The dream of owning a restaurant conjures images of bustling dining rooms and satisfied customers, but a complex web of financial responsibilities lies beneath the surface.
Understanding the true cost of running a restaurant involves untangling a myriad of monthly expenses that, when overlooked, can quickly overwhelm even the savviest restaurateur.
From fixed costs like rent and utilities to variable, ongoing expenses such as ingredients and labor, every dollar spent plays a critical role in the financial health of the establishment.
How Much Does It Cost to Run a Restaurant?
Every type of restaurant differs, so operating costs will vary, making it difficult to calculate a useful average cost. All numbers listed here are for informational purposes, so every current or budding restaurateur should consult a financial expert who can give personalized advice.
The initial cost to open the restaurant (restaurant startup costs are usually significant and should be considered in addition to monthly costs) will also require consideration, including construction costs and upfront costs for equipment.
Successful restaurant management requires a solid business plan to balance these major expenses effectively.
ProTip:
Partnering with an all-in-one restaurant management platform like SynergySuite can help streamline these costs and uncover hidden savings.
Typical Expenses
Running a restaurant is a multifaceted endeavor requiring meticulous attention to recurring monthly costs that impact a restaurant’s financial health.
Common Expenses Include:
- Food Costs: Often one of the largest expenses, food costs can vary depending on menu items and suppliers.
- Labor Costs: These labor costs include minimum wage, hourly wages, and employee benefits.
- Rent and Lease: Determined by the square footage and prime location, monthly rent is a significant ongoing cost.
- Utility Costs: Factoring in electricity, water, and gas, utility costs can fluctuate based on the restaurant’s size and energy efficiency.
- Licenses and Permits: These include liquor licenses, food service licenses, and business licenses.
- Marketing Costs: Essential for attracting and retaining customers, often involves social media platforms. Franchised locations often do this in conjunction with the franchisor.
- Equipment: This includes dining ware, cooking equipment, and other miscellaneous kitchen equipment, bar equipment, and maintenance.
The Rent, Lease, or Mortgage
Securing desirable real estate for a restaurant involves significant costs that can impact the venture’s economic viability.
Monthly lease or mortgage payments range from thousands to more than ten thousand a month, largely driven by factors like the restaurant’s location and square footage.
A long-term lease usually necessitates a security deposit, generally equivalent to one to three months of rent.
For those aiming to purchase rather than lease, the median cost for buying retail space in 2024 was around $23 per square foot.
Pro Tip:
When possible, consider renegotiating lease terms or subleasing parts of their space to manage costs effectively.
Utilities
Utility costs are an integral part of a restaurant’s operating expenses, encompassing electricity, water, natural gas, internet service, cable, and cell phone services.
Though typically comprising about 5% of total operational expenses, utility costs can vary significantly due to climate, location, restaurant size, and infrastructure.
To mitigate utility expenses, restaurant owners might consider negotiating bundled packages with service providers or opting for energy-efficient installations and practices.
Pro Tip:
Consider energy-saving equipment and bundling utility services to reduce costs.
Ingredients
The cost of ingredients is a core component of a restaurant’s budget, with food inventory often accounting for 25% to 35% of total expenses.
This percentage can fluctuate based on the restaurant’s type.
Initial inventory outlays are typically higher for stocking essentials like condiments and spices. External factors, such as natural disasters or changes in ingredient popularity, can also influence costs.
Proper inventory management is crucial, as mismanagement can lead to significant waste and unnecessary expenditures.
Pro Tip:
Use automated inventory tracking to reduce waste and better forecast ingredient needs.
Licensing and Permits
Acquiring the necessary licenses and permits is a pivotal step in establishing a restaurant and involves various costs.
A business license is mandatory and can vary significantly in cost, from $50 to $550 annually, based on the restaurant’s size and location.
Food service licenses, essential for public food service, range from $100 to $1,000, contingent on compliance with health inspections. Employees may need a food handler’s permit, which some restaurants opt to pay for to ensure compliance.
Liquor licenses represent a notable expense, ranging from as little as $100 to almost $14,000.
Additional permits and license fees, like a certificate of occupancy, may range from $100 to $400.
Pro Tip:
Falling out of compliance can lead to fines or shutdowns—stay current on renewals.
Labor
Labor represents a substantial portion of a restaurant’s operating expenses, encompassing not only hourly wages but also overtime, payroll taxes, bonuses, and employee benefits like healthcare and paid leave.
Labor costs generally constitute about 20% to 30% of a restaurant’s gross revenue. Effective labor management through cost control measures is vital to prevent these expenses from eroding profits.
Employing efficient scheduling software and optimizing staff roles are strategies restaurant operators can adopt to manage these costs efficiently.
Pro Tip:
Smart scheduling software can prevent overstaffing and improve shift coverage without driving up costs.
Marketing and Advertising
Marketing and advertising expenses are instrumental in a restaurant’s strategy to attract and retain customers.
These costs vary widely based on target market size, location, competition, and marketing objectives. Restaurants often allocate a budget for advertising, which may include traditional media such as print or broadcasting, known for being costly, or more affordable channels like web advertising and social media platforms.
Investing in branding and design services tailored to the restaurant’s specific business needs could range from a few thousand dollars to tens of thousands.
For some restaurant types, building a social media presence is crucial for engaging the target audience, with varying costs associated with sponsored posts and management tools.
Pro Tip:
Use targeted, trackable channels—like local SEO, Google Ads, or Instagram promotions—to get more ROI.
Insurance and Legal Services
Insurance and legal considerations are essential for safeguarding a restaurant’s operations.
Comprehensive coverage, including business property, general liability insurance, and workers’ compensation insurance, generally totals around $2,100 annually. These take into account risks such as foodborne illness or accidents involving employees and customers.
Legal fees for reviewing necessary documents and contracts may range from $500 to $2,000. Additionally, securing various city licenses and permits incorporates legal and processing fees ranging from $100 to $300 per permit, depending on regional stipulations.
Pro Tip:
Shop around. You might find better insurance rates than what you’re currently getting, or you may be able to use quotes from other insurers to negotiate better terms with your current provider.
Equipment and Maintenance
Initially equipping a restaurant can be a significant financial outlay.
Depending on the type and size of the restaurant, initial equipment costs can easily reach the six-figure range.
Equipment includes kitchen appliances (ovens, ranges, refrigerators), dining furniture, and specialty equipment necessary for the restaurant’s specific cuisine or signature offerings. Purchasing discontinued or second-hand equipment can help mitigate these costs.
Additionally, the costs of maintenance can’t be neglected. It may be tempting to forgo routine maintenance, but doing so can result in the unexpected costs of repairs later.
Pro Tip:
Don’t forget monthly maintenance—it’s more cost-effective than emergency repairs.
Restaurant Management Software
Restaurant management software is a crucial investment for streamlined operations, featuring things like Point-of-Sale (POS) systems that handle order tracking, payments, and inventory management with analytical reporting capabilities.
Restaurant management software also covers things like inventory, HR, labor, data capture, and analytics, among other things.
Monthly subscriptions for POS systems can vary based on the software’s complexity.
Pro Tip:
SynergySuite offers all of the above and more in one powerful platform designed specifically for multi-unit restaurant brands.
Manage Costs with SynergySuite
Managing costs in a restaurant without compromising quality is critical for success.
No dining establishment will survive without managing costs, no matter how good the food and customer service.
SynergySuite offers a suite of powerful yet intuitive software applications designed to help restaurant owners and operators do this. From employee scheduling software to mobile applications, our software captures essential data and generates digestible reports that offer actionable feedback, enabling informed decision-making.
By leveraging SynergySuite, restaurant management can better optimize cost areas such as labor, utilities, and food costs. Employing such technology can free up time to focus on customer satisfaction and overall food quality rather than managing costs and worrying about operations.
Using a tool like SynergySuite allows business owners to move beyond reckless cost-cutting strategies to smart, data-driven decision-making that can help maximize monthly sales while minimizing monthly costs.
Contact us today to schedule a free, personalized demo.
