Running a restaurant can be a challenging endeavor, and managing labor costs is an essential aspect of keeping your business profitable.
So what are restaurant labor costs, how are they calculated and what percentage should labor cost be in your restaurant? In this blog, We’ll discuss the ideal percentage of labor costs that you should aim for and the factors that influence it.
We'll also offer some practical tips on how to manage your labor costs effectively.
What is Restaurant Labor Cost?
Restaurant labor cost refers to the total amount of money spent on paying staff compared to how much sales a restaurant generates over a given period of time. Labor costs include employee salaries, wages, and benefits, including taxes, insurance, and other related costs.
Labor costs can be divided into two categories: front-of-house and back-of-house.
Front-of-house labor costs include servers, bartenders, hosts, and other staff who interact with customers. Back-of-house labor costs include chefs, cooks, dishwashers, and other staff who work in the kitchen or behind the scenes.
Labor cost is one of the most significant expenses for a restaurant, and managing it effectively is critical to the success of your business. It is calculated as a percentage so restaurants can easily understand how much money they spend on labor to produce revenue.
Calculating Restaurant Labor Costs in 3 Steps
- Determine Your Total Labor Cost
Add up all of your labor-related expenses, including wages, salaries, benefits, and other related costs such as taxes, insurance, and training.
- Calculate Your Labor Cost Percentage
Divide your total labor cost by your total revenue and multiply by 100 to get your labor cost percentage. For example, if your total labor cost is $10,000, and your total revenue is $50,000, your labor cost percentage would be 20 percent.
- Analyze Your Labor Cost Percentage
Once you have calculated your labor cost percentage, compare it to the industry standard of 20 percent to 30 percent. If your percentage is higher than the industry standard, you may need to adjust your staffing levels or find other ways to reduce your labor costs.
What Percentage Should Labor Cost be in a Restaurant?
Generally, labor cost should be around 20 percent to 30 percent of your restaurant's total revenue.
However, the percentage can vary widely from restaurant to restaurant. For example, a fine-dining restaurant that offers a sophisticated menu and is located in a high-end neighborhood may have higher labor costs. In this case, the labor cost percentage may be closer to 30 percent. On the other hand, a fast-food chain may have lower labor costs, and the percentage may be closer to 20 percent.
The ideal percentage of labor costs varies depending on several factors, including:
- Type of Restaurant: The labor cost percentage differs based on the type of restaurant you have, such as fine-dining restaurants, fast-food chains, or casual dining establishments.
- Location: The location of your restaurant can also affect labor costs.
- Menu: The complexity and the number of dishes served can affect labor costs. A restaurant that serves a wide range of dishes will require more kitchen staff, resulting in higher labor costs.
- Seasonality: The seasonality of your business can impact labor costs. During peak periods, such as holidays, weekends, or special events, your restaurant may require more staff to accommodate increased customer traffic.
Tips for Managing Labor Costs
Managing labor costs can be challenging, but it's crucial to the success of your restaurant. Here are some practical tips on how to manage your labor costs effectively:
Schedule Staff Efficiently: Create a staffing schedule that aligns with your business needs. Ensure that you have enough staff during peak periods and reduce staff during slower times.
Monitor Inventory: Keep track of your inventory and order supplies efficiently to avoid wastage and reduce labor costs. An inventory management system will ensure your restaurant gains visibility and control of its inventory, while at the same time improving operational efficiencies.
Train Your Staff: Properly trained staff are more productive and require less supervision, reducing labor costs in the long run.
Use Technology: Use technology, such as a point-of-sale system, to manage staff schedules and track labor costs.
Managing your restaurant's labor costs can be challenging, but it's essential to your business's success. By understanding the ideal percentage of labor costs and the factors that influence it, you can make informed decisions and manage your labor costs efficiently.
Need help better managing your restaurant’s finances so that you can improve the profitability of your business? Book a consultation with Sculpture Hospitality today and find out how our team of inventory expects can help grow your business.
