What are the biggest restaurant cost categories?
Most restaurants spend the most on food & beverage (COGS), labor, and occupancy (rent-related costs). After that, operating expenses (utilities, repairs, supplies, fees, tech, marketing, etc.) can add up quickly and often determine whether you end the month profitable.
What Are Typical Restaurant Costs?
The 3 Numbers Restaurants Should Track Weekly
Sales are exciting - but costs decide whether you actually keep any of that money. Two restaurants can run the same weekly revenue and end up with completely different profit outcomes based on how well they control a handful of key expense categories. That's why successful owners talk about restaurant costs as a system, not a single number. When you treat costs like a system, you stop reacting to "bad months" and start spotting patterns early enough to fix them.
A simple way to think about it- sales are the engine, but costs are the brakes and leaks. If your food cost creeps up 2%, labor runs heavy on slow shifts, or vendor pricing increases without menu pricing adjusting, you can "sell more" and still go backwards. In many restaurants, a small change in costs has a bigger impact than a small change in sales because costs hit you every day - every order, every shift, every delivery, every utility bill.
To keep it practical, there are three numbers restaurant owners should have a pulse on weekly -
1. Sales trend (Are you up or down vs. last week and last year?)
2. Prime cost (Food + labor - your biggest controllable costs)
3. Cash position (Do you have enough to cover the next payroll and invoices?)
When any of those move the wrong direction, it's a signal to dig into the category causing it - food, labor, occupancy, or operating expenses. This category-by-category approach also prevents "blanket cuts" that hurt quality or guest experience. Instead of slashing spending everywhere, you can target the real issue - portion control, scheduling accuracy, purchasing discipline, or fee creep.
Strong sales make growth possible, but cost control makes your restaurant sustainable. Once you understand what typical restaurant costs look like, you can compare your numbers against benchmarks, identify what's out of line, and prioritize the fixes that protect your margins fastest.
How to Read Cost Benchmarks
Benchmarks are useful - but only if you use them correctly. A benchmark is simply a typical range (often shown as a percentage of sales) that helps you sanity-check your restaurant costs. It answers questions like- Is my labor cost unusually high? Is my rent too heavy for my sales volume? Are my operating expenses drifting upward? What benchmarks cannot do is tell you, by themselves, whether your restaurant is "good" or "bad." They're not grades - they're guardrails.
Start by understanding a few key terms
1. COGS (Cost of Goods Sold) - Your food and beverage product costs used to produce what you sell.
2. Prime cost - Typically COGS + labor (including payroll taxes/benefits, depending on how you track). This is the most important controllable-cost number for most restaurants.
3. Occupancy costs - Rent and related location costs (like CAM/common area maintenance, property taxes, and insurance in many leases).
4. Controllable vs. fixed costs - Food and labor are more controllable in the short term; rent is mostly fixed; utilities and repairs are "semi-variable" and can be managed with systems.
Next, remember that benchmarks vary widely by concept and market. A quick-service restaurant often runs a different labor model than full service dining. A bar-heavy concept may show lower beverage cost percentages than a cocktail-forward menu. And rent percentages change dramatically depending on the city, foot traffic, and lease structure. That's why you should think in ranges, not single targets.
A practical approach -
1. Compare your costs to a range (not a perfect number).
2. Look for trends over time (month-over-month and year-over-year).
3. Use benchmarks to prioritize investigation, not to force cuts.
Finally, always ask- What's driving the number? A higher labor percentage might be caused by underpriced menu items, low sales volume, or overtime - not just "too many staff." A higher food cost might be driven by waste, portion creep, vendor price increases, or comps/voids. Benchmarks help you spot what's unusual - your job is to find the reason and fix the system behind it.
Food & Beverage Costs
Food and beverage costs - often grouped as COGS (Cost of Goods Sold) - are usually the first place owners look when margins feel tight, and for good reason - product costs hit every sale. But to manage COGS well, you need to define what belongs in the category, track it consistently, and understand what actually moves the number.
What's included in COGS?
At a minimum, food COGS covers ingredients used to produce menu items - proteins, produce, dry goods, dairy, sauces, and any prep items. Beverage COGS includes alcohol, beer, wine, NA beverages, coffee, syrups, and mixers. Many restaurants also include paper and packaging (to-go containers, cups, lids, napkins) as part of COGS - especially if off-premise is a meaningful part of sales. The important thing is consistency- if paper is in COGS this month, it should be in COGS next month, too.
Typical benchmark ranges (high-level) -
- Food cost commonly lands somewhere around 25%-35% of food sales, depending on concept, pricing, and portion sizes.
- Beverage cost often runs around 18%-28% of beverage sales, with wide variation based on alcohol mix and pouring controls.
(These are directional ranges; your "right" number depends on concept and strategy.)
What drives COGS up or down?
COGS isn't just "vendor prices." The biggest drivers usually include -
Portion control - inconsistent scoops, heavy hands, or unstandardized prep
Waste and spoilage - over-prep, poor rotation, inaccurate pars
Comps/voids/discounts - product used but not paid for
Theft or untracked staff meals
Menu mix - selling more low-margin items can raise overall COGS %
Core controls that actually work -
1. Recipe costing + standardized portions (weights, scoops, build charts)
2. Inventory cadence (weekly is common; some do key items more often)
3. Waste log tied to real actions (adjust pars, retrain, change prep)
4. Vendor price checks and smart ordering (avoid emergency buys)
When you manage food and beverage costs like a process - not a guessing game - you get faster answers, better pricing decisions, and far fewer "mystery" margin swings.
Labor Costs (FOH, BOH, Management)
Labor is usually the biggest - and most sensitive - restaurant cost category because it impacts both profitability and guest experience. The goal isn't to "cut labor." The goal is to buy the right labor at the right times so your team can execute the menu, serve guests quickly, and maintain standards without overtime, overstaffing, or burnout.
What counts as labor cost?
Many owners accidentally undercount labor by only looking at hourly wages. A complete labor picture typically includes -
- Hourly wages (FOH and BOH)
- Salaried management
- Overtime premiums
- Payroll taxes (employer-side taxes)
- Benefits (health, PTO, 401(k) contributions, etc., if offered)
- Other labor-related costs like workers' comp insurance (sometimes tracked separately)
To compare apples to apples, make sure your labor "benchmark" matches what you're including. Some restaurants track "wages only," while others track "fully loaded labor."
Typical benchmark ranges (high-level)
- Hourly labor might commonly fall around 18%-28% of sales (varies heavily by service model).
- Total labor (hourly + salary + taxes/benefits) often lands around 25%-35% for many concepts - sometimes higher in full service, sometimes lower in streamlined QSR.
Again, these are directional ranges - concept, wage market, operating hours, and throughput all matter.
The levers owners control most
1. Staffing to demand - The fastest way labor gets out of line is scheduling like every day is a Saturday. Use sales patterns (by daypart) to set staffing guides.
2. Position efficiency - Cross-training and clear station setups reduce extra hands during slower periods.
3. Overtime prevention - Overtime is often a scheduling problem, not an employee problemespecially when you rely on a few top performers.
4. Turnover and training - High turnover quietly increases labor cost through onboarding hours, mistakes, and slower execution.
The metric that keeps you honest
Don't look at labor % alone - pair it with productivity, like sales per labor hour (or labor hours per $1,000 in sales). If labor % rises while productivity falls, you're likely overstaffed or mis-scheduled. If labor % rises while productivity stays strong, the issue could be wage rates, hours of operation, or menu pricing.
When you manage labor as a weekly rhythm - forecast, schedule, adjust, review - you protect margins without sacrificing service.
Occupancy Costs
Occupancy costs are the "price of admission" for your location - often one of the least flexible restaurant costs in the short term, but one of the most dangerous if it's too high. Unlike food and labor, you can't easily "work harder" to fix rent. If occupancy is out of range, it can quietly compress your margins every single month, even when operations are strong.
What's included in occupancy costs?
Occupancy usually includes more than base rent. Depending on your lease structure, it can include -
- Base rent (fixed monthly amount)
- Percentage rent (a % of sales once you pass a breakpoint, in some leases)
- CAM/Common Area Maintenance charges
- NNN charges (often property taxes, building insurance, and maintenance passed through to the tenant)
- Property insurance tied to the location (sometimes separate from general liability)
- Real estate taxes if they're your responsibility
Because these items can sit in different lines on a P&L, it helps to group them into one occupancy bucket when reviewing benchmarks.
Typical benchmark range (high-level)
Many restaurant operators try to keep occupancy costs around 5%-10% of sales, though this varies a lot by market, concept, and whether the space is high-traffic urban real estate. Some locations can function above that range if average tickets are strong, sales volume is high, or the brand benefits from the visibility. The key question is- Does the location produce enough revenue to justify the fixed cost?
Common red flags owners miss
1. CAM creep - CAM and pass-through charges can rise year over year and surprise you if you're only budgeting for base rent.
2. Seasonality risk - A location that looks fine in peak season can become painful in slow months because rent doesn't scale down.
3. Space inefficiency - Paying for square footage you can't monetize (poor layout, oversized dining room, unused storage) increases effective occupancy cost.
Quick checks that help
1. Rent-to-sales ratio - Track occupancy % monthly and compare to the same month last year.
2. Break-even awareness - Know the sales level required to cover rent + core fixed bills before you "make money."
3. Lease timing - Build a reminder calendar for renewals, escalations, and negotiation windows - because the best leverage is before you're forced to decide.
Occupancy isn't just a finance number - it's a strategic constraint. When it's healthy, it gives you room to invest in labor, marketing, and maintenance. When it's too high, it limits everything else.
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Operating Expenses
After food, labor, and occupancy, most owners lump the rest into "other." That's where profits go to disappear. Operating expenses are made up of many smaller categories that don't feel huge on their own - but together they can rival rent or even management labor. The key is to stop thinking of these as random bills and start treating them like named buckets with targets.
Below are common operating expense categories, what typically belongs in each, and what usually drives them up -
1. Utilities (electric, gas, water, trash) - Often fluctuates with seasonality, equipment efficiency, HVAC habits, and operating hours. Benchmarking works best by comparing month-over-month and year-over-year for the same season.
2. Repairs & maintenance - A "spiky" category - quiet for months, then painful. Preventive maintenance and equipment checklists reduce emergency calls and downtime. If this category keeps rising, you may be under-budgeting replacement cycles.
3. Supplies and smallwares - Cleaning chemicals, gloves, paper towels, dish pods, towels, printer paper, pens - death by a thousand cuts. This category climbs when ordering lacks discipline or storage is disorganized.
4. Cleaning, pest control, linen - Often contract-based, so the big lever is vendor management- scope, frequency, and whether you're paying for services you don't need.
5. Credit card processing and bank fees - Processing rates, chargebacks, tips, and payment mix all influence this. A small change in fees can make a noticeable dent in margin.
6. Technology stack - Subscriptions add up fast. Owners should review what's essential, what's duplicated, and what's delivering measurable ROI (time saved, errors reduced, revenue protected).
7. Marketing and promotions - Includes digital ads, agency fees, printing, loyalty tools, community events, and discounts/promotions. The mistake is spending without tracking return or letting promotions quietly lower margins.
8. Licenses, permits, professional services - Health permits, liquor licensing, music licensing, legal/accounting services - often predictable annually if you plan them.
How to benchmark operating expenses
Instead of chasing a perfect percentage for every line item, set caps (target ranges) per category and watch for variance. If supplies jump 20%, don't accept it - ask what changed - ordering habits, theft, vendor price increases, or a new menu/packaging shift. Operating expenses are where systems (approvals, pars, vendor checks, and monthly reviews) protect your margins without touching guest experience.
One-Time and Hidden Costs
Even if your core categories (food, labor, occupancy, operating expenses) look healthy, restaurants still get blindsided by costs that don't show up neatly every month. These are the expenses that feel like "random bad luck," but most of them are predictable if you plan for them. The goal is to treat them as expected events, not emergencies.
1. Equipment replacement and capital expenses - Every restaurant has an equipment life cycle- refrigeration, ice machines, fryers, dishwashers, HVAC, POS hardware, hot holding - nothing lasts forever. When an essential piece fails, you often pay premium pricing (rush service, same-day delivery, downtime). Even if you don't track depreciation formally, you should budget a monthly "replacement reserve" so a major failure doesn't wreck cash flow.
2. Build-out refreshes and compliance upgrades - Restaurants also face periodic costs tied to the space itself- repainting, flooring repairs, signage, seating replacements, hood cleaning upgrades, grease trap requirements, fire suppression servicing, accessibility fixes, and local code changes. These are easy to postpone - until they're not. Creating a simple annual maintenance and refresh plan prevents surprise spending.
3. Turnover-related costs - High turnover is one of the most underestimated "hidden" restaurant costs. Beyond recruiting ads and manager time, you pay in training labor hours, uniforms, meals, mistakes, comps, and slower throughput. Even when wages stay the same, turnover can increase your effective labor cost because you're constantly rebuilding skill and speed.
4. Refunds, comps, chargebacks, and waste spikes - Chargebacks, delivery disputes, quality issues, and inconsistent execution can turn into real costs quickly. The money leaves the building, but it may not show up in the same P&L line you're watching. Tracking refunds/voids and waste as their own operational metrics helps you catch patterns.
5. Vendor shortages and "emergency buys" - When a key item is out of stock, last-minute purchases often cost more and create menu inconsistency. Those extra costs get buried in COGS, but the true driver is poor forecasting or lack of backup vendors.
How to protect yourself
Build a contingency buffer into your budget - either as a percentage of sales or a fixed monthly dollar amount. Many owners set aside a small reserve specifically for maintenance and unexpected expenses. The point isn't pessimism; it's stability. When one-time and hidden costs are planned, you can make decisions calmly instead of reacting under pressure - and your margins stop getting surprised.
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Frequently Asked Questions
What is the prime cost?
Prime cost = food & beverage COGS + labor. It matters because it's usually your largest controllable cost bucket. If prime cost is drifting up, it's a signal to review portioning, pricing, waste, scheduling, overtime, and productivity.
What's the best way to track restaurant costs?
Use a rhythm -
Daily/weekly - sales trend, labor vs. sales, high-level COGS signals (key item usage, waste)
Weekly/biweekly - inventory counts (or at least key items), overtime review
Monthly - full P&L review by category with actual vs. target vs. last month vs. last year
Daily/weekly - sales trend, labor vs. sales, high-level COGS signals (key item usage, waste)
Weekly/biweekly - inventory counts (or at least key items), overtime review
Monthly - full P&L review by category with actual vs. target vs. last month vs. last year
What's included in occupancy costs?
Occupancy often includes base rent, plus items like CAM, NNN charges, property taxes, and insurance (depending on lease structure). Owners often miss CAM/NNN increases, which can raise occupancy costs over time.
What's the difference between fixed, variable, and semi-variable restaurant costs?
- Fixed costs don't change much with sales (rent, some salaries, insurance).
- Variable costs rise and fall with sales (ingredients, packaging, some hourly labor).
- Semi-variable costs move somewhat with volume but also depend on behavior (utilities, repairs, supplies).
- Variable costs rise and fall with sales (ingredients, packaging, some hourly labor).
- Semi-variable costs move somewhat with volume but also depend on behavior (utilities, repairs, supplies).
