6th September, 2018

How to cut costs in hospitality

Cutting costs can be a daunting task, but when it comes to the hospitality industry, most businesses simply cannot afford to be lazy when it comes to crunching the numbers.

Margins can be tight, and failing to accurately account for costs can erode your profits.

There are many different opinions on how best to manage your budget, but with a firm grasp of a few essential tasks, it is possible to manage your businesses budget without the need for an advanced business degree.

Setting the cost

With up to 40 percent of all food purchased in hospitality being thrown out (that’s around 160g of wastage per customer) it’s no surprise that a huge portion of your profits are literally being tossed in the garbage.

When trying to cut restaurant costs, always start in the kitchen.

When setting your menu, check each item against a food cost formula and aim for costs to be less than 25 percent of the marked price.

Fantastic guides can be found online, such as this one at Possector.

An easy way to work out your food cost margin is to divide a menu item’s price by the total cost of its ingredients.

READ: 5 golden rules for opening a cafe

Prepare it right

Once your menu is on track, it’s essential to write and follow clear kitchen prep lists.

The Chef Resources website is a good source of practical examples.

These lists not only ensure the kitchen preps the right amount of food for a smooth service, but also cuts avoidable waste.

Without lists, it’s common for staff to over-prepare, meaning a lot is thrown out at the end of service.

That’s your profit going in the bin!

Keep it organised

A poorly organised kitchen can also hamper efficiency.  A chaotic layout can breed confusion and inefficiency, which can easily lead to accidental waste.

Thanks to digital hospitality systems, it’s now easier to keep track of your stock and to know when you need to order more produce, and exactly how much.

MYOB has a range of add-on solutions specifically geared towards keeping your kitchen organised.

If you’re not a ‘digital’ business, there are still plenty of common sense ways to cut waste.

Weekly ‘date checks’ ensure stock shelves are organised with the freshest produce at the back, helping to ensure that produce is used and not overlooked or forgotten.

Get creative with waste

Encouraging staff to find creative uses for food that would otherwise be binned is another way to maximise profits.

Some venues have even removed general kitchen bins entirely, providing staff with a small waste container of their own, to promote greater awareness of what exactly is thrown away and if it could be avoided.

Staff costs

Staff are an essential part of any hospitality venue, and often account for one of the largest chunks of a budget, but an expense that is often overlooked is that of staff turnover.

Staff turnover is unavoidable to some degree but reducing its frequency can increase your bottom line, while promoting greater team cohesion and providing your employees with job satisfaction.

After all, a happy employee is the best kind of employee!

Encourage employees to talk to you about work/life balance and recognise and reward successes.

When your staff are made to feel like valued team members they work harder, and are less likely to leave, meaning you avoid the costs and frustrations of perpetually retraining new people.

Finally, consider if the staff you have are able to perform efficiently.

If your front of house systems can be refined, you may find that you can cut staff numbers. This can be painful, but better this than a failing business.

Stay on top of your budget

Setting a budget is important, but equally crucial is to follow it.

Many restaurants and cafés start with a budget, but it often gets cast aside when things get busy.

To really understand your business, you must be able to analyse where your money is being spent and assess what works, and what doesn’t.

There are some fantastic tips for creating a realistic budget on the Restaurant Owner website and once you have it sorted, it’s essential to review it at least every month to ensure you’re still on track.

Regular reviews of food, staff and overhead costs, compared with sales, will help flag problems early on, enabling you to work on a solution before you have a crisis.

Armed with the knowledge you need to keep on top of your expenses, budgets can be a powerful tool to manage your business efficiently and help your business thrive.