Fixed and Variable Costs in a Restaurant

Many restaurant owners and managers do not understand the difference between their fixed and variable costs. The problem with defining fixed and variable costs in a restaurant relate to their connection with sales. In addition, reasonable assumptions have to be made in order to delineate between fixed and variable costs in the food service industry. 

This article will explain the difference between fixed and variable costs in a restaurant, provide examples of both and educate the reader on proper analytical procedures to create baselines for improvement. The best tool to use to set baselines is the feedback loop method of business operations. It will help to maximize profit and reduce overall stress for owners and the management team. 

In general, most readers have been taught or believe that the variable costs are really only two items in a restaurant. The first is food costs and the second is labor associated with producing and serving the meals. Once you are done reading this article, you will discover that variable costs are actually broader in scope than just these two basic costs. 

Furthermore, many small business owners believe that if labor and food are variable, the remaining costs must be fixed in comparison. This is not necessarily true especially as the restaurant’s volume of sales increase and more costs begin to accumulate. Before going into details, a short definition of each of the terms used is provided to remind the reader of their meaning.

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