Are labor costs hurting your profits? Many restaurant operators struggle to find the true expense of each staff hour. You must understand this metric to manage your budget. Knowing your Cost Per Labor Hour (CPLH) gives you power. It helps you make smart staffing and pricing decisions. You gain control of your restaurant’s finances.
Understanding Your True Labor Expense
Do you only track hourly wages? Many operators miss the full picture. Cost Per Labor Hour (CPLH) shows the total expense of one staff hour. This goes beyond an employee’s hourly pay. It includes all related costs. A clear CPLH reveals your true operational expenses. It helps you price menu items correctly. It protects your profit margins.
Collecting Necessary Labor Data
You need several key figures. Start with hourly wages for all staff. Include salaries for managers or fixed-pay employees. Add benefits: health insurance, paid time off, and retirement contributions. Next, count employer-paid payroll taxes. These include Social Security, Medicare, and unemployment taxes. Also, include workers’ compensation insurance premiums. Lavu POS tracks time accurately. This data helps you capture every hour worked.
Summing Up All Labor Expenses
Add all individual labor components for a specific period. This gives you your total labor cost. The formula is: Wages + Salaries + Benefits + Payroll Taxes + Workers’ Compensation. For example, an employee earns $15/hour. Benefits add $1.50/hour (10%). Payroll taxes add $1.05/hour (7%). Their true cost is $17.55 per hour before workers’ comp. Apply this to your entire team.
Tracking Every Staff Hour
You must know total hours for all employees. Use a reliable time tracking system. Lavu POS records exact clock-in and clock-out times. It captures breaks and overtime automatically. Sum all hours for every employee during your chosen period. This might be a week, two weeks, or a month. This accurate total is vital for a correct CPLH calculation.
Applying the Simple CPLH Formula
You now have your total labor cost. You also have total hours worked. Divide your total labor cost by total hours worked. This reveals your Cost Per Labor Hour. For instance, your total labor costs for a week are $10,000. Your staff worked a combined 500 hours. Your CPLH is $20.00 per hour ($10,000 / 500 hours). This number shows your overall labor efficiency.
Analyzing Your Labor Hour Costs
What does $20.00 per hour mean for your restaurant? Compare it to your revenue. A common goal for total labor cost is 25-35% of gross sales. If your CPLH is high, find the causes. Are wages too high? Are benefits expensive? Do you overstaff during slow periods? Use this insight to make smart decisions. Lavu’s reporting tools help you monitor this trend.
Driving Down Labor Expenses Strategically
You can lower your CPLH without cutting quality. Schedule staff based on predicted sales. Marty, Lavu’s AI analytics layer, forecasts sales. It helps you staff correctly for peak and slow hours. Cross-train employees for multiple roles. This improves efficiency. It also reduces reliance on specialized staff. Review your benefits packages and payroll tax liabilities. Small adjustments make a big difference. Lavu helps you in this process.
Key Takeaways
- Always calculate your true Cost Per Labor Hour. Include all hidden expenses.
- Use your POS for accurate time tracking and payroll data.
- Regularly review your CPLH. Compare it against industry benchmarks and your profit goals.
- Adjust staffing levels based on sales data. Use tools like Marty AI.
- Invest in staff training. This increases productivity and reduces errors.
- Look for efficiency gains. Focus on scheduling and cross-training your team.
Frequently Asked Questions
What is a good cost per labor hour in a restaurant?
It varies by restaurant type and region. Aim to keep your total labor cost percentage between 25-35% of your gross sales.
Does CPLH include salaried employees?
Yes, CPLH includes all labor costs. Divide their salary by their scheduled hours to get their hourly cost equivalent for the calculation.
How often should I calculate CPLH?
Calculate CPLH at least monthly. Many operators calculate it weekly for quick adjustments.
Can I reduce CPLH without cutting staff?
Yes. Improve scheduling efficiency with sales forecasts, cross-train staff, and reduce overtime. Optimizing operations can lower CPLH.
What’s the difference between CPLH and labor cost percentage?
CPLH is the dollar cost per hour of labor. Labor cost percentage shows labor costs as a proportion of total revenue.
How does a POS help with CPLH?
A POS like Lavu tracks employee hours precisely. It provides sales data for informed scheduling and accurate CPLH calculation.
Are employee meals included in CPLH?
No, employee meals are typically counted under food cost or as an operating expense. CPLH focuses solely on the direct and indirect costs of employing staff.
Should owner’s salary be included in CPLH?
Yes, if the owner performs regular operational duties. Include the owner’s salary as part of the total labor cost calculation.
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