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Wondering how much your Dining habit is draining your Food budget? The short answer: the average person spends around $292 a month eating out. But why does it add up so fast—and how can you stay in control? Keep reading for the tasty breakdown.
The Big Three: Controlling Your Primary Monthly Expenses
Managing monthly restaurant expenses is central to keeping a healthy dining budget.
With costs continuing to rise, understanding where the biggest expenses sit helps improve financial planning and decision-making.
Labour Costs: The Biggest Variable Expense
Industry Benchmark: Aiming for 25%–35% of Revenue
Labour is usually the largest monthly expense.
Most restaurants try to keep labour within 25%–35% of total revenue to avoid tightening their margins.
What Is Included in Total Labour Cost (Wages, Salaries, and Taxes)
Labour costs include base wages, manager salaries, payroll taxes, benefits, and any associated staff expenses.
These add up quickly and must be monitored consistently.
Strategies for Reducing Labour Cost Percentage (Scheduling and Efficiency)
Smarter scheduling, cross-training staff, and improving workflow efficiency help reduce unnecessary hours.
Keeping shifts tight prevents labour costs from creeping up.
Food and Beverage Costs (COGS)
Food and beverage spend makes up another major monthly cost, influenced by menu choices, suppliers, and portion sizes.
Industry Benchmark: Aiming for 25%–35% of Food Sales
Most restaurants target a 25%–35% food cost range.
Anything higher can squeeze profit margins and create cash-flow issues.
How to Calculate Cost of Goods Sold (COGS) (Inventory Formula)
COGS = (Opening Inventory + Purchases – Closing Inventory).
This formula helps determine how much food is actually used each month.
Key Drivers of Fluctuation (Portion Control and Supplier Negotiation)
Portion sizes, waste, spoilage, and supplier pricing all influence COGS.
Better portion control and negotiation lower these ongoing costs.
Occupancy Costs: Rent, Mortgage, and Utilities
Where a restaurant operates plays a major role in how much is spent on rent and utilities every month.
Industry Benchmark: Typically 5%–10% of Total Revenue
Most restaurants try to keep occupancy costs between 5% and 10% of total revenue to maintain healthy margins.
Beyond Rent: Utility Costs (Electricity, Gas, Water)
Utility bills vary by restaurant type and size.
Electricity, gas, and water can fluctuate seasonally and need to be monitored carefully.
Factors Driving High Occupancy Costs (Location and Square Footage)
Prime city locations command higher rent.
Larger premises also tend to carry higher utility charges because of increased space and operational needs.
Understanding Fixed vs. Variable Operating Costs
Restaurants must manage both fixed and variable expenses.
Understanding the difference helps create predictable budgets and reduces surprises.
Fixed Costs: Expenses That Stay the Same
Key Fixed Categories (Salaries, Insurance, Loan Payments)
Fixed costs include management salaries, insurance premiums, and loan repayments.
These remain consistent each month and help stabilise budgeting.
Budgeting for Predictability (Insurance and Licences)
Insurance and licence fees provide stability and legal compliance.
Accounting for these ahead of time makes monthly budgeting smoother.
Variable and Miscellaneous Costs
Variable costs change depending on customer volume and operational requirements.
Non-Food/Beverage Supplies (To-Go Containers, Paper Goods, Smallwares)
Takeaway containers, napkins, cleaning items, and smallwares fluctuate based on usage and seasonality.
Marketing and Advertising Expenses
Advertising, promotions, and social media campaigns vary from month to month.
Spending more can attract customers, but must be balanced against overall costs.
Equipment Maintenance and Replacement Budgeting
Equipment wear and tear is inevitable.
Setting aside funds for repairs and replacements prevents unexpected financial pressure.
The Ultimate Financial Metric: Calculating Your Prime Cost
Prime cost is one of the most important financial metrics for restaurants.
It combines the two largest spending categories to show the true cost of running the business.
Why Prime Cost Determines Financial Health
Prime Cost Formula (COGS + Total Labour Costs)
Prime Cost = Cost of Goods Sold + Total Labour Costs.
This formula offers a clear picture of operational efficiency.
Industry Benchmark: Keeping Prime Cost Below 60%
Successful restaurants aim to keep prime cost below 60%.
Higher figures can restrict profitability and limit flexibility.
Using Cost Control to Increase Profitability
The Role of Technology (POS and Inventory Software)
POS systems and inventory tools provide real-time insights into sales and stock.
This helps reduce waste, improve ordering accuracy, and track performance.
Continuous Monitoring and Menu Engineering for Better Margins
Regularly reviewing menu performance helps identify low-profit items.
Adjusting these dishes and improving pricing strategies boosts margins over time.