How to Run a Restaurant: Labor Cost

Awareness of labor costs

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

Chances are, if you don’t monitor your work, you will most likely lose income.

What is the principal cost?

Principal cost is the total cost of goods sold, the gross labor cost of all your employees, which includes payroll, payroll taxes, workers’ compensation, health insurance, and other employee benefits. For a fast food or casual F&B facility, a good benchmark for primary cost is 60% or less of F&B revenue.

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

Do you know the formula for labor cost?

Payroll divided by total sales = percentage of labor

The average workforce percentage in most restaurants should be twenty for 25% for hourly employees and 10% for management.

The fancy restaurant will have a higher percentage of workforce. The combination of menu sales, food and service quality, prices, and hours of operation will affect your food and labor cost percentages.

How to maintain a good percentage of labor cost?

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

It all starts with creating the restaurant hours.

Don’t just schedule employees to complete shifts, schedule enough employees to accommodate your guests in exceptional service.

Create a sensible schedule that makes sense. Have management keep a register of managers in the office; be sure to enter sales figures that exceed projected sales.

Community events also play a very important role. See if you can get a school calendar to keep you posted on school plays and other events.

Know what is happening in the neighborhood, such as:

• Concerts
• Theater plays
• Musicals
• Sports events
• Know the schedules of the theater shows, what time do they leave?

Chamber of Commerce: The Chamber of Commerce is a great way to find out what is happening in your area. Look for your state or local Chamber of Commerce, there are all kinds of events posted on your community board.

Supermarkets are a great way to find out what is happening in your neighborhood.

How can I keep my labor percentages low?

• Adequate staff training: The better the training, the less will be the change of errors or mistakes. Make sure you have a great training program. Training coaches is a great way to show them what is expected of them. In each position there must be an assigned person who trains the staff members, each trainer must be properly trained and administered questionnaires. Trainers should not train your employees unless they demonstrate learning skills and techniques, these employees should train your employees the way you want them trained. Management should monitor the training to make sure it is done correctly.
• Cross training: Cross rail dishwasher at the fryer station or transport tables. The host or hostesses can assist waiters with drink orders or bring food to the guest. Prep cooks can be trained as cooks. The point is that during peak hours you can move employees into different positions when sales are higher than normal or if the servers are in weed. Cross-trained employees can fill multiple positions during off-peak hours, that way you can have a minimum of employees during slow periods.
• Competent employees: Training staff on how to do their jobs in the best possible way will create the WOW EFFECT provided they are consistent and competent.
• Manage shifts correctly: Who trains managers? – The owners must participate in the daily operation of their restaurant. There are several ways to train management. When looking for a manager for your restaurant, make sure they have prior experience and that reference checks are done. The owner can train the employee or they can find a restaurant consultant who will train the staff members, either through face-to-face training or via the Internet. Once the administration staff have received the appropriate training, you can train the rest of the staff on how to provide WOW service to each of your guests.
• Know what your hourly work percentage is: Owners or management need to know where they stand on hourly labor percentage. You can recover your restaurant sales by doing a reading at the Point of Sale (POS), the same goes for labor dollars. Then divide the payroll dollars by total sales = percent of labor. A good benchmark for labor would be 20-25% for hourly employees and 10% for management. If you use a paper verification system because you don’t have a POS, track your sales and labor by the hour. Create a sales and labor record so that you can record sales and labor. Both the owner and the management can count the figures or use the hostess to count the guest checks by the hour and the management can get the money back from the labor. Remember not to cut employees before any meal period. The servers will try to convince the management to lower the floor because they will earn more money, there needs to be enough staff to accommodate your guest in exceptional service. During the end of any meal period, management must guide staff regarding their side work and the closure of their assigned areas. These staff members need to be out of the clock on time, don’t let them milk the clock, it’s your money that’s going to waste.
• Don’t overload restaurant staff: Overstaffing in the restaurant would be very costly. If you beat employees, make sure you react quickly by sending employees home early if sales aren’t happening.
• How do you create a sensible schedule?? Know what your projected labor dollars are and divide by last week’s sales or use a rolling sales dollar figure.
• Continuous sales: Add up the restaurant sales for the past three weeks and divide by 3.

Example: If you are in week four, add week one ($ 1,552.00) week two ($ 1932.00) and week three ($ 2405.00) = $ 5889.00. Divide $ 1,300.00 Labor Dollars by Sales $ 5889 = 22% Use 22% to guide you in creating a sensible schedule.

After creating a schedule, if your projected workforce exceeds 25%, you need to make adjustments. If the percentage is less than 20%, you can add more hours to the program.