January 27, 2020 Understanding Restaurant Preventive Maintenance ROI
Frequently, within the restaurant industry, preventive maintenance of equipment and systems are overlooked. Rather than choosing to service equipment and systems on a regular basis, restaurateurs often choose to maintain their equipment on a reactive maintenance or breakdown model. This is often unfortunate because with a small initial investment of time and money they can avoid costly emergency repairs. While there are a multitude of reasons why preventive maintenance is beneficial to your company, one way to determine if it is a sound investment is to calculate the ROI or return on investment for your maintenance strategy. Using this metric will allow you to measure the investment cost relative to your net income for the particular maintenance strategy that you choose.
The Cost of Unplanned Maintenance
Unplanned or reactive maintenance is costly. While it may not seem expensive on a day to day basis, the cost of breakdowns can quickly add up. At first, it may seem as though the repairs are the only cost a reactive-based maintenance strategy encompasses many more costs. Some of them are:
- Shutdowns of the restaurant
- Replacement of high-cost equipment
- Decreased equipment lifespan
- Increased food waste
- Equipment downtimes
- Higher labor cost of repairs
- Wasted employee hours
When you neglect to perform simple preventive maintenance measures, like cleaning out the condenser coils of your refrigeration unit, you are setting your business up for failure. While some breakdowns can be easily worked around like discarding fries because the fryer is malfunctioning, a breakdown of high-priority equipment like refrigerators, ovens, ranges, and griddles can cause a complete shutdown of the business.
To calculate the cost of these shutdowns you need the Avoided Cost formula:
Avoid Cost Formula = Covers Per House x Average Cost Per Plate x Repair Time
Let’s say you typically do 20 covers per hour on the day your convection oven failed and each cover is worth $10 per plate. For this repair, you have to close for four hours. You will have lost out on $800 of revenue for this repair. However, with your restaurant’s actual figures, this could be much more and of course, this is hoping that the repair is completed in a short time allowing you to reopen for dinner rush.
However, what happens when your breakdown maintenance plan leaves you with an irreparable item. What if after years of neglected maintenance the walk-in refrigerator you owned have to be replaced. A well-maintained unit should last for 15 to 20 years and while an average unit lasts for ten years with a reactive maintenance plan, you may need to spend upwards of $10,000 ten years earlier. Whereas with a preventive maintenance plan you could be saving an entire restaurant’s worth of equipment with simple daily tasks.
The Benefits of Preventive Maintenance
Once you implement a preventive maintenance plan into your restaurant, you will begin to see the benefits almost immediately. There are many advantages to performing the extra cleaning and service needs of the equipment that you rely upon to serve your many customers. Aside from a cleaner overall restaurant, some of the advantages that come from a proactive maintenance plan are:
- Longer equipment life
- Better performing equipment
- Higher health department ratings
- Fewer equipment breakdowns
- Lower maintenance costs
- Fewer shutdowns for repairs
By performing maintenance on a schedule you limit the possibility of needing to shut down due to an emergency repair. This is because not only are you performing cleaning and care of your equipment to prevent a breakdown but by inspecting your equipment on a regular basis you are able to identify problems before they become catastrophic and can schedule maintenance around your hours of operation. This means that if you need to replace the thermocouple in your griddle, you can schedule it for 8 am on a Monday, outside your normal business hours, rather than finding out the griddle isn’t working mid-dinner rush.
This ability to pre-identify problems also leads to lower overall maintenance costs. While a preventive maintenance program does not guarantee that your equipment will never breakdown, breakdowns are usually identified before they become an emergency. For example, the average cost of refrigeration service on nights and weekends (emergency service) is usually double the cost of the standard non-emergency cost which is between $120 to $180 per hour. In labor costs alone, identifying problems earlier pays off.
One way to evaluate the benefits of a preventive maintenance system is the avoided cost formula from earlier; however, there are other ways to evaluate your investment gain before we get to ROI. It’s the preventive maintenance gain formula:
Preventive Maintenance Gain Formula = Repairs Not Needed Per Year + (Replacements Put Off / Years of Increased Expected Life) + Avoided Cost Per Year
Let’s say you normally need your oven serviced three times per year under your current reactive maintenance plan and each service costs $200 per hour at four hours each time. That’s a $2,4000 worth of repairs avoided each year. Additionally, perhaps the replacement cost of your commercial convection oven is $10,000 with an average expected life of seven years but with proper maintenance, it should last 15 years, that’s eight additional years. That means for those eight years you’re saving $1,250 per year. Using the data from our avoided cost example, you’re also saving $2,400 a year from avoiding breakdowns. The total benefit of just performing maintenance on your oven is $6,500 per year. For non-essential items, you don’t need to include avoided cost, unless by not having ice you miss out on sales.
Preventive Maintenance Gain for Convection Oven = $2400 + ($10000/8) + $2400 = $6,050
Things to Consider for Preventive Maintenance
Before deciding if preventive maintenance is right for your restaurant there are some things to consider. These factors will allow you to decide if a proactive maintenance program will be beneficial for you to employ. These factors are:
- Types of equipment
- Age of equipment
- Quantity of equipment
- Available staff
- Labor costs
Perhaps you have a small kitchen with limited staff who are paid a high wage. In this instance, a preventive maintenance plan might not be best for you because there isn’t enough crew available to spread the tasks amongst. If you have a larger staff, it will be easier to spread the tasks out so that it doesn’t add up to multiple additional hours of wages.
Another factor in deciding if preventive maintenance is right for your restaurant is to consider the type, age, and quantity of equipment. If your restaurant is filled with equipment near the end of their lifespan it might be best to hold off on sweeping changes to your maintenance plan until you begin to replace those items. This will allow you to save money in the short term as you work to replace the older low-value equipment.
Cost of Preventive Maintenance
Typically, the cost of preventive maintenance in the restaurant industry is based almost entirely on labor costs. However, annually and quarterly there are some tasks that must be done by qualified service professionals. As with our oven example, there needs to be an annual inspection performed by a professional service technician. This service typically takes one to two hours of service.
To calculate the cost of your preventive maintenance you need the following data:
- Labor Costs
- Training Costs
- Annual Service Costs
Investment Base Formula = (Labor Costs Per Day x Days Open) + Annual Training Costs + Annual Professional Service Cost
For our oven example, say there are 10 kitchen employees and each employee was required to do one hour of training to learn how to properly maintain the oven. Additionally, let’s say that it takes an hour of labor per day to maintain the ovens as part of side work at a wage of $15 per hour. The annual service cost for the ovens is $400 for two hours of annual professional service. This equals up to $5,050 per year of investment.
Investment Base Convection Oven = ($15 x 300) + $150 + $400 = $5,050
It is also important to remember to add in any additional investments you have made into your preventive maintenance plan like software to make it easier or additional equipment to perform service.
How to Calculate ROI for Your
Return on investment is one way to fully understand the profitability of the actions taken to invest in a preventive maintenance solution. To calculate the ROI of your restaurant’s preventive maintenance plan you need to factor in the preventive maintenance gain formula and divide it by the investment base formula.
Restaurant Preventive Maintenance ROI Formula = Preventive Maintenance Gain / Investment Base
Using the example from above for the convection oven alone the ROI is 1.19 or 119%. However, even a lower number is good. A good return on investment is anything over 2%. Your numbers may be different but overall, preventive maintenance tends to be very profitable for a restaurant.
By: Jennifer Chonillo
Jennifer Chonillo is a content writer for Upkeep, a maintenance software used by restaurants. She writes to inform the food and beverage industry about all things maintenance.