Although it may not be the reason you got into the bar or restaurant business, making money always ends up being the bottom line.
Running a bar or restaurant can be a very expensive venture, especially when starting out and so any way to cut costs should not be overlooked.
Net profit margins for bars and restaurants range from 5%-15%, with the high end of 15% typically being chain operations, with higher purchasing power and a heavy investment put towards improving operational efficiencies.
This means that about 85%-95% of all revenue goes towards things like cost of goods sold (COGS), payroll, rent, utilities, credit card fees and other operating costs. A bar or restaurant that seats 50-100 people can expect to do anywhere from $1-3 million per year in sales, but let’s go with the conservative number and say that it’s $1 million per year. That means that for every 1% that a bar or restaurant can cut in costs, they’ll be adding 10k to their net profit. Not too shabby.
Below are 6 ways that you can cut costs in your bar or restaurant:
Start by listing your most ordered inventory items from highest to lowest total cost – whether that be food, liquor or supplies. Knowing where to begin cutting costs is half the battle. If you try to do everything at once, you’ll quickly become overwhelmed and are much more likely to give up. Evaluate these items and consider substitute products or reducing their use.
A bit of discipline can go a long way for reducing your energy costs. Many bars and restaurants run their refrigerators above the recommended set-point, causing your energy expenses to add up quickly. Many modern commercial thermostats are also equipped with timers to allow you to schedule the heating and cooling of your bar or restaurant to coincide with business hours.
Most would agree that it’s better to be prepared and slightly overstaffed than understaffed. The risk of losing out on bar sales outweighs the reward of saving a few bucks on wages, however,
this doesn’t mean you shouldn’t practice staffing optimization. Use your point of sale (POS) data to discover trends in demand and cross-train your staff to help each other out during peak times. Staff optimization has other indirect benefits, such as boosting staff morale. Front-of-house staff wants to be busy because that means more tips in their pocket. Fewer back-of-house staff means that their tip out portion will also be larger. This will ultimately reduce staff turnover which tends to hover around 60% in the hospitality industry and eat up your bottom line through training costs.
Make sure you’re getting a return on every marketing dollar spent. Are you able to track and measure every one of your initiatives? Is that billboard or faded park bench advertisement effective for driving more traffic to your business, or are you continuing to use it because “things have always been done that way.” A good rule of thumb in marketing is that if you can’t measure it, you shouldn’t do it. Luckily, almost everything is measurable in some shape or form.
No one likes to accuse or be accused of stealing but this is likely more prevalent than you may think. In most cases your staff aren’t trying to steal from you, it’s simply a result of poor tracking and a lack of procedures. Make sure you have a manager sign off on all staff meals, waste/spilled liquor, uniforms, etc. Other simple protocols can be put in place such as using clear garbage bags and requiring all boxes to be broken down before removing them from the bar or restaurant to prevent the concealment of any items.
This applies to more established bars and restaurants. There’s plenty of new bar and restaurant technology, such as POS systems, reservations systems, scheduling software and marketing platforms, that are much more effective and less expensive than traditional systems. Before closing out this post, a word of warning: being too frugal with the way you operate can have long-term negative effects.
The idea here isn’t to be a cheapskate but to find areas of your business where there are cost savings that don’t damage your brand’s reputation or demoralize your staff. For example, cutting your lemons into slices instead of wedges is a smart way to cut back on fruit costs. Turning 2-ply toilet paper into 1-ply probably won’t bode well for maintaining customers’ good perception of your establishment.