9 Golden Rules of Restaurant Cost Control

9 Golden Rules of Restaurant Cost Control

The main reason most restaurants are not able to manage their finances and suffer losses is that they are not able to keep their restaurant costs in check. Restaurant Cost Control is essential as it allows you to identify the area of your expenses and take corrective and preventive measure to keep a healthy ratio between your expenses and finances.

Highly Effective Restaurant Cost Control Strategies That You Should Be Employing

FnB and Labor are the two major expenses in a restaurant. Let’s discuss how you can track, manage, and control these costs efficiently.

1. Tracking and Managing Inventory to Ensure Food Cost Control

The first step of restaurant cost control is tracking and controlling your inventory. It is essential to track the daily Stock-in and Stock-out and the actual consumption throughout the day. Monitoring the Variance between the Ideal Stock and actual physical stock will help you identify if too much wastage is happening at your restaurant. A Variance between 3-5% is standard; however, anything above that implies that too much wastage or even misappropriations maybe occurring at your restaurant.

A smart Stock and Inventory Management System comes in handy in this case, as it helps you monitor the Variance, gives you real-time reports and also enables you to set re-order levels for individual stock items. This way, you only order the items once they reach a certain re-order level and eliminate the risk of over-ordering or under-ordering.

2. Purchasing Raw Materials on Credit to Reduce Costs

You can control your restaurant costs by going for minimalist cash transactions and conducting all your purchases through the restaurant’s account on a credit basis. Usually, the raw materials purchased in cash are less in quantity and can turn out to be expensive as compared to when you are buying them in bulk.

Purchasing the raw materials on credit is a good idea as it allows you to run your restaurant, generate revenue, and then pay off the credit for the money made. Consider the Credit Period before deciding your restaurant’s vendor. It is usually around 15-20 days but differs from vendor to vendor. Remember to establish the ground rules of payment, ordering, and receiving. Join a ‘Purchase Group’, if possible, to significantly lower your restaurant costs. In a Purchasing Group, because of the sheer number of buyers, the suppliers often lower the prices. 

It is also a good idea to have an annual contract with the vendors. This would not only help you bargain a better price with the vendor but also help in maintaining consistency in the quality of the raw materials.

Manish Sharma talking about Restaurant Cost Control

The operations of the restaurant and their service providers are critically dependent on each other, so it is imperative to maintain a positive and healthy relationship with them. You must remember that while putting a certain amount of pressure on the suppliers is necessary and inevitable; your restaurant cost control targets will fail at the cost of a healthy relationship that you may share with them.

3. Analyzing Stock Requirements Through Yield Management

You can implement Restaurant Cost Control and reduce your Food Costs significantly by merely giving attention to a slight detail that is often overlooked, yet is just as critical, namely Yield Management. Yield management is an integral part of food cost control as it gives you the idea of how much quantity of raw materials would be used to prepare a particular food item. The raw materials should be ordered and purchased keeping the yield of the items in mind.

For example, the amount of raw meat delivered to your restaurant, and the amount of raw meat that can be consumed in a dish are different. While placing the order, you should keep in mind how many portions would a particular order of raw materials deliver.

4. Controlling Wastage through Portion Control

Overproduction and big portions are the signs of wastage which lead to escalating food costs. You should have the tools to measure the portions and rigorous process to control the size of the portion. Right plating of the food is also essential as over serving of food can lead to high food costs and also wastage.

We suggest creating a tracking chart based on these parameters:-

  • Food Returned by the Customer
  • Food Burnt in the Kitchen
  • Food Spilled in the Kitchen or Floor
  • Extra Portions that get thrown away

Once you start measuring these parameters, you can take corrective actions based on the results. For instance, if food is being returned by the customers, either you need to improve the taste and quality of the item, or start reducing the portion size served. If food is regularly being burnt in the kitchen, you need to train your cooks better or probably consider purchasing better kitchen equipment.

5. Controlling Labor Costs by Reducing Employee Turnover

Another tip for reducing your budget spent on labor and restaurant cost control is lowering your employee turnover. The restaurant industry witnesses one of the highest employee turnover rate, reaching as high as 80% in some cases.

Hiring a restaurant staff member needs a lot of resources, starting from the interviews to recruiting them, and training them appropriately. But in a case, if an employee leaves your restaurant in the initial weeks only, all the resources that you had put in hiring the person goes waste.

So, while hiring new employees in your restaurant, your primary focus should be on quality hiring and on ensuring favorable conditions so that they stick around for a longer time. Spend time in hiring and adequately assess the candidates’ profile when hiring them.

Also, ensure that you provide a good pay structure, give recognition and rewards to your restaurant staff so that they may be motivated to continue working at your restaurant. This would help you bring down your labor costs.

Control employee attrition to reduce your restaurant costs

6. Automating The Manual Processes

Accepting and placing the orders, and billing has always been considered a labor-intensive task. When done manually, it leaves scope for manual mistakes and also consumes time. A smart restaurant management system which automates the entire ordering and billing procedure, right from automated Tablet Ordering to instant billing, reduces the need for human resource required to perform these tasks.

Having a restaurant management system, which comes with a kitchen display system will also reduce your dependency on manual labor to a great extent which in turn will reduce your expense on the labor. As soon as the order is placed in the POS, it gets instantly reflected on the kitchen-screen in real-time. 

In addition to this, if the customer changes his order after placing it, all the changes will get reflected in the KDS in real-time as well. All these will nullify the need for the server to run to and fro from the table to the kitchen to hand over the KOT.

7. Evaluating Your Staff Performance

Monitoring and measuring your restaurant staff performance is essential to identify the areas where they are doing well and the areas where they could improve. Decide the Key Performance Indicators for your restaurant staff and track them religiously to see if they are delivering their duties as per the expectations.

A restaurant management system with the People Management feature would help you monitor your staff performance and provide you with the data to train them better for improved efficiency. This will, in turn, improve your revenue and justify the costs.

You can track the following details with a restaurant management system to measure your staff performance that would ultimately help you control your labor costs –

  • Number of Tables Covered
  • Worth of Items Sold and Upsold
  • Tracking the discounts offered

8. Tapping Internal Thefts and Pilferage 

One of the significant areas where restaurants lose out on a lot of money is internal thefts and pilferage. The lack of automation and reporting often leads to rising costs. There are multiple ways internal thefts happen in restaurants, and the restaurant owners are not able to identify the point where the thefts are occurring. For example, dishonest staff members can alter the number of sales that happened on a particular day and pocket the billed amount for themselves, or keep certain inventory items for themselves. One way to control this is to assign roles and permissions for each activity and keep a strict view of the daily reports. Find out the other ways internal thefts happen at restaurants here, and the ways you can control them. 

9. Daily and Weekly Reporting to Keep Track of Restaurant Costs

Another important tip that you have to follow is to keep a regular track of your overall restaurant business. Real-time reporting comes extremely handy in this case. By keeping a track on the numbers and through regular reporting, you would be able to have an air-tight control over your business and identify the areas of revenue leakage and simultaneously keep a lookout on sales-purchase reports.

The purchases-sales report should be audited on a weekly or fortnightly basis depending on the size of the restaurant.
Along with it, there is also a need to monitor the monthly sales report that gives you details of the sales performance of individual menu items. You should ideally weed out the low-selling, high food cost menu items every so often to reduce the wastage.

Sahil Sambhi talking about restaurant cost control

Other areas where the significant capital bleed in any restaurant happens is accidents and spillage. Make sure your kitchen/bar/restaurant layout should be free of any obstacles for traffic during the peak hours. Floors must be anti-skid to avoid accidents.

Employ these tips at your restaurant business and see how your restaurant costs plummet!

Get a free consultation from one of our restaurant experts who will tell you how exactly a restaurant POS streamlines your operations, increases efficiency, and reduces costs.
Implement these tips in your restaurant’s budgeting and cost control measures and let us know how they worked out for you in the comments below!

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  1. There are various hidden costs that bleed the restaurant dry. This article is very well crafted and will inform the restaurant owners of the restaurant costs and how to keep them under control. I would, however, like to add that the expenses incurred behind the restaurant staff also has the potential of burning a hole in the cash register. Hence, it is recommended that you try and run your restaurant with limited permanent staff and call in for part-time or seasonal restaurant employees to manage the rush during the festive season. Such actions will help you control your restaurant cost to a great extent. 🙂

  2. When it comes to food orders, the harder you’re willing to work, the more you can save. Keep track of the food prices around the world and things that can affect the price of food. In the cooking process, some by-products and food waste are inevitable, but some chefs are finding creative and innovative ways to incorporate those by-products into their dishes. The article is very well explained especially the quotes. Good Read.

  3. Thanks for the information, very useful indeed. Days of restaurant cost control excel sheets are gone, everything can be done automatically with the help of the pos software.

  4. Food cost seems to be the most difficult aspect to manage for any restaurant owner. I like how this article gives detailed information about managing the food cost and keeping it in check!


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