How to Efficiently Manage Labor Costs for Your Restaurant

The highest restaurant labor costs are often the most expensive Restaurant ownership costs. Restaurateurs aim to keep labor costs below 20% and 30% of gross revenues. A full-service, white-tablecloth restaurant is likely to have a higher labor cost than a resto. Restaurant with quick serviceBecause they have more employees to provide a higher quality service.

So how can you control labor costs in restaurants?

Well, there’s no sure-fire way to go about managing labor costs in a restaurant because every bar, restaurant, and coffee shop is different. This means that every place will have a unique restaurant labor situation that must be managed differently.

You can begin by tracking staffing via your website. restaurant POS system, but after that point, it’s all going to depend on the unique needs of your restaurant. 

Here are some tips and tricks to help you calculate and manage restaurant labor costs.

  • For greater clarity, group your restaurant labour costs
  • Calculate your prime cost using a restaurant labour costs formula
  • Move beyond asking, “what percentage of sales should labor be in a restaurant?”
  • With training and thoughtful scheduling, you can save on restaurant labor costs.
  • Average labor cost for each restaurant type

A restaurant employee handbook can help you increase staff retention

In this free template, we’ve made writing your restaurant employee handbook as simple as filling in each section with your restaurant-specific policies.

For greater clarity, group your restaurant labor costs.

You can see which positions are most expensive by dividing staff into groups. You can assign front-of house staff such as servers, bartenders, and hosts to one group. The natural group that includes kitchen staff like cooks and dishwashers, as well as management staff, is the kitchen staff. You can also divide your staff by whether they’re paid by hourly wage or salary.

Restaurants should aim for labor costs to be between 20% and 30% of gross revenues.

Once you have all your staff sorted up, you can see how much each team costs. You can also see if you can tinker with the combination of staff you schedule during each shift to bring your restaurant’s labor costs down. Bartenders can be more expensive than servers so you might consider replacing them with two servers. If the job still gets done and the night goes off without a hitch, you’ve found a way to reduce your labor costs already.

 

Use a restaurant labor cost formula to calculate your prime cost

While calculating something called prime cost might sound daunting, it’s easier than you might think, and it will tell you a ton about your restaurant’s labor costs.

Your prime cost is the sum total of your labor costs and your expenses. Cost of goods soldThe cost of each food item on your menu, also known as COGS. COGS refers to the cost to make each food and beverage item in your menu.

A restaurant’s prime cost should ideally be 60% or less of total sales and represents the bulk of controllable expenses.

To calculate your prime costs, simply list all hourly, salaried, and payroll taxes, and then add the sum to your labor costs.

Congratulations! You’ve just mastered the central way that most calculate restaurant labor costs.

 

Move beyond asking, “what percentage of sales should labor be in a restaurant?”

It can be helpful to calculate labor as a percentage sales. But determining staff productivity solely based on this percentage doesn’t give you the detail needed to identify areas for improvement.

For example, let’s say company policy is for labor as a percentage of sales to be 20% or less. This week it’s running at 27%. While this tells you that your costs are running higher than expected, it doesn’t break down different job categories, e.g., servers, cooks, bussers, making it impossible to determine which categories contribute to the issue.

It also doesn’t tell you the time of the day, week, or meal period where the most significant variances may occur. To truly identify where labor costs are creeping up, there’s no getting around the necessity of having a complete and detailed picture.

Looking at labor costs this way also doesn’t account for holidays or other special events that might warrant more staff time. The biggest thing to remember about restaurant labor costs is that they’re just one part of a whole, and sometimes they’re just a symptom of another issue. Rather than rushing to reduce labor costs, try to figure out what’s really going on and fix the problem itself rather than putting a reduced labor costs bandaid on it.

 

With training and thoughtful scheduling, you can save on restaurant labor costs.

You can ensure top-level visibility by using labor scheduling and attendance systems. This will help you identify potential overtime workers before it is too late. If you combine the system with a quick inspection on how your staff start their shifts, these systems can help you identify if your employees are slow to arrive or if they do not get to work on time. Try turning your data into visual reports such as graphs to give you a quick, visual way to evaluate multiple sets of data —and crucially, identify outliers.

Invest in Your staff should be trained, and they’re less likely to leave. A well-trained team is also more productive because valued employees with a path to professional growth are less likely to leave for another restaurant that doesn’t offer those things and, sadly, too many don’t.

Utilize labor scheduling and time-and attendance systems to ensure top level visibility and identify employees who may be eligible for overtime before too late.

 

Average Labor Costs by Restaurant Type

Ok, now that we’ve covered the basics, it’s time to look at some restaurant labor cost averages based on the various restaurant types. Now that you know how individualized labor costs are at each restaurant, you can keep that thought in mind as you peruse these averages to get a sense of whether or not you’re in the right ballpark:

  • Fast-food restaurants 25%As Chron explains, “certain fast-food restaurants can achieve labor costs as low as 25 percent,” but that doesn’t mean that labor costs can’t (or shouldn’t) run higher. It makes sense, if you think about. Food moves faster, profit margins increase, and labor is relatively low-skilled, which makes it less expensive to deploy.
  • Table service restaurants: 30%-40% Where specific restaurants fall on this range depends on “the menu and extensiveness of service,” Chron notes. “Food costs (including beverages) for the restaurant industry run typically from the 28 percent to 35 percent range, depending upon the style of restaurant and the mix of sales.”
  • Fine dining: Variable, but tends to be towards the higher end of 30%-40% or more.As Restaurant Business notes, “a fine dining restaurant with many components on the plate and breads, pastries, pastas, and other products made in-house will have a much higher labor cost than a steakhouse selling high-end but relatively simple-to-prepare food like steak, baked potato, and thaw-and-serve flourless chocolate cake.”

 

Your restaurant POS software can help you track employee performance, cost, identify areas that need improvement, etc. Need help choosing your restaurant technology? Talk to one our point of sales expertsYou can!

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Cyndy Lane