What It Costs To Run a Restaurant - YouTube

Over the years, I've made it a point to ask

lots of restaurant employees this question,

first, I take a dollar bill out of my pocket,

and then I ask, out of every dollar in sales

that comes into this restaurant,

how much money do you think the owner gets to keep?

You know what they tell me?

Usually it's least 30 cents, but many times,

I've heard 40 cents, 50 cents, and even higher.

In reality though, the vast majority

of independent restaurants make a net profit,

after all the expenses are paid

of less and often a lot less

than 10 cents out of every dollar in sales.

I'd like to show you how much

it actually costs to run a restaurant.

Let's start with the single biggest expense

in most restaurants, which is labor cost.

Labor cost is the gross wages

of the entire team of managers and staff.

In most restaurants, this takes up about 30 cents

out of every restaurant sales dollar.

On top of that, the restaurant

must pay federal and state payroll taxes

and other employee related expenses and benefits

that adds another five to six cents to the cost of labor,

and then there's the cost of food and beverage products.

Now regardless of whether a restaurant

sells alcoholic drinks or not,

the total cost of food and beverage is genuinely

around 30% or 30 cents out of every dollar in sales.

So you can see that it takes well over half,

over 60% of sales in most cases for a restaurant

to pay for food, beverage and labor cost.

Then there is several types of operating expenses

like utilities for electricity, gas, and water,

and marketing and advertising cost,

and repairs and maintenance expenses

for the upkeep on the building and the equipment.

Restaurants also use lots of supplies and products

in the kitchen, the dining room, in the bar,

and even the bathrooms for things like cleaning supplies,

paper, decorations and plants, pest control, silverware,

pots and pans, and laundry and linen, just to name a few.

We call this category direct operating expenses.

Then, there are general and administrative expenses

for legal and accounting, security services, computer,

software fees, liability insurance,

and also there are transaction fees

whenever a customer pays with a credit or debit card.

Now we're almost done,

but we can't leave out occupancy cost.

Occupancy cost includes rent, property taxes,

and insurance on the building and contents.

Occupancy cost usually runs around eight to 9% of sales.

Then there's depreciation,

which is a portion of the cost of the building

or constructing the lease space

that the restaurant occupies.

Depreciation also includes part of the cost of the furniture

in the dining room, and all the equipment in the kitchen.

Finally, many U.S. ran owners borrowed money

to help pay for the startup cost to open the restaurant,

so there's often interest expense

that needs to be paid to the bank every month.

So as you can see, there are a lot of ongoing costs

and expenses involved in the operation of a restaurant,

and many of these expenses

like rent, salaries and insurance must be paid

regardless of whether the restaurant

is busy, empty, open or even closed.

So the lesson here and what I'd like you to realize

is that regardless of how busy your restaurant appears to be

and how much money is generated in sales, it's very likely,

in fact, I would say close to a certainty,

that the profit that is left after all the expenses are paid

is a very, very small portion of the amount of sales

that your restaurant took in.

That's why it's important that everyone in the restaurant

should be diligent and conscious

about minimizing waste and spoilage,

and why many restaurants just can't afford

to do some things, like pay overtime.

It's a low margin business and making a profit

depends on everyone in the restaurant

constantly doing their best

that make the most out of everything that they use.

Whether it's food, beverages, supplies or even things

that might seem minor like paper napkins.

It doesn't take many mistakes or much carelessness

to reduce a restaurant's profit to zero.

So the next time your owner or one of your managers

seems to be making a big deal about something

like getting the portion sizes exactly right,

or properly rotating products,

I hope you'll see where they're coming from and why.

They're just making sure that everyone on your team

does what's needed to ensure that your restaurant

remains a viable, healthy business.

So that it can continue to create great dining experiences

for your guest and provide good employment opportunities

for you and your fellow team members.

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