Tackling the Expenses That Don’t Fluctuate with Sales
While food and labour costs naturally adjust with business volume, overhead expenses remain relatively constant regardless of how busy you are. These fixed costs—typically 10-15% of revenue—can make or break your profitability, especially during slower periods.
This guide will help you identify opportunities to reduce overhead without compromising your guest experience or brand standards.
Conducting an Overhead Audit
Before making cuts, you need a comprehensive understanding of where your money is going:
1. Create a Complete Overhead Inventory
Categorize all fixed expenses:
- Occupancy Costs: Rent/mortgage, business rates, service charges
- Utilities: Electricity, gas, water, waste removal
- Insurance: Property, liability, business interruption
- Technology: POS systems, wifi, computers, software subscriptions
- Professional Services: Accounting, legal, consulting
- Administrative: Office supplies, banking fees, licenses
- Maintenance: Cleaning services, repairs, pest control
2. Benchmark Against Industry Standards
Compare your expenses to industry norms. According to the British Beer & Pub Association, UK restaurants should aim to keep total overhead below 15% of revenue, with occupancy costs not exceeding 8-10%.
3. Calculate Cost Per Available Seat
This metric helps you understand the fixed cost of maintaining your capacity:
Monthly Fixed Costs ÷ Number of Seats = Fixed Cost Per Seat
For context on typical UK figures, consult resources from UKHospitality.
Optimizing Your Occupancy Costs
Typically your largest fixed expense, occupancy costs deserve careful attention:
1. Negotiate Lease Terms
Whether you’re signing a new lease or renewing an existing one, everything is negotiable:
- Rent Reductions or Freezes: Market conditions may support lower rates
- Graduated Increases: Smaller annual increases instead of large jumps
- Percentage Rent: Tying a portion of rent to revenue
- Tenant Improvement Allowances: Landlord contributions for renovations
- Rent-Free Periods: Especially valuable during slow seasons
RICS (Royal Institution of Chartered Surveyors) provides guidance for UK commercial tenants on lease negotiations.
2. Challenge Business Rates
Many UK restaurants overpay on business rates:
- Review your rateable value for accuracy
- Check for applicable relief programs
- Consider appealing your assessment
- Investigate Small Business Rate Relief if eligible
The UK government’s Business Rates Relief Finder can help identify potential savings.
3. Optimize Your Space Utilization
Make every square foot work for you:
- Convert underused areas into revenue-generating space
- Consider shared kitchen arrangements if you have excess capacity
- Evaluate whether a smaller footprint could meet your needs at renewal
- Explore subletting options for unused times of day
4. Rethink Your Location Strategy
When renewal time approaches, consider whether your current location is optimal:
- Would a slightly off-prime location with lower rent maintain most of your business?
- Could a smaller space with more efficient design work better?
- Would multiple smaller locations generate more revenue than one large space?
Energy and Utility Cost Reduction
Restaurants consume 3-5 times more energy per square foot than other commercial buildings. The Carbon Trust estimates UK restaurants can reduce energy costs by 20-30% through efficiency measures.
1. Conduct an Energy Audit
Before making changes, understand where your energy goes:
- Kitchen equipment (30-40%)
- HVAC systems (25-35%)
- Refrigeration (10-15%)
- Lighting (8-12%)
- Hot water (5-8%)
Energy Saving Trust offers free resources for UK small businesses.
2. Implement Low-Cost Energy Efficiency Measures
Start with these affordable improvements:
- Install LED lighting throughout your restaurant
- Add programmable thermostats and timers
- Install low-flow aerators on taps
- Apply weatherstripping to reduce heating/cooling loss
- Clean refrigerator coils and HVAC filters regularly
3. Consider Equipment Upgrades
While requiring upfront investment, newer equipment often pays for itself:
- Energy-efficient refrigeration (look for A+++ ratings)
- On-demand water heaters
- Smart HVAC systems
- Induction cooking equipment
- Energy-efficient dishwashers
Many UK energy suppliers offer interest-free loans for energy-efficient equipment upgrades.
4. Optimize Operational Practices
Train staff on these no-cost energy-saving habits:
- Equipment start-up/shut-down schedules
- Proper maintenance procedures
- Cooking with lids on pots when possible
- Fully loading dishwashers before running
- Keeping refrigerator doors closed
5. Review Utility Suppliers Regularly
The UK energy market is competitive:
- Compare business energy tariffs annually
- Consider fixed-rate contracts during favorable markets
- Look for green energy options that may offer incentives
- Investigate time-of-use tariffs if your heaviest use is off-peak
Services like Bionic specialize in finding competitive rates for UK hospitality businesses.
Insurance Optimization Strategies
Insurance is essential but often contains hidden savings opportunities:
1. Conduct an Annual Coverage Review
Work with a broker who specializes in UK hospitality businesses to ensure you’re neither over- nor under-insured.
2. Consider Package Policies
Combined policies often cost less than separate coverage. The British Insurance Brokers’ Association can help find specialized hospitality packages.
3. Implement Risk Reduction Measures
Many insurers offer discounts for:
- Enhanced fire suppression systems
- Security cameras and alarm systems
- Staff safety training programs
- Regular risk assessments
4. Increase Deductibles Strategically
Higher deductibles lower premiums but increase your exposure. Find the right balance for your financial situation.
Technology and Subscription Costs
Digital tools can improve efficiency but also create “subscription creep”:
1. Audit All Technology Subscriptions
Create a complete inventory of every digital service you pay for:
- POS system and add-ons
- Reservation platforms
- Accounting software
- Inventory management systems
- Marketing tools
- Music/entertainment services
2. Eliminate Overlapping Functions
Look for redundancies across platforms:
- Does your POS already include features you’re paying for separately?
- Could one system replace multiple current solutions?
- Are you paying for features you never use?
3. Negotiate Multi-Year Contracts
Many UK software providers offer substantial discounts for longer commitments. Epos Now and other UK-based restaurant technology providers often have flexible terms.
4. Consider Open-Source Alternatives
For some functions, free or low-cost solutions may work as well as premium options.
Administrative and Banking Cost Reduction
Small savings in day-to-day operations add up:
1. Review Banking Services
Compare business banking options for:
- Monthly account fees
- Transaction charges
- Card processing rates
- Foreign exchange fees (if applicable)
UK Finance provides comparative information on business banking services.
2. Optimize Payment Processing
Card processing typically costs UK restaurants 1-3% of revenue:
- Negotiate rates based on your volume
- Consider direct debit options for regular customers
- Review statements for hidden fees and surcharges
- Compare integrated vs. independent processors
3. Digitize Administrative Processes
Reduce paper, printing, and storage costs:
- Implement digital invoice processing
- Use electronic signature solutions
- Store documents in secure cloud storage
- Automate routine communications
Maintenance and Repair Strategies
Proactive maintenance almost always costs less than emergency repairs:
1. Implement Preventative Maintenance Schedules
Create calendar-based maintenance for all key equipment and systems.
2. Consider Maintenance Contracts
For critical systems, service contracts often save money long-term. Check a Trade helps find reliable UK service providers.
3. Train Staff on Basic Maintenance
Many minor issues can be handled in-house:
- Unclogging drains
- Replacing simple parts
- Basic troubleshooting
- Proper cleaning procedures
4. Build Relationships with Reliable Contractors
When you do need external help, having established relationships leads to better service and often priority scheduling.
Creative Overhead Reduction Strategies
Think beyond traditional cost-cutting with these innovative approaches:
1. Share Resources with Neighboring Businesses
Consider:
- Joint purchasing of cleaning services
- Shared waste collection
- Combined deliveries to reduce fees
- Cooperative marketing initiatives
2. Repurpose Underutilized Spaces
Convert low-productivity areas:
- Transform unused storage into private dining
- Create a small retail section for branded merchandise
- Develop a coffee counter for morning hours when the main restaurant is closed
- Offer cooking classes in your kitchen during off-hours
3. Leverage Community Resources
Many local organizations offer free or low-cost services:
- Business Gateway provides free business advice
- University business programs may offer student consulting
- Industry associations often provide member resources and discounts
4. Consider Alternative Operating Models
Evaluate fundamental changes that could reduce overhead:
- Delivery/takeaway focus with reduced dining area
- Shared kitchen space with other businesses
- Pop-up concepts in temporary locations
- Supper club or event-based model rather than daily service
Measuring the Impact of Overhead Reduction
Track these metrics to ensure your efforts are paying off without negative consequences:
1. Fixed Cost as Percentage of Revenue This should decrease as you implement changes.
2. Profit Before Fixed Costs This shows how your business performs before overhead is considered.
3. Break-Even Point Lower fixed costs should reduce the sales volume needed to break even.
4. Customer Satisfaction Metrics Ensure cost cuts aren’t impacting the guest experience.
Next Steps: Creating Your Overhead Reduction Plan
Ready to tackle your fixed costs? Start with these steps:
- Complete a detailed overhead audit
- Identify your three largest fixed expenses
- Research alternatives for each major expense category
- Implement one change per month, measuring results
- Reinvest a portion of savings into growth initiatives
Frequently Asked Questions
Q1: How much can I realistically save through overhead reduction? A: Most UK restaurants can reduce fixed costs by 10-20% through systematic review and optimization. According to UKHospitality research, the most successful cost-reduction programs focus on the “big three” expense categories—rent, utilities, and insurance—which typically represent over 70% of fixed costs.
Q2: When negotiating my restaurant lease, what points have the most impact? A: The most impactful lease negotiation points for UK restaurants include: rent-free periods during initial fit-out, capped service charges, clear definitions of repairing obligations, rent review mechanisms, and break clauses aligned with business performance. Commercial property specialists suggest that focusing on these elements can yield more value than negotiating headline rent alone.
Q3: How do I reduce energy costs without compromising the dining experience? A: The Carbon Trust’s hospitality research identifies kitchen equipment, HVAC, and refrigeration as offering the greatest energy savings with minimal customer impact. Implementing smart controls, equipment maintenance protocols, and staff behavior changes can reduce energy costs by 15-25% with no negative effects on ambiance or comfort.
Q4: What technology subscriptions do restaurants typically overpay for? A: UK restaurant operators most commonly overpay for reservation systems, accounting software, and marketing platforms. Industry surveys show that up to 35% of software functionality goes unused in the average restaurant. Conducting an annual software audit often identifies 10-15% in immediate savings opportunities through consolidation or plan downgrades.
Q5: How do I determine if my insurance coverage is appropriate? A: The British Insurance Brokers’ Association recommends a comprehensive annual review comparing your coverage against three benchmarks: current asset value and operational risks, similar businesses in your area, and any changes to your business model. This process typically identifies both coverage gaps and areas of over-insurance.
Q6: What are the most overlooked overhead reduction opportunities? A: Beyond the obvious areas, UK restaurants frequently overlook merchant service fees (which can often be negotiated down by 0.5-1%), maintenance contracts (which can be reduced by 15-20% through competitive bidding), professional services (where fixed-fee arrangements can replace hourly billing), and shared service arrangements with neighboring businesses.
Q7: How can I reduce overhead without appearing “cheap” to customers? A: Focus on behind-the-scenes efficiencies rather than customer-facing cuts. Energy efficiency, administrative streamlining, and smarter purchasing have no visibility to guests. Research from UK restaurant groups shows that customers rarely notice even significant overhead reductions when implemented in operational areas like maintenance schedules, utility management, and back-office functions.
Reduce Your Restaurant’s Fixed Costs Today
Contact AHBS Limited today!
Tel: 0115-932-9888
E-mail: simon@ahbs.co.uk
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