How to Lower Restaurant Costs & Increase Profits
Running a profitable restaurant means staying on top of your numbers. Below you’ll find practical strategies to lower food cost, labor cost, overhead, and building expenses — plus tips to boost your profit margins.
How to Lower Restaurant Food Cost
Calculate Food Cost Percentage
Formula:
Food Cost % = (Cost of Goods Sold ÷ Food Sales) × 100
Where:
Cost of Goods Sold (COGS) = Starting Inventory + Purchases – Ending Inventory
Food Sales = Total food-only sales (exclude beverages & alcohol)
Example:
Starting Inventory: $5,000
Purchases: $10,000
Ending Inventory: $4,000
Food Sales: $30,000
COGS = $5,000 + $10,000 – $4,000 = $11,000
Food Cost % = ($11,000 ÷ $30,000) × 100 = 36.7%
10 Ways to Lower Food Costs
Know Your Food Cost Percentage
Set a target (typically 25–35%). Track it weekly.Inventory Management
Take weekly inventory. Use FIFO rotation and track variance between actual vs. theoretical usage.Standardize Recipes
Use exact portioned recipe cards. Train staff to follow them.Watch Waste Closely
Track daily waste. Log returns, spoilage, overcooking, and review weekly.Portion Control
Use scales and scoops. Pre-portion ingredients like proteins and sauces.Rework Leftovers
Use excess inventory for specials, soups, or staff meals.Menu Engineering
Remove low-margin items. Highlight profitable dishes.Buy Smarter
Compare vendors weekly. Watch for pack size shrinkage.Reduce Theft
Lock up high-value items. Limit free meals and discounts.Train Your Team
Educate staff about food cost goals. Reward cost-saving behavior.
How to Lower Restaurant Labor Cost
Calculate Labor Cost Percentage
Formula:
Labor % = (Total Labor Dollars ÷ Total Sales) × 100
Example:
Total Labor: $7,500
Total Sales: $25,000
Labor Cost % = ($7,500 ÷ $25,000) × 100 = 30%
10 Ways to Lower Labor Costs
Set a Weekly Labor % Goal
Target 25–30%. Track it weekly.Schedule Based on Sales, Not Shifts
Use projected sales and a labor matrix to build smarter schedules.Use Scheduling Software
Choose tools with real-time tracking and over-budget alerts.Cross-Train Staff
Flexible staff reduce the need for extra hires during slow times.Stagger Shifts
Avoid overlapping schedules. Reduce idle labor.Use Call-In or Cut-Early Shifts
Only keep staff when needed.Monitor Clock-Ins & Overtime
Eliminate early clock-ins and unapproved overtime.Set Productivity Goals
Track sales per labor hour. Reward performance.Reduce Turnover
Happy, trained staff save you money long-term.Review Management Costs
Calculate daily manager costs. Ensure efficient scheduling.
How to Lower Overhead Costs
Calculate Overhead Percentage
Formula:
Overhead % = (Total Overhead ÷ Total Sales) × 100
Do NOT include: Rent, mortgage, property taxes, or CAM fees — those are building costs, not overhead.
What Counts as Overhead?
Utilities (electric, gas, water, trash)
Insurance (excluding property)
Office supplies
Pest control
Equipment maintenance
Linens & laundry
POS & software subscriptions
Music licensing (ASCAP/BMI)
Credit card processing
Internet, TV, phone
Uniforms
Licenses & permits
Professional services (legal, accounting)
Marketing & advertising
10 Ways to Lower Overhead
Audit Monthly
Review all overhead items. Cut or renegotiate where possible.Lower Utility Bills
Use LED lighting. Turn off idle equipment.Renegotiate Service Contracts
Re-shop pest control, POS, internet, etc.Cancel Unused Subscriptions
Watch out for auto-renewals you no longer need.Combine Vendors
Fewer vendors = better rates.Reduce Credit Card Fees
Negotiate or use flat-rate processors.Prevent Equipment Breakdowns
Schedule monthly preventive maintenance.Outsource Smarter
Use freelance help for marketing, bookkeeping, etc.Buy Bulk (Smartly)
Only bulk buy non-perishables with good turnover.Track Overhead Weekly
Aim for 8–12% of total sales.
How to Lower Building Costs
Key Formulas
Rent % = (Monthly Rent ÷ Monthly Sales) × 100
Mortgage % = (Monthly Mortgage ÷ Monthly Sales) × 100
Total Building Cost % = (Rent or Mortgage + Taxes + CAM) ÷ Sales × 100
What is CAM (Common Area Maintenance)?
Shared tenant costs that may include:
Landscaping
Parking lot maintenance
Snow removal
Security
Property management
Exterior lighting & signage
8 Ways to Lower Building Costs
Renegotiate Your Lease
Ask for a temporary rent reduction or percentage-of-sales lease. Cap CAM increases.Compare Lease vs. Buy
Buying may save you money long-term through equity.Appeal Property Taxes
Challenge inflated tax assessments with your local county.Sublease or Share Space
Rent kitchen space to food trucks, caterers, or ghost kitchens.Use Less Space
Downsize or redesign for more efficiency.Know Lease Terms
Understand triple net leases (NNN) and your CAM obligations.Refinance Your Mortgage
Lower your interest rate or extend your term.Audit CAM Charges
Request detailed statements and dispute padded costs.
How to Increase Restaurant Profits
Profit Formula
Profit = Sales – (COGS + Labor + Overhead + Building Costs)
6 Profit-Boosting Tactics
Track Weekly
Use a weekly scorecard to catch issues early. Don’t wait for monthly reports.Raise Menu Prices Smartly
Small increases (5–10%) on popular items can greatly impact profit. Use psychological pricing.Engineer Your Menu
Feature high-margin items. Eliminate low-sellers. Use design to guide buying choices.Control Food Cost
Portion control, inventory tracking, and recipe adherence are essential.Cut Labor Cost
Use sales forecasting, labor tracking tools, and cross-training to reduce labor waste.Increase Table Turnover
Train staff for speed and accuracy. Seat more guests in less time.
BONUS TIP: Build a Weekly Scorecard
Track these every 7 days:
Sales
Food cost %
Labor cost %
Overhead %
Building cost %
Profit
Weekly tracking is the #1 habit of successful restaurant operators.
