First, find your total labor costs as outlined above. Next, add up all your expenses. Be sure to include rent, utilities, marketing, software subscriptions, food costs, uniforms, and all other expenses. Lastly, you will divide your labor by your total expenses.
You can use this formula for other variable costs too, such as electricity and restaurant equipment. That way, you can find a healthy percentage for each expense. If your labor costs are too high, you will want to reign them in before they cripple your restaurant. And even if your costs are at a healthy level, reducing them can help you boost advertising spend or invest in new equipment. Your employees perform different tasks that match their job title, and as such, they earn different hourly wages.
By breaking down employees into similar groups, you can see how much each group costs you. For example, you will know on average what your kitchen staff cost per 8-hour shift vs.
Once it comes time to cut costs, you can see which groups cost you the most. While no one likes letting workers go, this process will help you determine which cuts will be most effective. A normal restaurant likely has a few servers and a host out front and a small meal preparation team in the back of the house.
A manager will oversee operations, handle customer service issues, and be the go-to person for all other issues. By cross-training your team, you can reduce the number of employees on a shift without losing productivity. Even paying this person a few dollars more per hour during these situations will cost less than scheduling a manager for an entire shift.
Likewise, you can train hosts to serve food. Callouts and no-shows can impact your operating costs. Rather, you want to incentivize workers to show up and reward positive behavior.
Likewise, you can set qualifications to earn a raise. By setting attainable targets, you improve efficiency and reward employees for hard work. So how do you control restaurant labor costs? That said, here are a few basic tips and tricks for both calculating and managing restaurant labor costs.
Dividing staff into groups shows you which positions cost the most. Assign front-of-house staff such as servers, hosts, and bartenders to one group. Kitchen staff such as cooks and dishwashers are another natural group, as are management staff.
The product sales mix, quality of food and service, pricing and hours of operation will impact your food and labor cost percentages. Furthermore, state minimum wage differentials and differences in tip credit allowances toward minimum wage affect the labor cost percentage.
The extent of beverages sales — as part of the food mix — has a considerable impact on total food cost percentages. Food and labor costs are calculated as a percentage of the total volume of sales. For restaurant companies with locations in 10 states and 23 cities, keeping track of anywhere between 10 to 23 different minimum wages in each location for reporting purposes is a monumental task. However, some restaurant operations software now offers tools to stay compliant with multiple minimum wage laws.
Instead of spreadsheets or documents for each location, a minimum wage adjustment report can pull information for each employee underneath a selected job type to monitor the pay each employee should receive versus how much they earned.
This allows restaurant owners to see the amount of money needed to pay a worker if they did not reach the minimum wage required. Technology tools like a minimum wage adjustment report can help restaurant owners adapt to the pressure of increasing wages.
Facing rising labor costs without decreasing the level of quality or service in your restaurant requires finding ways to be more efficient in labor. Restaurant scheduling software tools like reusable templates, or a free employee app, can proactively help a manager create and communicate a streamlined staff schedule.
Scheduling software can help a manager cut down on errors, spot potential overtime issues, or even regulate the windows that employees can clock in or clock out. Your restaurant scheduling should also account for reporting and metrics about labor categories, day parts, and seasonality. With new sales forecasting tools, facilitated by POS system integration, you can track trends to avoid being over or understaffed.
Finally, investing in staff retention can help lower your labor costs in the long-term. Initiatives like cross-training programs and staff appreciation can make employees less likely to leave, making your labor more productive and reducing costs associated with high turnover. Understanding how to calculate your labor cost percentage is a beneficial long-term strategy to keep your restaurant healthy.
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