One of the most important aspects of managing your restaurant is understanding its operating expenses. Knowing where your money goes helps you control costs and improve your profits.

In this blog, we’ll dive into everything you need to know about restaurant operating expenses. You’ll learn the difference between fixed costs and variable costs, how to calculate your expenses, and tips to manage them better.

Let’s break it down.

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What Are the Variable and Fixed Costs of a Restaurant?

Your operating expenses are divided into two types: fixed costs and variable costs.

1. Fixed Costs

Fixed costs stay the same every month, regardless of how busy your restaurant is. These are predictable and easier to manage because they don’t change frequently. Common fixed costs in Malaysian restaurants include:

• Rent: In popular cities like Kuala Lumpur, monthly rents for a medium-sized restaurant can range from RM5,000 to RM15,000.
• Insurance: Depending on your coverage, you might spend RM1,000 to RM3,000 yearly.
• Licenses: Permits like business licenses, food handling permits, and liquor licenses can cost between RM1,000 to RM5,000 annually.

2. Variable Costs

Variable costs change based on how much business you do. They go up when you’re busy and down during slow periods. Some of the most common variable costs are:

• Food Costs: These usually make up 25-35% of your total revenue. For example, if your revenue is RM50,000 a month, expect to spend RM12,500 to RM17,500 on ingredients.
• Utilities: Electricity, water, and gas bills can fluctuate between RM1,000 and RM3,000 monthly.
• Wages for Part-Time Staff: During busy periods, you may need to hire extra help. Hourly wages in Malaysia range from RM7 to RM12.

Are Fixed and Variable Costs Operating Expenses?

Yes, both fixed and variable costs are part of your operating expenses.

Operating expenses cover everything it takes to keep your restaurant running day-to-day. This includes costs for food, rent, utilities, and staff salaries.

Here’s a quick formula:
Operating Expenses = Fixed Costs + Variable Costs

Understanding this formula is key to managing your restaurant effectively.

How to Start Calculating Operating Expenses

To keep track of your restaurant operating expenses, follow these steps:

1. Categorize Your Costs

Break your expenses into fixed and variable categories. For example:

• Fixed costs: Rent, licenses, insurance
• Variable costs: Food supplies, marketing, part-time wages

2. Monitor Your Monthly Spending

Keep a record of every ringgit spent. Use spreadsheets or restaurant management software to track expenses.

3. Calculate Your Percentage

Compare your expenses to your revenue. For instance, if your monthly revenue is RM100,000 and your operating expenses are RM70,000, your expense percentage is 70%.

Aim to keep this percentage below 75%. According to industry standards, a well-run restaurant in Malaysia should have operating expenses between 60-70% of revenue (source: Malaysia F&B Report 2023).

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Why Managing Variable Costs Is Crucial

Variable costs can eat into your profits if you’re not careful. Let’s look at some tips to manage them effectively:

1. Control Food Waste
   Use inventory tracking tools to reduce waste. For example, apps like Food Market Hub are popular in Malaysia. They help you monitor stock levels and avoid over-ordering.
2. Negotiate with Suppliers
   Build relationships with local suppliers. Buying in bulk or negotiating discounts can reduce food costs.
3. Energy Efficiency
   Switch to energy-saving appliances. For example, energy-efficient refrigerators or LED lights can lower your utility bills by 20-30%.

How to Reduce Fixed Costs in Your Restaurant

Fixed costs might seem unchangeable, but there are ways to manage them better:

1. Consider Location
   If you’re starting a new restaurant, think about the location. High-rent areas might attract more customers, but they’ll increase your fixed costs. Look for balance.
2. Review Licenses and Permits
   Make sure you’re not overpaying. Renew your licenses on time to avoid penalties.
3. Insurance Plans
   Shop around for better insurance deals. Some providers offer packages tailored for F&B businesses in Malaysia.

Balancing Operating Expenses with Profits

Understanding and managing your operating expenses helps you strike a balance between quality and profitability.

Let’s say your restaurant earns RM50,000 a month. Here’s an example breakdown:

• Fixed Costs: RM15,000 (30% of revenue)
• Variable Costs: RM20,000 (40% of revenue)
• Total Operating Expenses: RM35,000 (70% of revenue)

This leaves you with RM15,000 in profit before taxes. To increase profits, focus on cutting variable costs without compromising quality.

Common Mistakes to Avoid When Managing Operating Expenses

Here are some pitfalls to avoid:

1. Ignoring Hidden Costs
   Expenses like equipment maintenance and unexpected repairs can add up. Set aside 5-10% of your monthly revenue as a buffer.
2. Overstaffing
   Hiring too many staff can hurt your bottom line. Use scheduling software to ensure you’re not overpaying during quiet hours.
3. Underpricing Menu Items
   Make sure your menu prices cover both food and operating expenses. For example, if a dish costs RM10 to prepare, selling it for RM12 won’t cover your other costs.

Key Takeaways for Managing Restaurant Operating Expenses

1. Break down your expenses into fixed and variable costs.
2. Track your expenses monthly to understand where your money goes.
3. Aim to keep your operating expenses below 70% of revenue.
4. Reduce variable costs like food waste and utilities.
5. Look for ways to minimize fixed costs, such as negotiating rent or insurance rates.

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By managing your restaurant operating expenses effectively, you’ll create a more profitable and sustainable business.

Start today by reviewing your expenses and identifying areas for improvement. Small changes can lead to big savings!