If you pay half your staff an hourly wage and the other half a salary, you may divide the labor into two groups. Grouping your staff by category allows you to see what positions are costing you the most. Before you can adjust costs, you need to know what the ideal labor cost compared to revenue is.
For example, if your restaurant is doing very well and is booked nightly, you may have three servers, two food runners and a host on each night. The cost of labor at this point may be 20 percent of your revenue. While these industry benchmarks can be helpful to indicate your performance in the industry, every restaurant has different challenges, strengths, and sticking points. For instance, different job categories may have completely different labor metrics, or a holiday or special event may skew your labor reporting.
Knowing a number without understanding the big picture behind it can make it difficult to make improvements in the long-term. High labor costs can be the symptom of many different issues, and a quick fix of just cutting hours or paying low wages may only be a bandage on a deeper problem. Understanding the story behind your labor cost is especially important as restaurant owners around the country address the repercussions of a rising minimum wage.
Restaurants all over the country, in different states, counties, and cities are experiencing new mandates and regulations raising the minimum wage. For example, beginning in , the city of Seattle increased the minimum wage differently for different companies. 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. One important way of cutting your labor cost percentage that might easily be overlooked is focusing on keeping the employees you have.
Keep communication open with your staff and encourage them to bring problems to you. Make your restaurant a place people want to work, so your team is more likely to stay. Keep in mind that your labor cost percentage is just one small part of the puzzle that is your restaurant budget. Mar 12 Written By Chris Arnett. That includes the labor cost percentage for your restaurant. Average Labor Costs By Restaurant Type Since different types of restaurants have different labor needs and therefore different costs, Upserve estimates these averages for each restaurant type:.
Then, combine that number with labor cost to get your prime cost. Then, calculate your prime cost percentage like this:. Funds need to be left over to cover other expenses like rent and marketing. If you wanted to track your monthly labor costs, you would first add up all costs as outlined above. Next, you will want to add up all sales before deducting any expenses.
This gives you your monthly revenue. Once you have both, you divide labor costs by revenue to see your percentage. As we stated earlier, some expenses are fixed and others can change.
By viewing your labor costs as a percentage of overall costs, you can analyze your spending to see where to focus your cost-saving efforts.
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.
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