Restaurant Overhead Costs Explained: What They Are and How to Reduce Them

Running a successful restaurant takes more than great food and service—it requires a solid grasp of your finances. One of the biggest factors affecting your bottom line is restaurant overhead costs. These are the fixed and variable expenses that keep your business running, from rent and utilities to staffing and supplies. Understanding what makes up your overhead—and how to control it—can mean the difference between breaking even and turning a profit. In this guide, we’ll break down the key components of restaurant overhead costs and share practical strategies to reduce them without sacrificing quality or customer experience.

With rising inflation and staffing costs, it’s becoming more and more important to keep an eye on every dollar your business spends. You need to carefully manage your spending and reduce restaurant overhead costs whenever you can.

If you think you’ve cut every cost you can, you may be surprised to have overlooked a few options. Let’s consider restaurant overhead costs and identify a few ways to reduce expenses and keep more money in your business.

Consider Your Restaurant Overhead Costs Before Making Financial Decisions

To find ways to reduce restaurant overhead costs, start by considering all the different recurring expenses you have. Most restaurants have regular overhead costs in the following categories:

Rent
Utilities
Advertising
Equipment costs
Services fees
Salaries
Hiring and training

Knowing your expenses is the first step to cutting expenses. Understanding your spending will help you create strategies to save.

7 Proven Ways to Reduce Restaurant Overhead Costs

Consider how you can use these tactics to reduce restaurant overhead costs and save more money.

#1) Reduce Restaurant Overhead Costs by Cutting Credit Card Processing Fees

Next to rent, credit card processing fees are often the highest expense for a restaurant. Roughly 3-8% of each sale can go to processing fees. You can cut these costs by offering a cash discount program.

A cash discount program avoids credit card processing fees by rewarding customers for paying in cash. When a customer pays, they have the option to remove a non-cash adjustment fee by paying with cash. It allows both restaurants and customers to save.

#2) Avoid food waste with better inventory management.

Throwing food in the trash is almost equivalent to throwing money in the garbage. Even so, food waste is a huge problem in the restaurant industry. A study found that the restaurant industry loses around $162 billion per year in food waste.

To reduce restaurant overhead costs related to food waste, implement a better restaurant inventory management system. When you have accurate inventory reporting, you can cut back on needless spending and avoid costly food waste.

#3) Streamline Your Menu to Minimize Ingredient-Related Overhead Costs

When you have a long menu with many different dishes, you will need to carry more inventory and ingredients. The extra items can be costly and increase the chances of spoilage and waste. To reduce restaurant overhead costs, limit your menu offerings so you can carry fewer ingredients.

Review your ordering history, and cut menu items that are rarely ordered.
Consider your recipe costs, and cut menu items that have low-profit margins.
Choose menu items that differentiate your restaurant so customers have a reason to visit you.

Free eBook: How to Create a Successful Restaurant Menu

#4) Ensure recipe accuracy with a kitchen display system.

Food goes to waste when inventory expires. It also goes to waste when a dish is prepared the wrong way and sent back to the kitchen. To help your team make every dish with accuracy, install a kitchen display system.

A kitchen display system uses monitors to present orders to kitchen staff. It is both a quick way to send orders to the kitchen and a tool for ensuring ordering accuracy.

#5) Use Bluetooth Scales to Manage Ingredients and Overhead Costs

When your kitchen staff incorrectly prepares orders, it can affect your restaurant overhead in another way. If chefs and cooks use the wrong amount of ingredients in a dish or provide incorrect serving sizes, it can throw off inventory, overuse ingredients, and increase the cost per dish. (Plus, it can lead to an inconsistent customer experience.)

Control portions and ensure ingredient-use accuracy by adding BlueTooth scales to your kitchen. BlueTooth scales can sync with your inventory systems to improve tracking accuracy while helping your kitchen staff use the right portions.

#6) Use self-ordering kiosks instead of at-the-counter ordering.

Staffing costs are a major expense for restaurants. Salaries and employment taxes are not the only staffing expense. Restaurants also need to spend on hiring and training costs. To avoid the need for such a large team, add self-ordering kiosks to fast-casual or quick-service restaurants.

Self-ordering kiosks reduce restaurant overhead by cutting employee costs. They can also provide an elevated experience for customers by giving them expedited service and more accurate orders.

Free eBook: How the Self-Ordering Restaurant Kiosk Is Changing the Way We Eat Out

#7) Offer online ordering directly through your business instead of third-party apps.

Demand for online ordering continues to rise. Customers like placing orders online for both delivery and pick-up. This demand is a great opportunity for you to serve your customers in a new way, but it can be expensive. Third-party delivery apps can take around 15-30% of each sale.

Avoid these costs by offering online ordering on your website. Instead of sending customers to apps, provide your own online ordering to directly receive orders and cut out costly third parties.

Want to Keep More Profits? Start Reducing Restaurant Overhead Costs Today

Cutting costs and reducing restaurant overhead are more important now than ever before. You need to leverage every possible way to reduce expenses and avoid unnecessary spending.

This list offers ways to reduce overhead through cash discount programs, inventory management, kitchen display systems, BlueTooth scales, self-ordering kiosks, and online ordering.

You can get all of those tools with Lavu’s restaurant POS.

Lavu’s point-of-sale system is designed with restaurants in mind and offers more than 200 features that can be customized to help your restaurant improve operations and cut costs.

To see all of these tools in action, schedule a demo with our team. Or, if you want more information about how a POS can help reduce restaurant overhead costs, download our Beginner’s Guide to POS Systems.

FAQs:

1. What are restaurant overhead costs and why do they matter?

Restaurant overhead costs include the ongoing expenses needed to operate your business, such as rent, utilities, labor, insurance, and administrative costs. These are costs that remain even if your restaurant isn’t serving customers on a particular day. Understanding your restaurant overheads is essential for maintaining profitability and managing cash flow. By identifying fixed and variable costs, restaurant owners can better allocate resources and make informed financial decisions.

2. How can I reduce restaurant costs without compromising quality?

To reduce restaurant costs without hurting customer experience, focus on areas like labor efficiency, portion control, and inventory management. Adopting a modern POS system like Lavu can help you streamline operations, monitor sales data, and identify cost-saving opportunities. Automating tasks, training staff effectively, and limiting waste through smarter kitchen systems are all actionable ways to save money while maintaining high standards.

3. Which overhead costs impact restaurant profitability the most?

The most significant restaurant overhead costs that affect profitability are typically labor, rent, and food waste. These recurring expenses can quickly add up, especially in high-traffic areas or during slow seasons. Implementing a system like Lavu POS helps automate labor tracking, optimize scheduling, and control food inventory—making it easier to manage these overheads and stay profitable.

4. Can a POS system help lower restaurant overheads?

Yes, a powerful POS system like Lavu can significantly help reduce your restaurant overheads. Lavu offers inventory tracking, labor management, menu engineering, and real-time sales data—all of which help you make smarter operational decisions. By gaining insights into your costs and reducing inefficiencies, you can reduce restaurant costs and keep your overhead under control.

5. What is the role of labor scheduling in managing restaurant overheads?

Labor is often one of the highest restaurant overheads. Poor scheduling can lead to overstaffing during slow hours and understaffing during peak times. Using Lavu’s labor management tools, you can optimize shifts based on sales data, reduce overtime costs, and improve team efficiency—helping to keep restaurant overhead costs under control.