Restaurant operating costs, listed and ranked

Most restaurant owners know their food cost and their labour cost to the nearest percentage point. Ask them what they spend on energy, card fees, software, laundry and waste collection, and the answers become vague. Those costs are spread across dozens of bills, paid by direct debit and rarely reviewed. Together, though, restaurant operating costs below food and labour can take a large share of every pound a venue earns, and many of them can be reduced with a few phone calls.

Food and labour, together known as prime cost, get most of the attention because they are the biggest and the most visible. The rest, from rent to the dishwasher's service contract, are often set once and forgotten. A venue that lists them, ranks them by size and reviews the largest each quarter usually finds money it did not know it was losing.

This guide lists the operating costs of a typical restaurant, ranked roughly by size, explains what drives each one and covers the three most worth renegotiating this quarter. The ranking is a rough guide for a typical venue; your own order will differ. Every venue and figure in it is an example.

An operating expense is any cost of running the business day to day. In a restaurant, that includes food and labour, but this guide focuses on everything else: the costs of the building, the services, the equipment, the systems and the extras that keep the venue open.

They are sometimes grouped together as overheads or other operating costs. Whatever the name, they sit below prime cost in the profit and loss, and they decide much of the difference between a venue that makes a healthy profit and one that barely breaks even.

Ranking costs by size tells you where to look first. Saving ten per cent on a cost that is a large share of sales is worth far more than saving half of a small one. Without a ranking, effort goes to whichever bill caught someone's eye, rather than the ones that matter.

A ranked list also makes changes visible. A cost that moves up the list from one year to the next, such as energy after a price rise, deserves attention before it becomes a problem.

After food and labour, the costs of a typical restaurant fall into a few groups: the building, such as rent, rates and repairs; services, such as energy, water and waste; payments, such as card fees and commissions; systems, such as software and equipment; and the rest, such as insurance, marketing, cleaning, licences and professional fees.

Each group has its own drivers. Building costs are mostly fixed; payment costs rise with sales; services rise with how long and how hard the kitchen runs. Knowing the drivers helps decide which costs can be reduced and how.

For many restaurants, operating costs below food and labour fall roughly in this order, though every venue is different:

Use it as a starting point, then build your own list from your accounts, in your own order.

For most venues, occupancy is the largest cost after food and labour: rent, any service charge to the landlord and business rates or local property taxes. It is almost entirely fixed, set by the lease and the location, and it changes only at rent reviews or when the venue moves.

Because it is fixed, occupancy is best managed at the start: by choosing a location the trade can support and negotiating the lease well. During the lease, check that service charges are justified and that the rates valuation is correct, because both can sometimes be challenged.

Utility costs, energy, gas and water, are often the second-largest operating cost and among the most volatile. Kitchens use a great deal of energy: ovens, fryers, extraction, refrigeration, dishwashers and lighting, often running for many hours a day.

They are partly fixed and partly variable: refrigeration runs all day regardless of trade, while cooking energy rises with covers. Reducing them combines better contracts with better habits, such as switching equipment off when it is not needed and maintaining fridges so they run efficiently.

Card and payment fees are a percentage of most sales, plus sometimes a fixed charge per transaction and a monthly fee for the terminal. As more guests pay by card, these fees grow, and for many venues they are now a significant cost.

They are variable, rising with sales, which makes them easy to overlook: no single fee looks large. Added up over a year, they often come to a surprising sum, and the rates offered by different providers vary.

Commissions to booking platforms and delivery apps can be a large cost for venues that rely on them. A per-cover fee on bookings, or a percentage of each delivery order, adds up quickly, and it is charged on guests the venue might have won directly.

Know exactly what each platform charges and what it brings. Our guides to cover fees: what a booking really costs you and aggregator commission: the real cost of an order cover the sums.

Repairs and maintenance cover the equipment and the building: fridge engineers, oven repairs, plumbing, electrical work, redecoration and the service contracts that keep equipment running. Costs are uneven, with quiet months and sudden large bills when something breaks.

Planned maintenance usually costs less than emergency repairs. A service contract for the most important equipment, such as refrigeration and extraction, can prevent breakdowns that would cost far more in repairs, lost stock and lost trade.

Technology and software include the till, booking system, kitchen screens, accounting software, payroll, rota tools, music licences for streaming, the website and its hosting, and any apps the venue uses. Each subscription is often small, but together they add up, and some are paid for long after anyone stopped using them.

List every subscription, what it costs and what it does. Our guides to how much does a POS cost in the first year and software ROI: the sum before the subscription cover how to judge whether each one earns its place.

Marketing costs include advertising, paid social media posts, printed materials, photography, website changes, promotional events and any agency or freelancer fees. They vary widely between venues and from month to month.

Marketing is one of the easiest costs to cut and one of the riskiest, because cutting it can reduce trade. The better question is whether each pound spent brings guests back. Measure what each kind of marketing brings, and move money from what does not work to what does.

Insurance covers the building, contents, liability, employers' liability where it is required, business interruption and sometimes equipment breakdown. It is usually paid annually or monthly, and it is easy to renew without comparing.

Review insurance each year before renewal. Check that the cover still matches the business, since the venue may have new equipment or a changed layout, and compare quotes. Cheaper cover with important gaps is a false saving, so compare like with like.

Cleaning, laundry and waste include cleaning products, contract cleaners, laundry for napkins, tablecloths and uniforms, and the collection of general, recycling and food waste. Each is modest on its own, but together they are a steady cost.

Waste collection costs often rise with the amount of waste, which gives another reason to reduce food waste. Laundry costs can sometimes be reduced by changing what is laundered or how often, without affecting what guests see.

Licences, such as premises and music licences, professional fees for accountants and solicitors, and bank charges are usually smaller costs, but they recur and are rarely reviewed. Some are fixed by law; others can be compared.

Check bank charges and accountancy fees from time to time. A bank account with high monthly fees, or an accountant charging for work that software could do, may be worth changing.

Small equipment, tableware and consumables, such as glasses, plates, cutlery, utensils, napkins, straws, packaging and cleaning cloths, are replaced constantly as things break or wear out. Breakage, in particular, can be a surprisingly large cost in a busy venue.

Track what is replaced and why. A high breakage rate for glasses may point to a storage or washing problem that is cheaper to fix than to keep paying for.

Each operating cost is either fixed, staying the same whatever the trade, variable, rising and falling with sales, or a mix. Rent and insurance are fixed; card fees and commissions are variable; energy and repairs are partly both.

Sorting them matters, because fixed costs set the break even point and variable costs set the margin on each cover. Our guide to fixed and variable costs: the split that decides covers how to sort them, and break even point: the covers you need by Tuesday covers what the split means for each week.

Operating costs appear in the restaurant profit and loss below food and labour, and together they decide the bottom line. Many profit and loss statements lump them together as overheads, which hides the detail. Asking your accountant to show them line by line makes them far easier to manage.

Look at each line as a percentage of sales, and compare with the same period last year. Our guide to a restaurant profit and loss you can read covers how to read the statement.

Some operating costs can be reduced simply by asking, comparing or switching. For most venues, three are worth looking at this quarter: energy, card fees, and subscriptions and commissions. Each is often paid on terms set years ago, each can usually be compared and each can produce savings without any effect on guests.

The sections below take each in turn. Start with the one that is largest for your venue.

Energy contracts are often renewed automatically on less favourable terms when a fixed deal ends. Check when your contract ends, what rate you are paying and what other suppliers or brokers can offer for a venue of your size and usage.

Alongside the contract, look at usage. Equipment left on when not needed, poorly maintained fridges and extraction running longer than necessary all add to the bill. A short energy audit, by your supplier or an adviser, can find savings in both the rate and the habits.

Card fees are worth reviewing because rates and charges vary between providers, and many venues are on terms they agreed when they opened. Look at your statements: the percentage charged on different card types, any per-transaction fee, terminal rental and any other monthly charges.

Compare with other providers, using your actual card volumes, and ask your current provider whether they can improve the terms. Even a small reduction in the percentage, on a large volume of card payments, can save a meaningful sum each year.

List every subscription and every commission: software, apps, platforms, services. For each, ask whether it is still used, whether it is worth what it costs and whether a cheaper plan or a different provider would do the job. Cancel what is not used, and negotiate what is.

Commissions deserve particular attention. A booking platform that charges per cover on guests who would have booked directly anyway is costing money for nothing. Moving more bookings to your own booking page, where there is no commission, can be one of the largest savings available.

The best cost cutting is the kind guests never notice: better contracts, less waste, fewer unused subscriptions, equipment that runs efficiently. Cuts that reach the plate or the service, such as smaller portions, cheaper ingredients or fewer staff on busy nights, often cost more in lost trade than they save.

Before cutting any cost, ask whether a guest would notice. If they would not, the saving is probably worth having. If they would, look elsewhere first.

Set aside time each quarter to review operating costs. Look at the ranked list, check the largest few against last quarter and last year, and pick one or two to renegotiate or reduce. Over a year, that steady attention usually saves far more than an occasional panic when profits fall.

Keep the list up to date as contracts change, and note when each one is due for renewal, so you can compare before it renews automatically.

It can help to express operating costs per cover: each cost divided by the number of covers in the period. If energy costs 2,400 pounds a month and the venue serves 1,600 covers, energy costs about 1.50 pounds a cover.

Per-cover figures make costs easier to compare across months with different trade, and easier to explain to the team. A cost that rises per cover while covers stay steady is growing faster than the business, and deserves a look.

Delivery charges and minimum order sizes from suppliers are an operating cost that hides inside the food bill. Frequent small deliveries, each with a charge, can add up to a noticeable sum each month.

Look at how often each supplier delivers and what it costs. Combining orders into fewer deliveries, or meeting minimums to avoid charges, can save money without changing what is bought.

Music in the dining room usually needs a licence, and live entertainment, sports screenings and some events may need others. These costs are easy to forget until a renewal or an inspection.

Keep a list of every licence the venue holds, what it costs and when it renews. Check that each is still needed and that the venue is not paying for two licences that cover the same thing.

Some costs rise quietly, a few per cent each year, without anyone noticing: subscriptions that increase at renewal, service contracts with annual price rises, insurance premiums and bank charges. Each rise is small; over a few years, they add up.

Compare each cost with the same period last year during the quarterly review. A cost that has risen faster than sales deserves a phone call, and often a better price.

Water is often overlooked as a cost, but kitchens use a great deal of it: dishwashers, glasswashers, cleaning, cooking and ice machines. In some places, waste water charges are added on top of the supply charge.

Check meter readings against bills, and look for leaks, dripping taps and equipment that uses more water than it should. Small fixes, such as repairing a leaking tap or running dishwashers only when full, can reduce the bill.

An invented bistro's profit has slipped over two years, though food and labour costs are steady. The owner asks the accountant to list operating costs line by line and ranks them. After rent, energy is the largest, followed by card fees, a booking platform's per-cover fees and a dozen software subscriptions, three of which nobody uses.

That quarter, she compares energy contracts before the renewal date, asks her card provider to match a competitor's rate, cancels the three unused subscriptions and starts sending regulars to the bistro's own booking page instead of the platform. Without changing anything guests see, the bistro's operating costs fall noticeably, and its profit recovers much of the ground it had lost.

servearound does not track operating costs: there is no accounts, supplier or expenses module, so the costs in this guide come from your own records and your accountant. It is itself one of the costs on the list, priced per venue, per month, with no per-cover fee or commission on bookings taken through its own booking page.

What it gives the cost review is the sales side: payment analytics show what was collected by day and how it was tendered, so the share paid by card, which drives card fees, is visible, and bills for a date range download as a CSV for your accountant. See pricing and Analytics.

The costs of running the business beyond food and labour: occupancy, utilities, payment fees, repairs, software, marketing, insurance and more.

For most venues, occupancy: rent, service charges and rates.

Energy, card fees, subscriptions and commissions, often by comparing and renegotiating.

Only what does not bring guests back. Measure first.

Every quarter, and before any contract renews.

Each cost divided by the number of covers, to compare months with different trade.

The kind guests never notice, such as better contracts and less waste.

Below food and labour in the profit and loss. Ask for them line by line.

Restaurant operating costs below food and labour can take a large share of every pound, and they are often set once and forgotten. List them from your accounts, line by line, and rank them by size. For many venues, occupancy comes first, then utility costs, card fees, commissions, repairs, software, marketing, insurance, cleaning and waste, licences and fees, and small equipment.

Sort them into fixed and variable costs, look at them per cover and review the largest each quarter. This quarter, start with the three most worth renegotiating: energy, card fees, and subscriptions and commissions. Prefer cost cutting that never reaches the plate, and set reminders before each contract renews, so it never renews on worse terms by default.