Running a restaurant is a fulfilling yet incredibly challenging venture. Juggling maintaining service quality while managing the overall expenses of labor costs, equipment, inventory, and point of sale is no walk in the park. Adding to that the current economic downturn – keeping the overall restaurant costs under control has become a herculean task. Of all the major costs, restaurant labor ones are proving a headache for most owners as general labor costs are exponentially increasing due to inflation, labor shortage, and rising minimum wage.
Reducing restaurant labor costs can be tricky but not impossible in the current scenario. To all restaurant owners and managers out there, let’s explore practical and effective techniques that will significantly reduce your restaurant’s labor costs without compromising on the quality of service.
We will cover effective scheduling, employee training and the concrete steps to be taken to reduce employee turnover rate – as well as employee labor management software and its significance when it comes to reducing rising labor costs.
What Should Labor Cost Be in A Restaurant
Pinning down the ideal labor cost for a restaurant is essential for it to be profitable and ensure smooth work operations. Since a significant part of the restaurant experience is determined by the customer’s interaction with the service staff, keeping your staff operating at their maximum potential is crucial.
Firstly, you must calculate the current labor cost in your restaurant. You will simply need to divide your restaurant labor cost by your total operating costs. Multiply the sum by a hundred to express it as a percentage of your total labor cost.
However, the ideal labor cost for a restaurant varies due to multiple factors. For example, labor costs would be significantly higher in a restaurant that needs more qualified staff. Similarly, labor costs can also differ in restaurants with different profit margins. These factors aside, if your labor cost percentage turns out to be a major chunk of your total operating costs, you need to take concrete measures to reduce your restaurant labor costs.
Average Labor Costs For A Restaurant
We have established that average labor costs for restaurants can differ due to several factors, however, there are approximate ranges for labor costs that can lead to profitability. A good rule of thumb to follow would be:
- 25% for fast food restaurants
- 25-30% for casual dining restaurants
- 30-40% for fine dining restaurants
If your restaurant’s labor costs exceed these values, your business would be more likely to struggle to profit.
How To Reduce Labor Costs In Restaurants
While restaurant labor costs are an unavoidable expense essential to your establishment’s overall operations – allowing them to increase unnecessarily can massively drain the restaurant’s profit margins. What measures should you thus take to reduce your restaurant’s labor costs? Here are a few points to focus on:
Scheduling plays a crucial role in reducing labor costs in restaurants. Effective scheduling of the staff’s work shifts helps managers optimize labor costs by calibrating over and under staffing.
Effective scheduling can be attained once you have identified and prioritized important factors such as sale volumes, customer behavior, and labor cost targets. Customer behavior, for instance, can help anticipate peak hours and ensure enough staff is available then through scheduling. This can also help reduce employees’ overtime hours by assigning equal hours to all staff members, thereby making a significant difference in labor costs.
Scheduling also helps reduce the employee turnover rate and create an overall positive atmosphere, which is highly crucial to a restaurant’s overall function. Manual scheduling however is a tedious and ineffective task with a margin of error – therefore investing in a scheduling software is more effective in making the process smoother and accurate.
Staff training can make a substantial difference in your restaurant’s labor costs by improving employee performance and boosting overall productivity. While working at a restaurant might appear relatively straightforward, it is a service job that requires adequate training – as restaurant employees are expected to respond to certain situations in specific ways. Learning how to deal with customers professionally and improving efficiency takes proper training.
Having regular training sessions on different topics such as food safety, customer service, or upselling, can ensure your employees are well prepared to maximize their potential and improve customer satisfaction. Consequently, this overall positive learning atmosphere can lead to a higher employee retention rate, saving your restaurant money on labor costs.
Cross-training refers to training employees for different roles in restaurant work operations, ensuring that no employee specializes in one role only. By cross-training employees, your managers can create a more versatile workforce that is able to perform a wider range of tasks, reducing the need for additional staff to be hired or scheduled during busy periods.
For example, a server who is also trained to work as a host can fill in both roles when necessary, eliminating the need for the restaurant to hire an additional host. Cross-training can be achieved by identifying complementary roles, providing adequate training, and giving the required feedback to employees.
Turn Over Reduction
One of the biggest drawbacks in most service-oriented sectors is employee turnover rates, which as restaurant owners – you should specifically look to reduce. Hiring and training new staff can be a huge drain on overall labor costs. On the other hand, retaining valuable labor can have the opposite effect – positively impacting profit margins.
Many employees leave restaurant jobs due to unsuitable work environments. As a restaurant owner, you can reduce your employee turnover rate by providing competitive wages and benefits to your staff and fostering a respectful and healthy work environment.
Moreover, If employees see a clear path for their growth and development, they are likely to commit to their roles rather than look for better opportunities. If your restaurant is experiencing a high turnover rate, perhaps conducting exit surveys and interviews can help you pin down the issues in your operations that are driving employees away.
Workforce Management Software
Technology is becoming an integral part of most businesses, and the restaurant industry is no different. Today’s restaurant operations have been highly disrupted by digital solutions – such as workforce management software. It has helped increase visibility, eliminate multiple manual tasks, and streamline operations. Using labor management software is an indispensable product for your restaurant, as it optimizes labor costs by automating scheduling, time tracking, payroll processing, reporting, etc.
One of the main advantages of integrating a Labor Management Software is that it remains objective while eliminating human errors that can cause grievances among employees. The software also ensures compliance with labor laws and provides real-time data and meaningful insights into labor performance and costs for restaurants to improve their labor cost percentage.
Since every restaurant has different needs, choosing the best labor management software for your own must be done after taking all different factors into consideration, such as budget and staffing needs.
Reducing restaurant labor costs in the current economic climate is no doubt challenging. However, with effective scheduling, employee training, cross-training, and reducing employee turnover rate, it is possible to curb major labor costs increase in your restaurant.
Using the right Labor Management Software for your restaurant can also help you sustain your ideal labor costs, manage overall labor operations more efficiently, and foster a positive environment your employees will want to remain a part of.
Implementing these specific measures can help your restaurant become self-sustainable in a cut-throat and competitive industry. Find out more about effective tips for running restaurant operations.