Labour is a major expense when it comes to running a restaurant. Fail to track your labour costs—and you could find them eating into your margins faster than you can say ‘payroll’.
To complicate matters, labour costs aren’t consistent. They fluctuate throughout the year between busy holiday seasons and dry spells. If you’re not optimising your labour costs, you’ll find yourself short of waiters during a sudden rush of customers or paying employees to stand around during a lull.
Doing a simple calculation of your labour cost percentage, tracking it consistently, organising your payroll log, and automating your scheduling process will reduce the likelihood of that happening.
You’ll have peace of mind knowing you can react appropriately to surges in customer demand at any point in time. With a little work, being over or understaffed may become a thing of the past.
In this post we share 6 tips for tracking labour costs:
1. Rethink your schedule regularly
2. Designate tasks for each payroll log
3. Calculate your employee turnover rate
4. Schedule based on sales (and weather) forecasts
5. Play to your employee’s strengths
6. Automate the scheduling process
What are labour costs?
Labour cost is the percentage of restaurant costs that go toward hiring and maintaining employees.
Although the ideal percentage of revenue that’s allocated to salaries and wages varies by business type, it’s wise to prevent those labour costs from climbing too high. For restaurants, 35% is a generally accepted labour cost target.
Fast-food chains can achieve labour costs as low as 25%, while table service restaurants most likely find themselves in the 30-40% range. This all depends on the menu and service style. Food and beverage costs for the restaurant industry typically run between 28-35%.
How to calculate labour cost percentage
Labour costs percentage tells you how much of your overall revenue is going towards labour. You calculate it by dividing your total labour cost by total revenue. Here’s the simple formula to keep you on track:
If you’re using a point of sale integrated into an employee management system, this percentage should be calculated for you automatically with data pulled directly from your existing database.
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1. Rethink your schedule regularly
It may feel easier to have your employees operate on a set schedule for months on end, but it’s a good idea to reevaluate your work schedule frequently in order to avoid overbooking your employees.
Traffic in your restaurant will fluctuate day to day, week to week, month to month. Although a consistent schedule is sometimes appreciated by staff, it isn’t optimal for your business.
If your wait staff outnumbers customers during certain shifts, you’re wasting money on labour costs. In addition, your staff will appreciate having more flexibility and control over their work schedule, so it may even save you from the expenses associated with a high turnover rate.
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2. Designate tasks for each payroll log
It might be helpful for you to know exactly how your employees are spending their time. For instance, a seemingly minor task like putting away new inventory may be a lengthier task than you realize.
Having your employees track what they’re spending their time on in their payroll log may help you figure out what processes to automate. It can also let you know when to hire more people to work as servers during peak business hours. Overall, keeping track of specific tasks will help you determine whether your employees are spending their time in the most productive way possible, and allocate staff in a way that minimises labour costs.
3. Calculate your employee turnover rate
A high turnover rate may make a significant dent in your labour costs. Moreover, the price of recruiting and training new talent can easily eat into the efficiency of your labour force over time.
Taking steps to ensure employee satisfaction is a smart way to become a better manager and also keep an eye on the bottom line.
How to calculate employee turnover rate
Being able to calculate your employee turnover rate means you can better track employee turnover and work to reduce it. Let’s say you want to calculate the employee turnover rate for a period of six months.
First, calculate your average number of employees. At the beginning of the time period you had thirty staff, six months later your staff had dropped to eighteen. To get average number of employees, do the following calculation:
Average number of employees = (number of employees at start of period) + (number of employees at the end of period) / 2
Average number of employees = 30 + 18 / 2
Average number of employees = 24
During that period, 13 employees left your business. Now to calculate your employee turnover rate; divide the number of employee that left by the average number of employees, and multiply by 100.
Employee turnover rate = (employees that left) / (average number of employee) x 100
Employee turnover rate = 13 / 24 x 100
Employee turnover rate = 54%
4. Schedule based on sales (and weather) forecasts
Sure, it may be tempting to keep the same number of employees on hand for every shift throughout the year. Your organisation’s real need for workers, however, may vary throughout the year. It helps to have a sense of when your actual busy seasons occur.
With employee scheduling solutions like Planday, you can plan the right staffing levels at different points in time. For example, if you have a huge outdoor patio, it would make sense to schedule fewer employees when the forecast calls for rain. Or if a special event is happening in your area, schedule more employees or place some on call for the expected surge in foot traffic.
5. Play to your employee’s strengths
Over time, your employees’ individual strengths and weaknesses become apparent.
For instance, one server may be a master at managing your busiest night of the week. Another might have a knack for upselling. Recognising these talents, reward them, and use them to your advantage.
6. Automate the scheduling process
The days of time clocks and paper schedules are long gone, and managing employee schedules don’t have to take up a tremendous amount of your time. You can use shift planning software to save yourself time and get greater insight into your labour costs in real-time, especially when integrated directly into your POS system.
From weather forecasts to the individual strengths of your employees, there’s a lot you can do to run a more efficient restaurant business. Keeping the above suggestions in mind will help you manage your staff and keep labour costs down!
Get the most from your staff with Lightspeed ePOS.
Lightspeed ePOS integrate with a range of employee schedule software, so you can use real time staff performance data to get most of out of your best employees. Interesting in how we can help? Let’s talk.
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