A Collection of Labor Cost Tips for Restaurants Ep 104

 When it comes to managing your restaurant’s cost, you absolutely can’t ignore labor. It is the second biggest expense in a restaurant – after an empty seat in the restaurant. Labor cost management is an essential topic for achieving restaurant prosperity and financial freedom. The last few episodes of The Restaurant Prosperity Formula podcast have been a collection of some of my best and most popular tips on three very popular categories for restaurant owners: food cost (Episode 101), systems (Episode 102) and leadership (Episode 103). In this episode of my podcast, The Restaurant Prosperity Formula, I’m serving up a collection of some of my best and most effective labor cost lessons and tips. You’ll learn how to calculate labor cost, how to manage them and how to avoid common pitfalls.

Understanding Labor Cost Calculations

To calculate your restaurant's labor cost, you need accurate data. Remember, incorrect data leads to poor decisions. First, decide between using total gross sales or net sales. Gross sales include the total amount before discounts and taxes, while net sales deduct these. For labor cost calculations, use gross sales to measure the performance of your team based on the business's potential earnings.

Next, distinguish between raw labor cost and total labor cost. Raw labor cost refers to the direct wages paid to employees, while total labor cost includes taxes, benefits, and insurance. Managers should focus on raw labor costs for day-to-day operations, while total labor costs are crucial for budgeting and tracking overall expenses.

Key Labor Cost Mistakes to Avoid

1. Using incorrect labor targets: Arbitrary targets can lead to financial losses or inadequate staffing. Set realistic targets based on your specific needs.
2. Outdated scheduling practices: Adjust your scheduling to match fluctuating sales. Avoid overstaffing during slow periods and understaffing during busy times.
3. Late labor cost tracking: Monitor labor costs in real-time to make necessary adjustments promptly. Waiting until the end of the week or month is too late.

Practical Tips for Managing Labor Costs

1. Use a budget: Set a budget that includes a prime cost target (total cost of goods sold plus total labor costs). Adjust your labor targets based on seasonality and sales volume.
2. Proactive scheduling: Allocate hours and dollars to each department based on expected sales. This ensures you start each week on budget.
3. Track running labor costs: Monitor labor costs daily and make adjustments as needed to stay within budget. Track both percentage and actual hours worked to identify areas needing improvement.

Advanced Labor Controls

1. Full-time equivalents (FTEs): Ensure you have enough staff to cover shifts without resorting to overtime.
2. Cross-training: Train employees to handle multiple roles. This increases flexibility and efficiency, especially during peak times.
3. Operating budget maintenance: Regularly review and adjust your budget to reflect changes in your business.

Managing labor costs effectively requires a combination of accurate data, proactive scheduling, and continuous tracking. By mastering these strategies, you can significantly improve your restaurant's profitability and efficiency.

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