What's the difference between fixed and variable costs?
Fixed costs stay relatively stable month to month. Variable costs rise and fall with sales, like food, beverage, credit card fees, and most hourly labor.
What Are Typical Restaurant Fixed Costs?
What Fixed Costs Mean in a Restaurant
In a restaurant, fixed costs are expenses you're committed to paying even if sales swing up or down. They don't move much in the short term based on how busy you are. If a storm hits, a big event gets canceled, or your weekend traffic drops for a month, fixed costs still show up like clockwork. That's what makes them so important- they create your baseline monthly obligation.
That said, "fixed" doesn't mean the cost can never change. It usually means it won't change quickly just because you had a slow week. Rent is the classic example. Your lease payment stays the same whether you sell 200 burgers or 2,000. Insurance premiums don't drop because Tuesday was dead. Subscriptions and service contracts typically renew on set terms. Even some labor can act fixed - like a salaried GM or chef - because you carry that cost regardless of daily volume.
A simple way to think about it is this - fixed costs are your "keep the doors open" costs, while variable costs are your "serve the guest" costs. Variable costs move with sales - food, beverage, credit card fees, hourly labor, and disposables generally rise and fall based on how much you sell. Fixed costs mostly don't.
Why does this matter? Because fixed costs determine your break-even point. If your fixed costs are $60,000 per month, your restaurant must generate enough gross profit to cover that $60,000 before you earn a dollar of profit. When owners feel like they're always busy but still not making money, it's often because fixed costs are too high for the sales volume - or they're higher than the owner realizes because the categories aren't clearly tracked.
Fixed Costs vs. Variable Costs vs. Semi-Variable Costs
To control costs in a restaurant, you need more than a "fixed vs. variable" label. Most operators actually manage three buckets- fixed costs, variable costs, and semi-variable (mixed) costs. Getting these right matters because each bucket responds to different decisions.
Fixed costs are the most predictable. They stay relatively stable month-to-month, regardless of how busy you are. Think rent, insurance premiums, certain licenses, alarm monitoring, or a fixed equipment lease payment. These costs are usually tied to a contract, a renewal cycle, or a baseline obligation. You don't "schedule your way out" of rent.
Variable costs move directly with sales or volume. The more you sell, the more you spend. Food and beverage are the obvious ones. Disposable packaging, some cleaning supplies, and credit card processing fees tend to scale with revenue too. Hourly labor is often treated as variable because you can cut hours when traffic slows - at least in theory.
Then there's the bucket that causes the most confusion - semi-variable costs. These include expenses with a fixed base plus a variable component. Utilities are a perfect example. You pay a baseline connection/availability charge, then usage on top. Maintenance is another. You might have a regular preventive maintenance schedule (semi-fixed), but repairs spike with equipment age, misuse, or higher throughput. Labor can also be mixed- you may be able to cut servers, but you still need an opener, a closer, and minimum kitchen coverage to operate.
Here's a practical "owner test" to categorize a cost -
If sales drop 30% next month, does this cost drop automatically?
- If no, it's likely fixed.
- If yes, it's likely variable.
- If it drops a little but not proportionally, it's probably semi-variable.
Why this distinction matters- fixed costs are primarily managed through negotiation, contracts, and long-term planning (lease terms, insurance shopping, subscription rationalization). Variable costs are managed through daily execution (portioning, waste control, ordering discipline, labor scheduling). Semi-variable costs are managed through a mix of both - tight processes plus intentional budgeting.
When your P&L feels "mysterious," it's often because semi-variable costs are being treated like fixed (so no one tries to manage them) or treated like variable (so they're forecast incorrectly).
Rent, Lease Terms, and Property-Related Fees
For most restaurants, occupancy costs are the biggest - and most unforgiving - fixed cost category. It's the price of having a location, and it's usually due no matter what happened with sales that month. The tricky part is that many owners think "rent" is one number, when in reality occupancy costs can include multiple line items that add up fast.
Start with base rent. This is the core amount stated in your lease. It may be fixed for a period, step up annually, or increase at set intervals. Even if the payment is stable today, it might be scheduled to rise automatically later - so it's still a fixed cost you need to forecast.
Next are the add-ons that often surprise operators -
1. CAM charges (Common Area Maintenance) - your share of maintaining shared spaces like parking lots, landscaping, lighting, and security.
2. NNN (Triple Net) costs - typically property taxes, building insurance, and maintenance passed through by the landlord.
3. Property taxes (if passed through) - sometimes bundled into NNN or billed separately.
4. Association or district fees - in some areas, there may be business improvement district assessments or similar recurring charges.
Even if these fees vary slightly, they're often functionally fixed because they're tied to the property and billed regardless of whether you're busy.
Don't forget the space-specific obligations that act like occupancy costs -
- Trash and grease hauling contracts (often required by the property or local rules)
- Hood/duct cleaning schedules (required for fire safety and insurance compliance)
- Pest control contracts (many landlords require them)
- Security monitoring or building access systems
Why does this category deserve special attention? Because occupancy costs don't just impact profit - they set your minimum sales requirement. If your occupancy costs are too high for your concept and traffic patterns, you'll feel squeezed every month, even when operations are solid.
A practical move is to treat occupancy costs as a single "all-in" number - not just base rent. Combine base rent + CAM + NNN + required property services and track the full monthly total. When you know your true occupancy cost, you can price smarter, plan promotions more strategically during slow periods, and evaluate whether a location is financially sustainable before you commit to a lease renewal.
Insurance and Licenses
Insurance and licenses are the costs that make your restaurant "legal to run" and financially protected if something goes wrong. You might not think about them daily, but they're classic fixed costs because they're tied to policies, renewal dates, and compliance requirements - not to how many guests walk through the door.
On the insurance side, most restaurants carry a mix of policies, including -
- General liability (slips, falls, customer claims)
- Property coverage (building improvements, equipment, inventory - depending on policy)
- Workers' compensation (required in most places; cost can change based on payroll and claims history)
- Commercial auto (if you deliver or use company vehicles)
- Liquor liability (if you serve alcohol; often separate from general liability)
- Umbrella coverage (extra protection beyond standard policy limits)
Some of these premiums are billed monthly, some annually, but either way they behave like fixed costs because you can't turn them off without exposing the business. Workers' comp is the one that can feel less fixed because it's tied to payroll, but from an owner perspective it still belongs in this category because it's a required operating expense that doesn't disappear in slow seasons.
Then there are licenses and permits - another set of pay-to-operate expenses -
- Business license (city/county/state, depending on where you operate)
- Health permits and inspections (often annual or semi-annual fees)
- Food handler/manager certifications (sometimes paid by the business)
- Liquor license renewals (can be significant and highly regulated)
- Sign permits (recurring in some jurisdictions, one-time in others)
- Music licensing (if you play music publicly, which may require certain licenses)
The operational risk here isn't just cost - it's timing and surprises. These expenses often hit as lump sums. If you don't plan for them, they feel like random "gotcha" bills that wreck an otherwise good month.
A practical way to manage this category is to create a simple renewal calendar. List each policy and license, the renewal month, the expected amount, and whether it's paid monthly or annually. Then divide annual costs by 12 and set that amount aside monthly so renewals aren't a shock.
Also, don't assume insurance is unchangeable. You can often reduce premiums by updating safety procedures, improving documentation, reducing claims, and shopping policies at renewal. The key is visibility - when you track insurance and licenses as a dedicated fixed-cost category, you're less likely to miss renewals - and more likely to control the costs over time.
Salaried Labor and Fixed Labor
Labor is often treated as a variable cost, but in many restaurants a meaningful portion of payroll behaves like a fixed cost. This is what operators mean when they talk about "fixed labor" - the staffing expense you carry even when sales dip, because the business still needs leadership, oversight, and minimum coverage to function.
The most obvious fixed labor is salaried positions. Common examples include a general manager, kitchen manager, executive chef, assistant manager, or an admin/bookkeeper role. You pay these team members to run the operation, not to match each hour directly to guest counts. If you have a slow Monday, you don't cut your GM's paycheck. That stability is valuable - but it also raises your monthly break-even point.
Even if you don't have many salaried roles, you can still have fixed labor through minimum staffing requirements. Restaurants usually need openers and closers, line coverage to execute the menu safely, and a certain number of people on site for service standards and compliance. This creates a baseline schedule that doesn't shrink much when traffic is lighter than expected. For example -
- A kitchen may still need a prep person and a cook, even if tickets are slow.
- A dining room may still need at least one server and one support role.
- A manager may still need to be on site to handle cash, safety checks, and customer issues.
Then there are labor-related costs that aren't wages but still act "fixed" -
- Payroll taxes and employer contributions
- Benefits (health insurance, stipends, retirement match)
- Background checks, training platforms, and onboarding costs
- Contracted services like HR support or payroll processing (often monthly fees)
The key is not to label all labor as fixed - it's to separate what is truly controllable. A helpful approach is to split labor into -
1. Leadership & baseline coverage (fixed or semi-fixed)
2. Volume-based labor (variable - added shifts, extra hands, peak coverage)
Why does this matter? Because if you're trying to improve profitability and you only look at "labor %," you can miss the real issue. You might be staffed correctly, but your sales are too low to support the fixed labor you're carrying. Or you might have too many salaried layers relative to the size and complexity of the operation.
Once you identify your fixed labor number, you can make better decisions - like adjusting hours of operation, simplifying the menu to reduce necessary coverage, cross-training to shrink baseline staffing, or restructuring roles so more payroll flexes with demand.
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Equipment, Debt, and Depreciation
Equipment is one of the most overlooked fixed-cost categories because it doesn't always show up as a simple "monthly bill." But for many restaurants, equipment creates long-term financial commitments that behave like fixed costs - whether you finance purchases, lease equipment, or pay ongoing service fees to keep critical systems running.
Start with equipment leases and financing payments. If you're paying monthly for ovens, refrigeration, dish machines, or even POS hardware, those payments don't care how busy you were this week. The same is true for loans taken for build-out, remodels, or large purchases. You'll typically see -
- Principal and interest payments (monthly loan obligations)
- Equipment lease payments (fixed term contracts)
- Merchant cash advance or alternative financing payments (often fixed or percentage-based, but still a non-negotiable cash flow drain)
Next are service contracts and maintenance agreements. Many restaurants carry fixed monthly or quarterly fees for things like -
- Refrigeration monitoring or preventive maintenance
- Dish machine service plans
- Fire suppression inspections and service
- HVAC service agreements
- Water filtration systems
Even if the contract isn't huge, these recurring costs add up - and they're often required for warranties, safety compliance, or insurance expectations.
Then there's depreciation. Depreciation is not cash leaving your bank account each month, but it matters because it reflects the reality that equipment wears out and must be replaced. A restaurant that ignores depreciation tends to get blindsided by big replacement expenses - a walk-in compressor fails, a fryer dies mid-week, or an HVAC unit collapses during a heat wave. That "surprise" cost is usually the result of not planning for the inevitable.
A practical way owners manage this is with a replacement reserve. Even if you don't formally use depreciation, you can set aside a monthly amount based on your equipment reality - especially for high-risk items like refrigeration, HVAC, and cooking equipment. Think of it as paying yourself a "future repair bill" before it happens.
To keep this category under control, track three numbers separately -
1. Monthly equipment/loan payments (true fixed commitments)
2. Service contracts (recurring overhead)
3. Repairs and replacements (variable, but predictable over time)
When you see them together, you can make smarter calls - like whether buying is cheaper than leasing long-term, whether service contracts are worth the coverage, and whether your cash flow can handle a planned replacement instead of an emergency failure.
Utilities, Services, and Subscriptions
This is the category that quietly grows month after month because it's made up of many smaller charges. On their own, each bill feels manageable. Together, they can become a major fixed-cost burden - especially because many of them are set to auto-renew, auto-bill, or stay "on" even when you're trying to cut costs.
Utilities (often semi-variable, but treated like fixed)
Most restaurants have utilities that include a base charge plus usage -
- Electricity and gas (kitchen equipment, HVAC, refrigeration)
- Water and sewer (dishwashing, restrooms, prep)
- Internet (needed for POS, credit cards, online ordering)
- Phone lines (if still used for orders/reservations)
Even though usage changes, restaurants usually have a baseline that doesn't move much because refrigeration runs 24/7 and HVAC must maintain safe temps. That's why many owners budget utilities like a fixed cost - just with a "seasonal swing" line.
Essential recurring services
These are operational necessities and are often contract-based -
- Waste hauling and recycling
- Grease trap cleaning and disposal
- Linen service (aprons, towels, table linens)
- Pest control
- Hood cleaning and fire safety inspections
- Security monitoring (alarms, cameras)
- Cleaning services (if outsourced)
Some of these can be renegotiated or right-sized. For example, hauling frequency, linen pickups, and cleaning schedules often drift upward over time and never get revisited.
Subscriptions and tech stack
Modern restaurants run on software. The problem is stack creep - you add tools, then forget to remove old ones. Typical monthly subscriptions include -
- POS software fees
- Scheduling/timekeeping
- Payroll processing
- Inventory or food cost tools
- Accounting tools
- Online ordering/delivery middleware
- Loyalty/CRM
- Reputation management
- Training platforms
Each one sounds like "only $99-$299/month," until you're paying for ten of them across multiple locations.
The simplest way to control this category is to run a quarterly overhead audit -
1. List every recurring bill (utilities, services, subscriptions)
2. Identify owner per expense ("who uses this and why?")
3. Flag duplicates, unused seats, overlapping features
4. Renegotiate or cancel anything that doesn't earn its keep
This category is where you can often find fast savings without touching food quality or cutting frontline labor. The key is visibility - if you don't have all recurring charges in one list, you can't manage them - because you're not even sure what you're paying for.
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Frequently Asked Questions
What are semi-variable costs in restaurants?
Semi-variable (mixed) costs have a base amount plus a usage component - utilities are the best example. They don't drop proportionally when sales drop.
What are typical restaurant fixed cost categories?
Common categories include occupancy (rent/CAM/NNN), insurance and licenses, salaried labor, equipment financing/leases, service contracts, utilities baseline, and subscriptions.
Is labor a fixed cost in a restaurant?
Some labor is fixed or semi-fixed - like salaried managers and minimum staffing needed to open/operate - while additional hourly labor often flexes with volume.
How can I lower restaurant fixed costs?
Start with the most negotiable areas - subscriptions (remove duplicates), service contracts (rebid), insurance (shop renewal), waste/linen frequency, and lease-related fees where possible.
