Navigating the Ups & Downs of Restaurant Labor Costs
Restaurant labor costs often feel like a constant puzzle to solve—a never-ending balancing act between keeping your staff happy and keeping your business profitable.
On one hand, you want to provide excellent service and ensure a positive dining experience for your customers, which may require additional staff during peak times.
On the other hand, you need to keep an eye on expenses and prevent labor costs from spiraling out of control. It’s a delicate balancing act that can feel like an uphill battle.
In today’s blog, we’ll chat about how to find that sweet spot between profitability and customer service, and give you a few tips for how to get your restaurant labor costs down.
Let’s jump in.
What Exactly Are Restaurant Labor Costs?
As a restaurant owner, you bear the responsibility for paying your servers, cooks, dishwashers, and every other essential member of your restaurant team. All those wages, salaries, overtime pay, bonuses, tips, payroll taxes, and employee benefits – that’s what we call labor costs.
And these costs can make up a significant chunk of your overall expenses, typically hovering between 25% and 35% of your total revenue.
How Do I Calculate My Labor Costs?
It’s simple, really. Just add up all those expenses we mentioned earlier. Here’s the handy formula:
Total Labor Costs = Total Hourly Wages + Total Salaries + Overtime Pay + Bonuses + Tips + Payroll Taxes + Employee Benefits
Once you have that number, you can divide it by your total revenue and multiply by 100. This will give you your labor cost percentage, a key metric for comparing your performance against industry standards.
What’s a Good Labor Cost Percentage for Restaurants?
The answer is… it depends. It depends on a few factors, like the type of restaurant you run, its location, and the complexity of your menu and service.
But generally, you want to aim for a restaurant labor cost percentage between 25% and 35%.
So, How Can I Optimize My Labor Costs?
Here at U-Nique Accounting, we regularly work with our clients to get all expenses down, including labor. And believe it or not, there are opportunities to get costs under control that you haven’t thought of yet.
Here are a few tips:
- Forecast Better: Accurately predicting customer traffic and sales helps you staff your restaurant just right, avoiding overstaffing and those sneaky overtime costs. Use historical data, industry trends, and even weather patterns to make informed predictions. For instance, if you notice a consistent surge in customers during the weekends, you can plan accordingly by scheduling more staff for those days. Hint: Using a 13-month calendar is the only way to do this accurately!
- Cross-Train Your Team: A versatile team that can switch hats is a valuable asset. Cross-training your employees allows you to juggle different tasks efficiently, reducing the need for extra hires and giving your team more flexibility. For example, train your servers to perform basic bartending duties during peak bar hours, or teach your kitchen staff to assist with prep work and dishwashing during slow periods.
- Modernize Your Scheduling Software: Ditch the outdated spreadsheets and embrace scheduling software. It’s almost 2024… it’s time! These tools can help you optimize staffing levels, ensuring you have enough hands on deck when it’s busy and minimizing downtime when it’s slow. Consider using split shifts to reduce overtime costs and provide more scheduling flexibility. For instance, instead of having a server work a full eight-hour shift, you could split it into two four-hour shifts, allowing you to adjust staffing levels as needed throughout the day.
- Motivate with Incentives: Rewarding your employees for their hard work and high performance can boost morale, productivity, and loyalty. Consider implementing performance-based bonuses, tip-sharing programs, or employee recognition initiatives. For example, you could implement a bonus system that rewards servers for exceeding sales targets or achieving specific customer satisfaction metrics.
- Keep an Eye on Payroll: Regularly review your payroll records to catch any errors or discrepancies that could be costing you money. Implement internal controls and audit procedures to ensure accuracy and prevent fraud. Conduct regular payroll audits to identify and correct any errors or discrepancies. Implement automated payroll reconciliation processes to minimize the risk of human error. Establish clear payroll policies and procedures to ensure compliance with labor laws and regulations.
- Embrace Technology: Technology is your friend! Use point-of-sale systems and other tools to streamline operations, track employee hours accurately, and gain valuable insights into labor usage. Implement labor management software to optimize scheduling and track employee productivity. Use time-tracking tools to ensure accurate payroll processing and reduce the risk of disputes. Utilize point-of-sale systems to track employee hours and labor costs accurately.
- Invest in Your Staff: Remember, labor management isn’t just about cutting costs; it’s about building a strong, engaged team that delivers exceptional service and keeps your customers coming back for more. Create a positive and supportive work environment that fosters employee engagement. Provide opportunities for professional development and training to enhance employee skills and knowledge. Offer competitive wages, benefits, and recognition programs to attract and retain top talent.
Remember, labor management isn’t just about cutting costs; it’s about building a strong, engaged team that delivers exceptional service and keeps your customers coming back for more.
The best tip we can give you is to create a positive and supportive work environment that fosters employee engagement.
Provide opportunities for professional development and training to enhance employee skills and knowledge.
Offer competitive wages, benefits, and recognition programs to attract and retain top talent.
Your happy employees, and in turn, your happy customers, will thank you!
Need Help Getting Your Restaurant Costs Down?
When it comes to cutting restaurant labor costs, the best thing you can do is work with an experienced restaurant accountant.
A restaurant accountant is someone who knows the restaurant industry inside and out—meaning they can spot concerns & opportunities fairly quickly after diving into your numbers.
Here at U-Nique Accounting, that’s what we do!
We help restaurant owners with everything from bookkeeping to tax, cash flow, to budget planning and forecasting.
If you’re in need of a new restaurant accountant, we’re here to help. Simply book a complimentary call with Matt down below.
Until next time!