Restaurant Direct Operating Expenses

Restaurant Direct Operating Expenses are non-inventoriable items and fees that

are expensed to your P&L upon receiving them on site with the delivery or when the bill

comes in.

Direct Operating Expenses consist of and may not be limited to:

• paper and plastic supplies

• kitchen supplies

• bar supplies

• china/glass/silver

• marketing and advertising

• charitable donations

• dues and subscriptions

• music/entertainment

• phone service, phone reimbursement

• internet service

• television steaming

• janitorial services,

• chemical/dishwasher supplies

• office supplies

• credit card fees

• utilities: electric, gas, water,

• pest control, trash disposal

• repair and maintenance building

• uniforms

• flowers/décor

• storage

• postage

• travel.

  
  

These are also commonly referred to as controllable cost since most of the items are choice

expenses and or can be controlled by the operator.

Tip #1: Set a budget for each line item of Direct Operating Expenses: Using your P&L

performance history set a budget for each line item per accounting period. Be certain

that each week the direct operating expenses are entered into your accounting system

so you can pull the weekly expense of each item from your general ledger. Track that

number against your budget number so you are aware of what you have left to spend.

DO NOT over order. Only spend what you need. It is not necessary to have on hand 2-3

months of inventory for paper plastic supplies, chemicals, kitchen supplies etc.

Implement using preventative maintenance programs for all your kitchen equipment and

HVAC. This will allow your equipment to perform better longer and help alleviate costly

breakdowns. Bid and negotiate all service contracts for trash disposal, pest control,

window cleaning, janitorial services (if applicable every six months). Give consistent

feedback to service providers. Negotiate credit card fees with your POS company.

Prepare marketing plans 90 days in advance to ensure consistent execution and

results. Follow a marketing budget and do the math to calculate what sales must be to

return the marketing expenses. Have supplies that represent your concept and that the

customer will give you credit for. For example: Do you need expensive logo plates? Will

that increase the customer spending? Openly discuss the status of your direct operating

expenses vs budget at your weekly leadership meeting.

Tip #2: Assign Direct Operating Expense line items each period to members of your

leadership team: Each member of the leadership team should be assigned to the

largest expense line items to be responsible for each period. For example: the Chef/Kitchen Manager can be responsible for kitchen supplies, repair and maintenance equipment and chemical/dishwasher supplies. Another leader will have the responsibility for linen, china/glass/silver and bar supplies, while another leader will be responsible for paper plastic supplies, uniforms, repair and maintenance building, The General Manager is who most commonly signs off on all marketing plans following budget, approves charitable donations and will approve any renegotiated service contracts. The objective is to hold the leader assigned to their line items budget. They will order the items needed and track the weekly spending. If sales come in under budget, then they must spend less than their budget. It is important to discuss this each week at the leadership meeting, report on the status and discuss any challenges.

Tip #3: Involve your staff and be transparent: Those items that are used by the line

employee such as china/glass/silver, cleaning supplies, paper plastic supplies which

includes to go products, linen, utilities, uniforms, repair and maintenance to equipment,

kitchen and bar supplies. Educate the team on the cost of these products, how to

properly use and dispense the products, along with how important it is to conserve on

all product usage and wear and tear. Replacement cost and repair is expensive and

take away from the success of the business. Report to the staff how you are doing each

period and perhaps offer an incentive to them for improvements.

Tip #4: A Business of Cents for Profit: We have all chosen to be in a business that your put

up a lot of dollars to chase cents. The average successful restaurant makes 5% profit. A

good restaurant will earn 10% profit. That is a dime for every dollar. A very successful

restaurant will earn 15% profit and that is very rare. It is commonly analyzed that prime

cost should run 60% which leaves 40% gross profit prior to Direct Operating Expenses

which typically will run 17% -20% depending on your restaurants concept and volume.

That would leave 23%-20% prior to occupancy cost and general administrative cost

which is how and why the bottom-line profit is 5%-10% in restaurants. You can blink and

the profit can disappear. Setting a budget, tracking cost weekly and managing to the

budget while making good decisions on how and what to spend your dollars on to keep

them productive is imperative to your success.

Looking for more tips? Send us a message using the form below and we will gladly get your restaurant set up for success!