Restaurant Labor Cost: Guide to Calculating & Controlling It

Brandon Child

Managing labor costs is a critical aspect of running a successful restaurant. Labor expenses can significantly impact your bottom line, and it’s essential to understand how to calculate and control them effectively. In this guide, we will provide you with practical steps to calculate your labor cost percentage, determine an ideal target percentage, explore strategies for managing labor costs, and highlight the role of technology in controlling expenses. By implementing these measures, you can optimize your labor cost management and enhance the profitability of your restaurant.

Understand What Your Labor Cost Includes

To effectively manage labor costs, it’s crucial to have a clear understanding of what they entail. Labor costs encompass all expenses associated with your employees, including wages, salaries, benefits, taxes, and any additional costs related to staffing. It’s important to consider both direct and indirect labor costs to gain a comprehensive overview of your overall expenses.

Calculate Your Current Labor Cost Percentage

Calculating your labor cost percentage is a fundamental step in assessing the financial health of your restaurant. The labor cost percentage is determined by dividing your total labor costs by your total sales and multiplying by 100. This calculation provides insight into the proportion of your sales revenue allocated to labor expenses. Regularly monitoring this percentage allows you to identify trends, spot potential issues, and make informed decisions to control costs.

Determine Your Ideal Labor Cost Percentage

While there is no one-size-fits-all ideal labor cost percentage for restaurants, industry benchmarks can serve as a useful reference point. Factors such as the type of establishment, location, and business model can influence what is considered an acceptable range. Research industry standards and analyze your financial goals to establish a target labor cost percentage that aligns with your specific circumstances.

Find Ways to Manage Labor Costs

Controlling labor costs requires proactive measures and strategic planning. Here are some effective strategies to help you manage your restaurant’s labor expenses:

Create Optimized Schedules

Developing optimized employee schedules is crucial for balancing labor needs with customer demand. By analyzing historical sales data, seasonal patterns, and anticipated foot traffic, you can create schedules that align staffing levels with peak business hours. This helps prevent overstaffing during slow periods and understaffing during busy times, reducing unnecessary labor costs.

Minimize Pay Overages

Implementing time-tracking systems and robust payroll procedures can help minimize pay overages. Streamline your processes to ensure accurate recording of employee work hours, breaks, and overtime. Regularly review payroll reports and address any discrepancies promptly to avoid unnecessary expenses.

Boost Productivity and Reduce Turnover

Investing in employee training and development programs can improve productivity and reduce turnover. Well-trained staff members are more efficient and provide better customer service, which can positively impact your bottom line. Additionally, fostering a positive work environment, recognizing employee achievements, and offering incentives can help retain valuable team members, reducing recruitment and training costs.

Use Technology to Better Control Labor Costs

Leveraging technology solutions can significantly enhance your ability to control labor costs. Utilize restaurant management software that integrates scheduling, time-tracking, and payroll functionalities. These tools provide real-time data, automate processes, and generate insightful reports to help you make data-driven decisions and optimize labor utilization.

Learn More About Restaurant Accounting Solutions

Managing labor costs goes hand in hand with efficient restaurant accounting. Implementing comprehensive accounting solutions tailored to the restaurant industry can provide you with accurate financial insights and facilitate better decision-making. Consult with accounting professionals experienced in the restaurant sector to explore accounting software, reporting tools, and consulting services that can support your efforts to control labor costs effectively.

Effectively calculating and controlling labor costs is crucial for the financial success of your restaurant. By understanding the components of labor costs, calculating the labor cost percentage, determining an ideal target, implementing cost management strategies, utilizing technology solutions, and exploring specialized accounting services, you can gain better control over your expenses. With careful planning and diligent monitoring, you can optimize your labor cost management and ensure the profitability and sustainability of your restaurant.

Brandon Child
Brandon started his career in foodservice at 14 and has been in it in one way or another since then. After graduating from the Culinary Institute of America at 23, he went right into being an executive chef. In his 30 years in the industry, Brandon has run multiple restaurants, a seafood company and tortilla factory, as well as designed commercial kitchens. His time in operations for a restaurant group in Boston fueled his passion for making restaurants and businesses more profitable. Brandon sees Hone as his opportunity to use his experiences to help restaurants succeed not only financially but holistically. When it comes to food, Brandon is all about cooking over wood, specifically the front loader bucket grill his father made him.

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