Top 3 Changes to Lower Labor Costs

Labor is a major area where restaurants can bleed profitability. Why? When the clock goes tick, you owe! In comparison, for your food costs, if you buy too much food, as long as it’s not wasted, spoiled or stolen, you can use that food tomorrow. But if you bring in too many people, too early and you’re slow, you can’t tell those employees that the hours they just worked don’t count. This makes it vital to have controls in place to control and lower labor costs.

Here are the top three changes to make to control and lower labor costs and maximize your profitability:

1. Schedule less – There’s a myth in the restaurant/hospitality industry that by bringing in more staff, you will give your guests better service. The challenge with this is it’s actually the complete opposite. You want to give your guests a great dining experience, so you bring more servers in to be the most attentive and offer “WOW” customer service. Or you bring in an additional cook for faster ticket times. But when you have too many people working and not enough work, they tend to talk with each other and end up giving less than great customer service. I suggest when you are staffed to a level where you think you could use one more person on the floor, your guests get the best experience you can deliver because your team doesn’t have extra time to play “grab-ass” and get distracted with each other. They only have time to stay focused on the guest. The end result is happy customers, higher sales and lower labor costs.
2. Schedule based on a sales forecast – There is a way to know what the right number is without relying on your gut feeling. It’s extremely common for restaurants to schedule like they always do even when their sales are lower than expected, or when they are coming out of a “high season.” The challenge is this practice can literally rob you of your profits faster than anything else in your business (well, maybe not as fast as running a Groupon). Changing this practice starts with making your best guess of what you think your Monday–Sunday gross sales are going to be for the whole restaurant by the 20^th of the current month for the next month. This enables you to adjust your schedules to take care of the needs of your guests and your business without losing money. Add to this having a labor cost percentage target to shoot for (a labor budget), and you can simply multiply your forecasted sales times your labor cost percentage target to know how much money you can spend on labor next week. Subtract salaried management, and like magic, you know what you can spend on hourly employees to stay on budget and can adjust your schedule to match. This allows you to go into the week on budget vs bringing people in and praying you’re busy enough to pay for them.
3. Track labor on a daily basis – Yes, I want you to track your labor cost every day. This sounds easier than it really is, but you have the tools you need as long as you have a point-of-sale (POS) system. All you need to do is run a daily report in your POS system each day to see how much you’re paying your employees who worked that day and divide that by your gross sales for that day to know what your labor cost is. Then as each day goes by, just add the labor costs together and the sales together and divide them, continuing to total and divide to get your running labor cost. The hard part about this process is understanding that once you write a schedule on budget, that labor target is different each day. For example, let’s say you are shooting for a total 30 percent labor cost for all hourly employees, before taxes, benefits, insurance, and not including salaried management. Next, you adjust your schedule to be on budget. What you will see after you make the adjustments to your schedule is that your labor cost, based on how you scheduled, may be at 33 percent on Monday, because you had your butt handed to you over the weekend, and now you have a ton of prep to do to be able to handle the next few days of business. And since Monday is your slowest day of the week, the labor budget takes a hit. But you also know that on Friday, your customers are managing your efficiencies, that you’re so busy you couldn’t add another server or cook and that your labor cost will be about 27 percent. Ultimately, if you use the hours and dollars budgeted for that week, you will be on budget after averaging it all out. It ultimately means management will have a different labor target to shoot for every day of the week to stay on budget and hit the labor percentage goal.

When you slim your staff down, schedule based on a budget and track your labor on a daily basis, you are putting your management team in a strong position to not only control your labor costs and make the business more profitable, but you also gain the benefit of happier customers and a management team who controls the business, not the other way around.

To learn more about the systems that control your labor cost, download our free report, Breaking Away from the Insanity: How to easily take control of your restaurant and make more money.