Most restaurants work with a slim profit margin, and staffing costs represent a significant slice of your operating budget. Could you do better?
How much should you spend on restaurant labor costs? Here’s how to explore the standard formulas for keeping your restaurant profitable. We’ll explore what you need to know about restaurant staffing, the cost of turnover, and how to manage your restaurant labor cost while retaining dedicated staff.
How to Determine Restaurant Staffing Costs
Restaurant staffing cost is more than just wages. It may also include taxes, unemployment, healthcare costs, paid vacations, bonuses, and overtime for everyone who works in your restaurant.
To calculate your total labor costs, add the total costs associated with each employee. The ideal restaurant labor cost is less than 30 percent of revenue, but there is some variance between types of restaurants. Too many variables, like the number of customers, food, and plate costs, affect your bottom line.
Keeping labor costs down while maintaining excellent customer service can be a challenge. And if server salaries increase by federal law in the near future, unprepared restaurant owners may see profit margins disappear. So now is the perfect time to evaluate your expenses and prepare for the future.
Restaurant Labor Cost Formula:
- Find your total sales revenue on income statements or POS sales reports.
- Calculate your staffing costs, including wages, bonuses, overtime, vacation time, etc. Important: use the same time frame. Gather one month, one quarter, or annual figures for both revenue and labor cost.
- Divide the total staffing cost by the total revenue figure
- Multiply the answer by 100 to get the percentage.
BurgerFi’s real numbers (in thousands) for 2021 first quarter:
- Food sales revenue: $8,506
- Restaurant labor cost and related expenses: $2,290
- $2,290 ÷ $8,506 = 0.2692
- 0.2690 x 100 = 26.92
BurgerFi’s restaurant labor costs for Y2021Q1 was 26.92%.
How to Lower Your Restaurant Labor Costs
Coming legislation, rising food costs, and the highly competitive market make some new restauranteurs nervous about increasing costs. Fortunately, there are strategies you can use to lower costs across the board.
1. Data is your ally.
The first thing you need is a POS system with comprehensive reports. Next, it would help if you looked closely at patterns:
- When are your busiest times?
- Is your business seasonal?
- Busier during sporting events?
- Dependent on other variables?
- How many tables can each server comfortably handle?
Armed with comprehensive data, you can adjust schedules to optimize the number of workers when you need them. If your dinner rush starts at 6, bringing in your entire wait staff, bussers, and food runners is a waste of money, and your team doesn’t want to stand around and twiddle their thumbs. Most people value work/life balance and may welcome more time off. Using a staggered schedule puts the correct number of servers on the floor when you need them, with no one standing around not making money.
Precise scheduling has several benefits. For example, your staff is happier, customer service is better, and your kitchen is less likely to get overwhelmed. Few things can frustrate staff and customers simultaneously, like an understaffed, underprepared kitchen that’s deep in the weeds.
2. Training.
While it may not seem like a cost-saving strategy, good training means a more confident staff, which translates to less frustration and better service, which means higher tips and less turnover. In addition, hold regular performance reviews to make sure the staff stays on track, and take the opportunity to tell your workers what they are doing right in addition to any areas they could improve. Positive feedback contributes to employee engagement and retention.
3. Reduce turnover.
Reducing churn is one of the most efficient ways to save money, build excellent customer service, and steady your restaurant labor costs. Attracting, hiring, and training new people is expensive, and inexperienced servers make many mistakes. Keeping your experienced waitstaff happy is in your best interest for a healthy bottom line.
The turnover rate, especially for fast-food restaurants where employees are not tipped, is massive. Who can blame workers? It’s a thankless job. Recognition from management or even common courtesy from customers is dismally rare. Wages are usually low. Employees who do not feel valued are always looking for another job.
You can retain your best workers with incentives and praise for work well done. To find out why workers quit, conduct exit interviews. You may be able to gain valuable information about what made them want to leave or what lured them away and make changes to improve your employees’ experience.
Finally, promote from within. If your employees see a clear career path where they can become supervisors, managers, or work their way from dishwashers to line cooks, they’ll be far more eager to do a great job and earn a promotion.
4. Digitize your menu.
QR code menus are showing up everywhere, and they are a great solution. Customers can see your menu using their smartphones, and you save money on printing costs and have the ability to easily update or change your menu without requiring a new print run. In addition, your staff won’t waste time cleaning menus each night, and it can help prevent the spread of germ and bacterial illnesses, including colds, flu, e.coli, and Covid-19.
5. Cross-train your staff.
On slow nights, if your food runners can bus tables and your bartenders can serve food, you can cut staff hours and ensure that your working staff makes better money. You can schedule fewer workers and have fewer people standing around doing nothing on the clock, ensuring that your restaurant’s labor costs aren’t inflated unnecessarily. Do the same in the back of the house. Find out what talents your people may have and put them to use. You may be surprised to find that a dishwasher is perfectly capable of prepping food. If someone calls out, you’ll have an extra hand to step in.
6. Reconsider your operating hours.
Back to the data. Adjust your hours if your lunch business is almost non-existent or your dinner rush consistently ends by 9 pm. If you want to remain open in the hopes of building lunch or late business, do so with a skeleton crew.
7. Invest inefficient equipment.
From POS and scheduling software to your refrigerators and deep fryers in the kitchen, efficient equipment empowers your staff to get work done right the first time, increases productivity, and saves you money. The right equipment for the front and back of the house can make a significant difference in the quality of service and your restaurant’s success, and energy efficiency can lower your electric bills.
Maintaining the ideal labor cost for a restaurant can be a delicate balance, and making the wrong choices can lead to poor customer service, high turnover, and unhappy staff. You can’t control everything, but a deep understanding of restaurant staffing costs will help you manage what you can and boost your bottom line, even after new minimum wage laws go into effect.
