Tracking labor costs: 6 tips for success

Having a staff to help you take care of your restaurant is a great thing — until you have to try to keep track of them. Mapping out your employees’ schedules, then adjusting them at the last minute, is enough to frustrate any manager. Few things feel worse than being short of waiters during a sudden rush of customers, or paying your employees to stand around during a lull.

By doing a simple calculation of your labor cost percentage and tracking it consistently, organizing your payroll log, and automating your scheduling process, you can keep your restaurant running efficiently — and give yourself the peace of mind knowing that you can react appropriately to surges in customer demand. With a little work, being over or understaffed may become a thing of the past.

Although the ideal percentage of revenue that is turned back into salaries and wages will vary based on your business type, it’s wise to prevent those labor costs from climbing too high. For example, in the restaurant industry, 35% is a generally accepted labor cost target.

Here’s the simple formula to keep you on track:

Total Cost of Labor / Revenues = Labor Cost Percentage

If you’re using a point of sale system integrated with an employee management system, this percentage should be calculated for you automatically using data pulled directly from your employee schedule and point of sale systems.

Now that you have this basic aspect down, we’d like to offer six ways that you can manage your labor costs on a daily basis:

1. Rethink schedules 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 schedules frequently in order to avoid potentially overbooking your employees. After all, if your wait staff outnumbers customers during certain shifts, chances are you’re wasting money. 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 withs a high turnover rate.

2. Designate tasks for each payroll log
Almost every restaurant worker is a jack-of-all-trades, and it may be helpful for you to know exactly how your employees are spending their time. For instance, some seemingly minor task such as putting away new inventory may be taking up more time than you realize. Having employees track how they’re spending time in their payroll log may help you figure out where you can automate some tasks or 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.

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3. Calculate employee turnover rate
A high turnover rate may cost your business some serious cash in the long term. The price of recruiting and training new talent can easily eat into the efficiency of your labor 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.

4. Schedule based on a sales (and weather) forecast
Sure, it may be tempting to keep the same number of employees on hand for every shift throughout the year. Your organization’s real needs for workers, however, may vary throughout the year, so it helps to have a sense of when your actual busy season occurs. Using a sales forecast can help you base your scheduling needs on real numbers, instead of guesswork. Some employee scheduling solutions include weather forecasts and sales forecasts (based on prior sales data from your POS) to help you plan the right staffing levels. For example, if you have a huge outdoor patio, it’d make sense to schedule fewer employees when the forecast calls for rain.

5. Play to your employee’s strengths
Once you’ve been reporting and analyzing your labor costs and productivity for some time, chances are you will notice your employee’s individual strengths and weaknesses. For instance, one server may be a master at managing your busiest night of the week, whereas a different server has a knack for enticing customers to order extra dishes. By recognizing your worker’s talents, rewarding them, and using those strengths to your advantage, you will optimize your labor costs (and make your employees feel valued).

6. Automate the scheduling process
The days of time clocks and paper schedules are long gone, and managing employee schedules does not have to take up a tremendous amount of your time and resources. You can use free shift planning software like Homebase to save yourself time and get greater insight into your labor costs in real-time, especially when paired with a POS system.

From looking to the weather to analyzing 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 labor costs down!

John Waldmann

John Waldmann

John Waldmann is the CEO and Co-Founder of Homebase. His first hourly job was renting tuxedos. Now, he's on a mission to make hourly work easier for the whole team. With free online tools and mobile apps for managers and employees, Homebase eliminates the paperwork and headaches of scheduling, payroll, and team communication.