Restaurant Operating Costs – A Complete Guide

Restaurant operating costs in India can be overwhelming; with daily expenses, rising ingredient prices, increasing electricity bills, and payroll obligations, every rupee matters. Understanding where your money goes is the first step toward building a sustainable and profitable restaurant.

The purpose of this guide is to help you to:

• Understand costs that can be categorized as fixed, variable, and semi-variable
• Identify the top 3 restaurant expenses in India
• Provide practical learnings to cut down costs
• An exercise that helps you estimate operating costs correctly
• Get some insights on technology, maintenance, and compliance-related costs.

An Introduction to  Restaurant Operating Costs

The operating costs are the regular expenses involved in running one restaurant. They are everything from rent to rice. In general, they are classified as follows:

Fixed Costs:

Fixed Costs are costs that stay the same every month; these include rent, license fees, insurance, and property tax.

Variable Costs:

Variable Costs, which vary with respect to the volume of business: these include all ingredients, electricity, gas, packaging, and delivery charges.

Semi-variable Costs:  

These are correlated with fluctuations greater than those classified as variables. They comprise mostly wages paid to workers, maintenance, and utilities of the establishment during peak times.

When one can remain on top of the costs within these in a simple cost-tracking scheme, it becomes a little clearer to follow one’s spending habits and identify possible areas for cost reduction.

The Top 3 Restaurant Operating Costs in India

1. Labour Costs

Labour generally has the biggest bite into the budget of any restaurant. This includes:

• Salaries of the employees
• PF, ESI, and gratuity
• Incentives and bonuses
• Overtime

To see how efficient this is working for you, use this formula to calculate Labor Cost Percentage: 

(Total Labor Cost ÷ Total Sales) × 100

A healthy labour cost percentage for any Indian restaurant would generally range between 25% to 30%.

Ways to Reduce Labor Costs:

• Train staff to multi-task
• Digitalize scheduling
• Minimise overstaffing during lean hours
• Retain experienced staff to save on training costs
• Automation: Use self-ordering QR codes, in-table tablets, or kitchen display systems where applicable.

2. Food Costs

Basically, it’s the core of your business, but it changes based on seasons, transport, and market rates. However, control and monitor your food cost percentage for profitability.

Here’s how to calculate:

(Opening Inventory + Purchases – Closing Inventory = Cost of Goods Sold)

(COGS ÷ Total Sales) × 100 = Food Cost %

For most Indian restaurants, this food cost percentage typically ranges between 25% and 35%.

Ways to Cut Down on Food Costs:

• Use seasonal and locally sourced ingredients
• Proper stock check to avoid spoilage or unnecessary over-purchasing
• Standardise portioned food for consistency and control
• Create smart combinations on the menu that include high-margin items
• Use kitchen waste efficiently: turn vegetable peels into stocks or sauces

3. Rent and Utilities

The rent is very high in commercial areas, especially in metros like Mumbai, Bengaluru, and Delhi. An equally high power, water, and gas bill depends upon your kitchen setup and hours of operation.

Rent should be ideally less than 10% of the total monthly revenue.

Rental and Utility Cost Reduction Strategies:

• Choose location smartly-footfall matters more than just visibility
• Energy-efficient equipment and LED lighting
• Turn off appliances not in use during non-peak hours
• Negotiate better lease terms or look for revenue-share models
• Cloud kitchen model if dine-in is not essential

4. Technology Cost

Any modern-day restaurant really needs software to manage smooth operations, and this software often charges monthly rent.

• Subscription to POS system
• CRM software
• Online ordering platforms
• Aggregators for delivery commission

Tip: Use integrated tools that handle multiple functions to avoid overlapping costs.

5. Maintenance and Repairs

Even a minor breakdown in your kitchen or air conditioning can start affecting operations. 

• Routine equipment services
• Emergency repairs
• Replacement of furniture
  
  Tip: Regular budgeting for preventive maintenance to eliminate expensive breakdowns.

6. Marketing and Promotions

A restaurant may not do well despite great food if it does not have the visibility of the public eye. Typical advertising forms in this area include:

• Social media advertising 
• Loyalty programs
• Influencer tie-ups
• Festival/event promotions

Tip: Reserve at least 2-5% of your monthly budget toward marketing, especially in the initial 6-12 months.

7. Compliance and Licenses

Every restaurant will need to comply with the legal and safety standards that govern it. 

• Renewal of FSSAI licenses
• Fire safety 
• GST filings and accounting support
• Music or entertainment license (if applicable)

Tip: It is also important to stay updated with government regulations and reminder settings for renewals so as not to incur fines.

How to Calculate Your Operating Costs

And the simple way of arriving at how much your restaurant is costing: 

• Add all fixed costs (rent, insurance, licenses, etc.).
• Add all variable costs (ingredients, utilities, delivery costs).
• Add all semi-variable costs (staff salaries, maintenance, marketing, etc.).

Thereafter, use this formula:

Operating Cost = Fixed + Variable + Semi-variable Costs

Operating Cost ÷ Total Sales × 100 = Operating Cost %

This percentage helps you understand whether your costs are under control or whether you’re overspending in any particular area.

The fast pace of the restaurant business in India has made it difficult to keep operating costs under control.

From small outlet restaurants to fine-dining setups, tracking costs helps in

• Pricing improvements 
• Better budgeting 
• Long-term sustainability 
• Efficient growth and expansion

A successful restaurant doesn’t serve good food alone – it serves as a backup with sharp financial planning, smart tools, and cost-conscious decisions. Monitor your costs monthly and adapt to them promptly, and you will have a better chance of being profitable in a competitive market.
If you’re looking for expert guidance tailored to your restaurant’s needs, consider partnering with a professional restaurant consultancy in Bangalore that offers insights, strategy, and hands-on support to help you grow efficiently and profitably.