How To Calculate Cost Of Goods Available For Sale Formula How to Manage a Restaurant – Labor Cost

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How to Manage a Restaurant – Labor Cost

Labor cost awareness

Controlling labor costs is one of the most important factors in running your business.

Chances are, if you don’t track your work, you’re likely to lose revenue.

What is cost price?

Prime cost is the total cost of goods sold, the gross labor cost of all your employees, which includes payroll, payroll, worker’s compensation, health insurance, and other employee benefits. For a fast food or casual food and beverage establishment, a good benchmark for cost price is 60% or less of food and beverage sales revenue.

Learning what your restaurant’s cost price should be at the top of your to-do list.

Do you know the labor cost formula?

Salary divided by total sales = percentage of labor

The average labor percentage for most restaurants should be around 20 to 25% for hourly workers and 10% for management.

An expensive restaurant has a higher percentage of labor. Menu merchandising, food and service quality, prices, and hours of operation all affect your food and labor cost percentage.

How to maintain a good labor cost percentage?

Train your management on how to effectively supervise your employees.

It all starts with creating a restaurant schedule

Don’t just schedule staff shifts, assign enough staff to provide exceptional service to your guest.

Create a reasonable schedule that makes sense. Let the management keep the managers login in the office; be sure to enter sales numbers that exceeded forecasted sales.

Social events also play a big role. See if you can get a school calendar to keep you up to date with school plays and other events.

Know what’s happening in the neighborhood, such as:

  • Concerts
  • Plays
  • Musicals
  • Sports events
  • Do you know the times of the theater shows, what time they release?

Chamber of Commerce: A Chamber of Commerce is a great way to find out what’s going on in your area. Look up your state or local chamber of commerce, they have all kinds of events posted on their community board.

Supermarkets are a great way to find out what’s happening in your neighborhood.

How can I keep my labor rates low?

  • Proper staff training: The better the training, the fewer errors and mistakes. Make sure you have a great training program. Training the trainers is a great way to show trainers what is expected of them. Each position should have a designated person to train employees, each trainer must be properly trained and pass quizzes. Trainers should not train your employees unless they demonstrate skills and learning techniques. These employees need to train your employees the way you want them to. Management must monitor the training to ensure that it is completed correctly.
  • Cross training: Ristrong dishwashers in the frying station or bus tables. The host or hostesses may assist the servers in ordering drinks or arranging food for the guest. Prep chefs can be surpassed by those trained as chefs. The thing is, during peak times, you can move employees around in different positions, when sales are higher than usual, or when the servers are in the weeds. Cross-trained employees can work multiple positions during peak hours, so you have minimal staffing during slow times.
  • Skilled workers: Training employees how to do their jobs in the best possible way creates WOW EFFECT if they are consistent and knowledgeable.
  • Proper shift management: Who trains managers? – Owners must be involved in the day-to-day running of their restaurant. There are several ways to train management. When looking for a manager for your restaurant, make sure they have previous experience and that reference checks are done. Either the owner can train the employee or you can look for a restaurant consultant to train the employees either through on-site training or online. When managers are properly trained, they can train the rest of the staff WOW service to each of your guests.
  • Know your labor rate per hour: Owners or management need to know what their labor percentage is by the hour. You can look at your restaurant’s sales by reading at the point of sale (POS), the same goes for labor dollars. Then you divide salary dollars by total sales = percentage of labor. A good benchmark for labor would be 20-25% for hourly workers and 10% for management. If you use a paper control system because you don’t have a point of sale, track your sales and labor by the hour. Create a sales and labor journal so you can record sales and labor. Both the owner and management can total the bill or use the hostess to total the guest checks by the hour and management receives the labor dollars. Remember not to cut the staff before the meal. Servers try to convince management to cut the floor because they make more money and you need to have enough staff to provide exceptional service to your guest. At the end of each meal period, management must instruct employees to close their side jobs and assigned areas. These workers need to be off the clocks on time – don’t let them milk the clock – it’s your money being wasted.
  • Do not overwhelm the restaurant staff: Overworking the restaurant would be very expensive. If you hire more employees, react quickly and send employees home early if there are no sales.
  • How to create a reasonable schedule? Know what your projected labor dollars are and divide that by last week’s sales or use the current sales dollar number.
  • Current Sale: Add up the restaurant sales for the previous three weeks and divide by 3.

Example: If you are in week four, add week one ($1,552.00), week two ($1,932.00), and week three ($2,405.00) = $5,889.00. Divide $1,300.00 in labor dollars by $5,889 in sales = 22%. Use the 22% to create a reasonable schedule.

After scheduling, if the estimated labor cost exceeds 25%, you will need to make changes. If the percentage is below 20%, you can add more hours to the schedule.

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