A smart strategy for restaurant budgeting
Running a restaurant isn't just about providing great customer service and delicious food, it's also about managing costs to ensure profitability! One of the key strategies many successful restaurateurs utilise is the 30/30/30 rule. This simple and effective rule offers clear budgeting guidelines to help maintain a healthy balance between expenses and profits. In this blog we'll breakdown the 30/30/30 rule and show you why it's essential for you and your restaurant.
What is the 30/30/30 rule?
The 30/30/30 rule is a useful budgeting tool you can use to divide your restaurant's expenses into four percentages, these percentages may not currently reflect your business, but they are an ideal goal to work towards:
- Food costs 30%: This includes all the ingredients to prepare your menu items. Attempting to keep food costs to around 30% of your total revenue will help you to not overspend on supplies.
- Overhead costs 30%: These are the fixed operating costs of running your restaurant, such as rent, utilities, insurance, and equipment repairs.
- Labour costs 30%: This covers wages, benefits, payroll taxes and insurance for your employees.
- The remaining 10%?: It's your profit margin! After covering everything else, aiming for a 10% profit margin allows you to ensure your business remains profitable. This can be adjusted by raising menu prices if your restaurant is in a high-demand location or offers a premium dining experience. Remember this slice includes your wages! So being at 10% is an important objective to work towards.
As mentioned, this may not represent your current operating costs and may seem hard to achieve. Our dedicated team are ready to help you work towards and accomplish this goal!
Why use the 30/30/30 rule?
By breaking down expenses into these four clear percentages, the rule can simplify the entire budgeting process. It provides a clear image for you to review and more confidently identify areas where you might be over/underspending and adjust accordingly. Additionally, understanding these costs can aid in setting appropriate menu prices, account for delivery or fine dining experiences, and allow you to stay competitive in the local market.
Tools and tips
To effectively manage these costs, consider using labour forecasting tools, average revenue per customer (ARPC) and recipe costing software. These tools can help you predict expenses accurately and ensure you're meeting your margins. Budgeting is a critical practice. Sitting down annually with our team at Elite Financial Accounting to plan your budget strategy can help you stay on track and adjust to changes in the market or your business operations.
Considerations for effective budgeting
Market Propositioning: When applying the 30/30/30 rule, think about your restaurant's unique value proposition, such as a beachside location or gourmet cuisine, which can justify flexible pricing for a healthier profit margin.
Seasons: Adjust your budgeting for seasonal variations in costs and revenues, ensuring you maintain the balance year-round.
Regular Monitoring: Consistently tracking your expenses and revenues can help to catch deviations early in order to make necessary adjustments, being proactive can prevent small issues from escalating into significant financial problems.
Conclusion
The 30/30/30 rule is a powerful tool for restaurant owners aiming to balance costs and achieve profitability. By incorporating this rule, you can ensure your expenses are under control, making your restaurant a sustainable and profitable venture. Whether you're a new restaurant owner or an experienced operator, this simple yet effective budgeting strategy can help guide your financial decisions and set your business on the path for growth and success.