Restaurant
Cost Control
Guide
1
Introduction
You have to spend money to make money, right? Well what if
you could spend less money to make the same or even greater
returns…
You’ve seen the news. You’ve read the stories. You’ve likely lived it yourself. So you
know all the challenges currently stacked up against the restaurant industry:
Supply chain challenges Inflation concerns Labor struggles
You also know that you’re not going to fix any of those single-handedly. Many of
these are national and global issues out of our hands. Your time is better spent on
what you can positively affect — on controlling your restaurant costs.
Researchers observed that
Restaurant food prices 4% to 10% of food purchased
On average, the food cost
increased 6% over 2021 by restaurant leaders never
percentage is 28-32% in many
and is expected to increase gets to the customer totaling
full-service and quick-service
another 3.5 - 4.5% through approximately $1,000 of the
restaurants.1
2022.2 company’s revenue per 3.3 lb
of food waste.3
1
https://www.restaurantowner.com/public/Restaurant-Rules-of-Thumb-Industry-Averages-Standards.cfm
2
https://www.ers.usda.gov/data-products/food-price-outlook/
3
https://scholarworks.waldenu.edu/cgi/viewcontent.cgi?article=1371&context=ijamt 2
Use the following questions as a quick operational assessment:
How much value do you have in on-hand inventory?
What is the profit margin on your most popular menu item?
When is the last time you compared invoices week over week?
You can positively influence each of these answers, but first you have to be able to
answer them.
This guide provides five steps to improve your cost control.
A better understanding of your costs can help you zero in on your profitability and
ensure you’re maximizing returns on each dollar you spend on your restaurant, and
each dollar your restaurant brings in.
You’re already spending money and making money — read on to
see how to spend less and make more.
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Table of
Contents
5 Know the difference between your costs
7 Consistently capture and update costs
9 Calculate costs for recipes and menu items
11 Understand your restaurant’s unique inventory needs
13 Be intentional about your goals
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1 Know the difference
between your costs
You can’t control your costs until you know your costs, so let’s start there.
Restaurants are up against a ton of costs. They’re commonly broken out into
two buckets:
Fixed costs Variable costs
Fixed costs aren’t changing. Variable costs are
You don’t really control controllable. These are all
them (aside from initial your costs directly related to
agreement.) Common getting your food and drinks
fixed costs include, leases/ out to your customers. Within
mortgages, utilities, property your variable cost, we’re most
taxes, licenses, payment concerned with your prime
processing, and salaried costs.
employee compensation and
benefits.
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Restaurant prime costs are the combination of your total labor Here’s what both calculations look
costs and your total cost of goods sold (COGS) over a given like in action:
period of time.
A bakery owner wants to know the prime cost of
Total COGS + Total Labor = Prime Cost their business last month. They had a COGS of
$30,000 — meaning it cost $30,000 to produce all
the products the bakery sold that month.
Total COGS refers to all ingredients and products required to
make the products you sell in your restaurant. We’re talking
food costs, beverages, packaging, cleaning supplies, etc.
Labor reports show total wages for their team
Total labor refers to salary + wages, taxes, benefits, food cost $4,000 for the month — factoring in taxes,
discounts, and insurance. Realize that $10/hour actually costs comps, and other benefits bring total labor costs
closer to $12-13 per hour with all those added costs. up to $5,000.
Prime costs are represented in dollars, such as the formula The bakery’s total sales for the month were
$60,000.
above, or as a percentage of sales:
Prime Cost Ratio = Prime Cost / Total Sales Prime Cost Prime Cost Ratio
$30,000 + $5,000 $35,000 / $60,000
Prime Cost = $35,000 Prime Cost Ratio = 58%
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2 Consistently capture
and update costs
The key to consistent costing is to go straight to the source — your supplier
invoices. But no one has time to manually analyze invoices and compare them
to prior ones.
What typically happens is that the bare minimum analysis. Invoices are coded
into your accounting system at such high levels that any insights uncovered are
hardly actionable.
Invoice processing automation solves this.
Invoice automation platforms blend machine learning and optical character
recognition (machine vision) to capture every invoice detail via the snap of a
photo, scan and upload, email, or EDI feed.
These tools give you properly coded and categorized purchase data for your
accounting system without lifting a finger or incurring any billable hours.
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More importantly, invoice processing systems
unlock a granular view into:
• Every ingredient you order • Order purchase dates
• Ingredient quantities per order • Ingredient supplier(s)
• Ingredient costs per order • Notes, alterations, and credits
It doesn’t matter whether you’re just starting out with a small cafe or
you have 20 franchises under your belt — you’d benefit from automated
analysis like this.
This is especially true considering all of the challenges up against the
industry.
You can’t afford to wait until the end of the month to learn that you’ve
been taking a loss on chicken wings. You have to be proactive in taking
action so you can stay ahead of costs and maintain your profitability —
that’s precisely the foundation that invoice automation provides.
Invoice automation offers unparalleled costing insights and analysis that
are conveniently wrapped in tons of time savings.
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3 Calculate costs for
recipes and menu items
Let’s build on that invoice processing automation foundation by grouping
ingredients into recipes and menu items.
Remember, you’re not serving individual ingredients — you’re serving dishes
made up of a combination of recipes. You want updated ingredient prices to
flow into those recipe costs and then onto your dish/plate costs. That’s why it’s
critical your invoice system integrates with costing tools that build recipes.
For example, say that chicken breasts increase $0.42 per
serving this week. You innately know that every dish with
chicken breast is now $0.42 less profitable — but what are
those dishes? And what’s the larger impact on the actual
profitability of the dishes?
A $0.42 hit may be nothing for some dishes because of how profitable they
are. On the flipside, there may be some dishes where a $0.42 hit makes them
unprofitable. Recipe costing tools provide this information in as close to real-
time as possible. They shift your efforts from playing catch up to playing the
game on your own terms.
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Here are a few additional tactics to
boost recipe profitability and get This type of down-to-the-penny analysis shows you how each
the most out of your costs: menu item is contributing to your profits — making it easy to
decide if/when:
• Prices need to be raised
• High-quality ingredients need to be swapped for lesser ones
Recycle scraps and waste
• Dishes need to be pulled off the menu
Use bones and vegetable scraps for stocks. Turn
stale bread into croutons. • Ingredients need to be shopped across suppliers
Purchase smarter
Whole carrots cheaper than peeled? Buy those
and process them.
Check portion sizes xtraCHEF by Toast creates a product catalog that houses every
item processed from your invoices. You can pull from that catalog
You don’t owe your customers leftovers.
to build recipes, assigning average costs per ingredient or most
recent cost per ingredient.
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4 Understand your restaurant’s
unique inventory needs
There’s simply too much complexity in your restaurant needs to be manually
managing inventory — especially as you look to scale your operation. This is
why the industry puts such an emphasis on inventory management systems.
It’s table stakes for today’s leading operators.
However, it’s critical you realize that simply adopting an
inventory management platform is not a fix-all for your
restaurant.
You need to know exactly what you want to get out of implementing an
inventory management system. Here are a few questions to ask yourself:
How are you managing purchase orders?
Do you need support with insights tied to inventory?
Are you struggling to get consistent on-hand inventory counts?
Your answers to these questions will set the stage for how you implement
and benefit from your inventory system. Regardless of your needs, you must
build your inventory system on strong data foundations.
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Here are a few ways to achieve that strong inventory data
foundation and better control your restaurant costs:
Invoice automation checks the box for your strong data foundation. It
ensures you have real-time pricing data funneling into your additional
platform modules.
Precise inventory data is critical when reporting your COGS. xtraCHEF by Toast
calculates the exact value of your inventory by applying your ingredients’ most
recent purchase prices, or take an average of the last 3, 6, or 9 purchase prices.
Digitized inventory systems make counts easier by organizing around
your unique kitchen setup and assigning specific team members to
complete counts.
We’re not going back to 2019 — so restaurants need to start operating in 2035.
xtraCHEF by Toast empowers your staff to take physical inventory counts on any
device no matter how strong your connection to the internet may be.
Automated supplier purchasing and par leveling tools make sure you
always have the products you need stocked for every service.
xtraCHEF by Toast automatically builds order guides based on what’s on hand and
what’s required to maintain par — all you have to do is take inventory once. And
your invoice-powered product catalog simplifies one-off orders.
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5 Be intentional about
your goals
The past few years have no doubt caused operators to think deeply
about their restaurant business goals — we’re talking long-term growth
plans and even endgames.
Obviously, things change, and life throws us curveballs. But planting
flags on business goals allows you to be intentional with how you
optimize your operation.
Say, for example, that you’re a single-unit operator and want to open another
location in a year.
That objective allows you to create a roadmap of milestones needed to achieve that goal. You can think of that roadmap as a string of
if/then statements, working back from the final goal to determine how you’ll get there.
Here’s how you could break down cost needs:
If it takes $100,000 to open a new location If you need to net $60,000 over the If you need to average $5,000/month and
and you have $40,000 saved, next year, you currently only net $3,200,
then you need to net $60,000 to afford to then you need to average $5,000 in then you need to drive more revenue,
open the next location. monthly profits. raise prices, and lower costs to make up
the additional $1,800.
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Dissecting your goal this way provides bite-size objectives that are
more quickly achievable, allowing you to build some momentum and
see the progress.
Once your objective is broken down into profitability measures, all
the previously mentioned cost control steps provide the strategies
and tools needed to get there:
Invoice automation shows you where all your
money is going
Recipe costing enables you to control profitability
across your menu
Inventory management helps ensure your
maximizing the value of your ingredients
While this is the final step in this guide, your
restaurant cost control journey has no destination or
ending. You’ll ideally have these goals and objectives
broken down clearly to keep yourself aligned with
along the way — but the road goes on forever and
the costing never ends.
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Where do you go from here?
Hopefully, you’ve read these steps and are ready to take control of your
restaurant costs. Here are a few calculators, templates, and other free resources
to get you started:
The Menu How to Set Up Par How to Cost a
Engineering Course Inventory Sheets Plate of Food
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Take control of
your costs
Toast’s all-in-one platform is designed to grow with
your restaurant. xtraCHEF by Toast and Toast Payroll
tools combine with our flagship POS system to
integrate and centralize costing data — empowering
you to truly start controlling your controllables.
Talk to a specialist
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