If you are running a restaurant or food service business, your cost of produce and labour represent by far the biggest costs.
Regardless of sales, spend too much on either labour or food produce and your business will be in trouble.
But when it comes to labour, how much is too much to spend?
The balance is to make sure you have enough well-trained staff to provide a high level of food quality and service, but at the same time, run the operation as tight as possible.
The best way to calculate and manage labour costs is as a percentage of sales. This way, as your sales grow you can budget to add more labour and when business is quiet you can cut back. Labour % is calculated by dividing the total labour cost into the net sales result. For instance, if total wages for a given week cost the business $10,000 and sales were $30,000, then the labour percentage would be 30%. It is a great idea to track this % every week, month and year to understand trends in your business.
It really depends on the type of restaurant. Certain fast food restaurants can achieve labor cost as low as 25%, while table service restaurants are more likely to see labor in the 30 - 35% range. Basically, the more people are paying for fresh food and top service, the higher your labour percentage should be. Normally, the higher labour percentage for luxury restaurants can be offset by higher margins in the cost of food due to the fact customers are paying higher prices.
If you think there is a danger on cutting labour too much at the expense of service....you're right. The best way to avoid this is to set a target each day based on % labour and predicted sales and then involve your employees to ensure you are putting the majority of employees on at the busiest times. Also, look for other productivity savings at non-peak times such as opening, preparation time and closing and cleaning.
Managing labour is a constant balance. If you review this on a weekly basis, involve your employees and look for efficiency savings, it is possible to improve the bottom line without impacting the customer experience.
It can be done! Good luck.
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