Restaurant menu prices have risen by 7% to 9% each month over the past year, resulting in the cost of food to eat away at restaurant’s gross profit margins. Add in the high cost of labor, and direct operational costs have risen dramatically over the past year. And this is just for the cost of preparing and serving the food.
Managing and maintaining restaurant facilities has also become more expensive because of persisting labor and equipment shortages. This has led to some difficult choices when it comes to maintaining and repairing equipment. Because of this, many restaurant operators will simply look for the lowest cost for equipment and repair. But this isn’t telling the whole story.
Indirect costs are often overlooked and are not applied back to direct ticket costs because they are less tangible than hourly rates and trip charges. This makes them harder to calculate for the total cost of ownership. However, without evaluating these indirect costs, it is difficult to accurately calculate the financial impact on your business.
Understanding indirect operational costs
Indirect operational costs refer to the expenses that are not directly tied to producing a specific product or service. These costs are incurred to support the overall operation of the restaurant and are necessary for its smooth functioning. Examples of indirect operational costs in a restaurant may include rent, utilities, insurance, office supplies, marketing expenses, and equipment maintenance costs.
Unlike direct operational costs, which are directly traceable to a particular menu item or service, indirect operational costs are usually incurred across the entire operation of the restaurant. They are not directly tied to a specific product or service and are often necessary to keep the restaurant running efficiently. When an asset fails, the time spent finding vendors, the unplanned downtime of the restaurant, and the time spent managing the repair process are all indirect costs that add to the trip charge.
Impact of indirect operational costs on P&L statement
Indirect operational costs can have a significant impact on your restaurant's P&L statement. P&L statement, also known as an income statement, provides a snapshot of your restaurant's financial performance by showing revenues, expenses, and net profit or loss over a specific period of time.
Indirect operational costs are typically recorded as expenses on the P&L statement. These expenses reduce your restaurant's net profit, which in turn affects your overall profitability. For example, if your restaurant incurs high costs for rent, utilities, and marketing, it can significantly impact your net profit, even if your sales are high. Conversely, if you can effectively manage your indirect operational costs, it can lead to a higher net profit and improved profitability.
Managing indirect operational costs
Managing indirect operational costs for maintenance is crucial to ensuring the financial health of your restaurant. Here are some tips to effectively manage these costs:
- Budgeting: Develop a detailed budget that includes all your indirect operational costs to repair and replace equipment. This will help you understand and plan for these expenses and ensure that they are allocated appropriately in your overall financial plan.
- Monitoring and analysis: Regularly monitor and analyze your indirect operational costs as they relate to asset repairs and replacement to identify any areas of overspending or inefficiencies. Use financial reports and software to track these expenses and make data-driven decisions to control costs.
- Vendor negotiations: Negotiate with your vendors to get the best possible pricing for supplies and services. Look for opportunities to consolidate purchases or switch to more cost-effective options without sacrificing quality. Having a strong vendor base can ensure the best possible price while also ensuring that coverage is available should a critical piece of equipment fail.
- Energy efficiency: Implement energy-saving measures such as using energy-efficient lighting, optimizing heating and cooling systems, and reducing water consumption to lower utility costs.
- Staff training: Train your staff on cost-saving measures and the importance of controlling indirect operational costs. Encourage them to identify and report any areas where costs can be reduced.
Understanding the true cost of facilities maintenance
Total cost of ownership analysis provides facility maintenance teams and executives with a more accurate picture when measuring the effectiveness of their program. When looking at the total cost of ownership from a facilities maintenance perspective, it is essential to know and understand the indirect operational costs that affect your business.
Getting the most out of your facility management program will help to ensure that your locations maintain the comfort and cleanliness the customers expect in an increasingly competitive landscape. To ensure they keep receiving excellent service, make sure to look at the total cost of your facilities management solution and not just the cheapest initial quote.