The Absolute Best Ways to Get Restaurant Costs Under Control
Sometimes it feels like it’s getting harder and harder to make money in the restaurant industry as an independent restaurant. Well, that's because it is. You’re dealing with rising food and beverage costs, increased labor costs, a labor shortage, costs forced on you by third-party delivery services and so much more. That’s the reality of the restaurant industry. But with the right approach, you can run a successful, popular restaurant that also makes you money. The secret is to take a proactive approach. In this episode of Restaurant Prosperity Formula, I’m going to explore the single system my members use that allows them to proactively manage their restaurants, help them be successful and take control of their business. With all the outside challenges that seem to be crushing typical operators, if you're ready to take charge of your future, this podcast episode will be a game changer. I promise.
While my members in my group coaching program are facing the same challenges you are, how they handle them is not how most restaurant owners do. Rather than blame outside challenges like employees, customers, vendors, or the government, they look at their business and create a plan to adapt and continue their path to success. Don't get me wrong, my members have bad days, they get upset, angry, even cry. But what they don't do is accept challenges as their reality. They proactively manage their businesses and that's critical.
To be proactive, you need to:
- Develop and use a budget. It's not the one you used to open your business and look back a year later. It's not your profit loss statement, which is a rearview mirror you use to look behind you and say, How did I do? Instead, you need a front windshield, a plan to move your business forward.
- Create a plan for success, including measuring on a weekly and monthly basis. Set your goals based on your budget and decide what systems to put in place to make sure you achieve those goals. Be prepared to miss the plan because a plan is just a dream of what perfect can be but nothing is ever perfect. A plan is what you want to guide people towards, but shit happens and we miss our plan. On a weekly basis, measure your prime cost (explained here). On a monthly basis, line by line by line, the whole budget, the whole P&L, side by side, to find out where you hit or missed. If you were supposed to make $14,000 last month and you only made $7,000, what went wrong? What systems did managers not use? Hold them accountable, retrain them, put it in place again. Or if they're following the systems, what other circumstances have come up? Create a new plan so you can make up for that $7,000 shortage in your budget.
- Run a weekly prime cost budget variance report so that your management can control the expenses they oversee, like labor and product. They can’t control if you drive a Maserati out of the business accounts or if you go on a coupon binge and run a 78 percent discount, but they can control who they hire, how they train them, onboard them, schedule them, cut them, what they pay them, and what product they purchase and how they prep it. They can control food, beverage and people: prime cost. It is their report card. The one number you must know to have any chance to make money is prime cost.
In the video above I go into great detail about prime cost, prime cost mix, your prime cost target and why it’s the target. I also cover it in this blog post.
Once you understand your prime cost and the path to getting to your prime cost target, you have a whole new restaurant full of opportunity.
Here are just a few examples of what my members have actually done in the last year.
- One of my members needed to drop their food costs from 38 percent. There are a brewpub, they had craft beer. Incredible product. When they started, they had a chef that literally made this chef driven menu with all these unique items from truffle fries, you name it. The prep was unbelievably hard and they needed highly skilled line cooks because they were building so many different dishes and the food cost was outrageous. Food cost was 38 percent. To give this restaurant a chance because they had a high debt service, they needed to get down to 26 percent food cost from 38 percent. To do it, I got them to spend $40,000 on a pizza oven! They have wood fired pizza, high quality, high perceived value, low food cost. They hired a chef consultant (I’m not a chef) to help redo the menu to simplify prep, to dovetail cross utilized products to get the most out of their menu and reduce the number of hours they need in the kitchen. Their target for labor 12.5 percent from 15 percent, which was done with a new menu. They got their prime cost to 55 percent.
- Another of my members owned two restaurants and needed to drop their food cost from 36 percent to 26 percent to survive and give his concept and a fighting chance to make it through the pandemic. Their big sellers were primarily burgers and beef items. Not throwing the concept out the window, by simplifying their menu, changing side dishes, purchasing properly, prepping better, they were able to drop their food cost down to a consistent 26.5 percent. Yeah, their half a point off but it's a major change.
- I have another member who owns a sports bar concept. Chicken wings went up over 100 percent from January to June 2021. They were not only expensive but hard to get. Evaluating his budget we saw with lower sales, higher costs, higher labor costs, it was going to get really tough to make it and still be that kind of concept. Since he planned to move his business to a bigger location in the future, and because he had experience with pizza in the past, he bought a new pizza oven to help drive his food cost down to 26 percent. This move makes him not only able to survive but make money with a full management team in place and all the labor he needs because he can change the mix by adding this low food cost item and still charge for it. He could also still sell the chicken wings.
These three restaurant owners proactively changed their business because they created a plan. A plan for success. And as a member of my coaching group, we did their budgets for them and with them. Nothing was ever jammed down anybody's throat because we're not going to change who you are.
For the purposes of this video, I wanted you to focus on what you can control right now to make a huge impact in your business, but in many cases, there are lots and lots of opportunities in your operating expenses, too.
To move forward proactively, create your budget template. Decide what systems you're going to put in place and what your expected results are going to be by when. Implement, train and hold managers accountable to your plan or your plan will not work.
If this is overwhelming, you don’t know where to start, and you think you could use help like my current coaching members did, get on a discovery call with me and learn about my Restaurant Transformation Intensive group coaching program where we actually do all this for you with you. Either way, you're in control.