How to Manage a Restaurant – Labor Cost

Labor Cost Awareness

Controlling your labor cost is one of the most important factors in managing your business.

Chances are if you do not monitor your labor you are most likely losing revenue.

What is prime cost?

Prime cost is the total cost of goods sold, gross labor cost for all of your employees, which includes payroll, payroll taxes, worker’s comp, medical insurance and other employee benefits. For a fast food or casual F&B facility, a good benchmark for prime cost is 60% or less of F&B revenue.

Learning what the prime cost in your restaurant should be at the top of your to do list.

Do you know the labor cost formula?

Payroll divided by total sales = labor percent

The average labor percent in most restaurants should be at 20 to 25% for hourly employees and 10% for management.

Upscale restaurant will have a higher labor percent. The menu sales mix, quality of food and service, pricing and hours of operation will impact your food and labor cost percentages.

How to maintain a good labor cost percentage?

Train your management staff on how to effectively monitor your employees.

It all starts with creating the restaurant schedule

Don’t just schedule employees to fill in the shifts, schedule enough employees to accommodate your guest in exceptional service.

Create a sensible schedule that makes sense. Have management keep a managers log in the office; make sure to enter sales figures that went over the projected sales.

Community events play a huge factor as well. See if you can get a school calendar to keep you informed of school plays and other events.

Know what’s happening in the neighborhood such as:

• Concerts
• Plays
• Musicals
• Sporting events
• Know the theater show times, what time do they let out?

Chamber of Commerce: The Chamber of Commerce is an excellent way to find out what’s happening in your area. Search for your state or local Chamber of Commerce, there are all kinds of events posted on their community board.

Supermarkets are a great way to know what’s happening in your neighborhood.

How can I keep my labor percentages down?

• Proper staff training: The better the training the less of a change of mistakes or errors. Make sure you have a great training program. Train the trainers is a great way to show the trainers what’s expected of them. In each positions there should be an assigned person training the staff members, each trainer needs to be properly trained on-hand and administered quizzes. The trainers should not be training your employees unless they demonstrate skills and learning techniques, these employees need to train your employees the way you want them trained. Management needs to monitor the training to ensure it is done properly.
• Cross Training: Cross train dishwashers on the fryer station or busing tables. Host or Hostesses can assist servers with drink orders or running food to the guest. Prep cooks can be crossed trained as a cook. The point is during peak times you can move employees around in different positions when sales are higher than normal or if the servers are in the weeds. Cross trained employees can handle multiple positions during off-peak times, that way you can have minimum employees on during the slow periods.
• Proficient employees: Training the staff on how to do their job in the best way possible will create the WOW EFFECT as long as they are consistent and proficient.
• Correctly managing shifts: Who trains the managers? – Owners need to be involved in the everyday operation of their restaurant. There are several ways to train management. When searching for a manager for your restaurant, make sure they have previous experience and that reference checks are done. Either the owner can train the employee or you can seek a restaurant consultant that trains staff members either by on-hand training or via the internet. Once the management staff has been trained properly then they can train the rest of the staff on how to provide WOW service to each of your guest.
• Know what your labor percent is on the hour: Owners or Management need to know where they stand on labor percentage by the hour. You can retrieve your restaurant sales by doing a reading on the Point of Sale (POS), the same goes for labor dollars. Then you divide payroll dollars by total sales = labor percent. A good bench mark for labor would be 20 to 25% for hourly employees and 10% for management. If you use a paper check system because you don’t have a POS then keep track of your sales and labor by the hour. Create a sales and labor log so that you can record sales and labor. Both the owner or management can tally up the figures or use the hostess to tally up the guest checks by the hour and management can retrieve the labor dollars. Remember do not cut the employees before any meal period. Servers will try to convince management to cut the floor because they will make more money, there needs to be enough staff on to accommodate your guest in exceptional service. During the tail end of any meal period management needs to give direction to the staff in regards to their side-work and the closing of their assigned areas. These staff members need to be off the clock on time – do not let them milk the clock – it is your money that is being wasted.
• Do not over staff the restaurant: Over staffing the restaurant would be very costly. If you do over staff employees make sure you react quickly in sending employees home early if the sales are not happening.
• How do you create a sensible schedule? Know what your projected labor dollars are and divide it by last week’s sales or use a rolling sales dollar figure.
• Rolling Sales: Add up the previous last three weeks of restaurant sales and divide it by 3.

Example: If you are in Week four, then add up Week one ($1552.00) Week two ($1932.00) and Week three ($2405.00) = $5889.00. Divide labor dollars $1300.00 by Sales $5889 =22%.Use the 22% to guide you in creating a sensible schedule.

After you create a schedule, if the projected labor goes over 25% then you need to make adjustments. If the percentage is under 20% then you can add more hours to the schedule.