still in the black!  Simply knowing the average amount of your monthly profits isn't all that useful, though.  What you really want to know is your overhead as a percentage of your sales.

To calculate this, you divide your overhead by your monthly sales, then multiply the result by 100.  (Overhead / Sales) x100.  The result will be a percentage.  Ideally, this percentage should be no more than 35%, which is considered the standard for a profitable restaurant with good money management.  The higher the percentage, the more of the money you make is going into paying for your overhead.

If it's 50% or higher, you're in a precarious position and need to start looking for ways to reduce your restaurant overhead!

 II. Ways to lower your restaurant overhead

There are numerous options here, so we'll just talk about those which involve the largest amounts of money or are most likely to be successful.

1. Reduce your rent/mortgage payments

In all likelihood, your rent is going to be your single biggest monthly line-item expense - and that means it should be one of the first expenses you try to reduce.

If you're a renter, try re-negotiating with your landlord.  The coronavirus may work to your favor here.  Rental prices are cratering due to the economic downturn, and many renters are unable to pay at all.  If your landlord is feeling pinched, they may agree to reduce your rent rather than risk losing you as a renter.

Likewise, if you're mortgaged, talk to your bank or call an agency to discuss refinancing your mortgage.  Even if it will cost you more in the long run, a refinancing that lowers your monthly payments will help keep you afloat today.

 2. Sublease your restaurant

This is a solution that has only started becoming popular recently:  Look for people who'd be willing to rent out your kitchen during the times you aren't open.  For example, if you only provide dining service in the evening, you might find a group looking for commissary kitchen facilities for breakfast or lunch crowds.  Food trucks are also often in need of certified and inspected cooking spaces!

Much like getting a roommate in an apartment, subleasing your restaurant can be an excellent way to reduce your monthly rent/mortgage bills.

If renting, be sure to check your lease agreement and see if subleasing is allowed.  If it isn't, call your landlord.  Again, right now they're more likely to make a deal if it'll keep the rent payments coming.

 3. Look for ways to reduce equipment costs

Equipment costs and upkeep can be difficult to exactly calculate unless you've been in business for several years and can work out the averages.  Nevertheless, it's still worthwhile looking for ways to either:

A - Reduce your operating expenses, or

B - Reduce wear-and-tear on your appliances and equipment.

If you have the cash to spend, this may be a good time to invest in newer/better equipment, particularly equipment that's energy-efficient.  If your new appliances lower your monthly energy bills or require less maintenance, they'll end up paying for themselves in the long run.  Reinvesting in your facilities is also usually better than just sitting on cash reserves anyway since they increase your business's value.

If brand-new appliances are outside your price range, there are still options.  Many appliance shops and equipment resellers have "scratch and dent" specials, such as for floor models that have received light usage.  These often sell for far less than the sticker price!  Other retail outlets may even offer refurbished products which are basically as good as new but sell for cheap.

You might even consider changing up your menu and your cooking methods, moving away from processes that are either energy- or labor-intensive.  For example, sous vide cooking machines are self-regulating.  Once the prepared raw food is vacuum-sealed and dropped in the water bath, it doesn't have to be touched until cooking is complete.  This reduces labor for your employees and frees them up to do other things.

Also, large ovens are basically the most energy-costly way to cook food.  Any other alternative - such as induction cooking, convection ovens, frying, even microwaves - will lower your energy bills.

4. Other ways to lower your bills

When it comes to reducing your monthly utility bills, you can get a lot of mileage out of relatively minor tweaks to how you do business.  While you may not realize it, a lot of little fixes can add up to large savings!

For example:

  • Pre-thaw frozen foods in the refrigerator by choosing what you need a few hours ahead of time.  Don't use active (costly) heating or running water to thaw foods unless it's absolutely unavoidable.
  • Turn off lights whenever they aren't in use.  While you're at it, switch over to low-power bulbs like LEDs for further cost savings.  As for the dining room, perhaps candlelight would make for a better ambience than electric light?
  • Don't overstock your fridge and freezer.  Past a point, too many items will prevent cold air circulation, forcing these appliances to work extra hard - using extra energy - to maintain their internal temperature.
  • For that matter, do a food audit.  Reduce your purchasing.  Remove low-selling menu items if they require special ingredients that are costly to restock and store.
  • Install water-efficient fixtures in all your wet appliances, to reduce water usage.  This is a cheap upgrade that will pay for itself very quickly.
  • Don't provide water to customers unless they ask for it, and only provide single glasses rather than pitchers.  This feels cheap and tacky, but many customers won't notice, and most won't care.  You might be surprised at how much you save in a month.

5. Reduce your advertising expenses

Cutting advertising costs is tricky because, on one hand, you need advertising to bring in customers.  On the other hand, ads can become expensive, and quickly. 

One of the best moves you can make is away from physical and broadcast advertising - which is expensive - and towards digital advertising.  Better SEO and local geographical targeting of your website can significantly improve your brand awareness while costing almost nothing - especially if you're maintaining your website.  A little time spent learning the basics of digital marketing could save you tons on ad spends.

Hosting events can also be a good way to bring in new business if you can find ways to remain safe and socially distanced.  If you have outdoor space, events such as trivia nights or open-mic performances can significantly boost your popularity.

Also, embrace blogging and social media.  These are also extremely cheap ways of improving your online appeal.  A particularly good blog, or clever social media account, can get in front of a lot of eyeballs through the power of viral sharing.

Zanduco Wants to Help You Reduce Your Restaurant Overhead

We know it's tough running a restaurant right now, and we're running extra specials to help you get the equipment you need to succeed!  If you need energy-efficient upgrades, check out our inexpensive refurbished products or our other amazing deals!