Food & Beverage
Chefify

Chefify - Rental and operational costs of a restaurant

Tuesday, March 26, 2019

Costs have a big role to play in the success of a restaurant. How well costs are controlled will determine what profit there is to show for your efforts – as well as whether the business survives in the long term. The most basic calculation, when looking at costs, is to ensure that they are never more than 85% of your revenue. Less is better, but beyond that figure it will be difficult for your business to be a solid ongoing concern. Your costs can be broken down into fixed and variable, fixed being those expenses that are ongoing and cannot quickly be adjusted. Variable costs relate to sales and are easily changed.

Rent

The rent for your restaurant is likely to be the most important fixed cost to get right. Rent that is too high can set a restaurant up for failure because all other costs will have to be unusually low in order to generate any profit. Ideally, rent should be no more than 10% of revenue, but some allow for up to 19%. The lower the rent, the easier it will be to make a profit and the less pressure you will be under. 

People

Without enough staff to function properly your restaurant will soon fail - this is an important variable cost to factor into your operating expenses. The cost of chefs, servers, kitchen staff, cleaners etc. could account for anywhere between 25% and 30% of your revenue. Bear in mind that the higher your prices, the more diners will expect in terms of staff, from numbers through to training.

Cost of goods

Depending on your restaurant, you should expect to spend between 20% and 35% of your revenue on the cost of goods (i.e. on the food). This will vary widely depending on the kind of restaurant you are, the standards of food that you’re offering and what your diners are likely to expect from the menu. For example, food costs will be much higher in a restaurant with fresh lobster on the menu, than in one serving burgers. Cost of goods is a variable cost so can be adjusted up or down to a certain extent.

Other costs

Around 20% of revenue is likely to end up on ‘other costs.’ This could include your tax payments, covering the cost of utilities, buying equipment and maintenance for everything you’re running in the kitchen. These other costs must be carefully monitored – if they rise above 20% then they begin to eat into the money set aside for food or staff or, worse still, your hard earned profits.