Are high labor costs hurting your profits? Restaurant operators often struggle to know exact team spending. Understand your labor cost percentage. This gives you financial control and helps make smarter staffing decisions.
Define Restaurant Labor Costs
Labor cost means more than just hourly wages. It includes all staff employment expenses. Consider salaries, benefits, and payroll taxes.
Your total labor cost covers every dollar spent on your team. This includes kitchen staff, servers, bartenders, and management. Each employee adds to this overall expense.
Collect Your Labor Data and Sales Figures
You need two data points for a specific period. Gather total labor expenses and total sales revenue. Choose a consistent timeframe, like a week or a month. This ensures accurate comparisons.
Collect gross wages paid to all employees, including overtime. Include any employer-paid benefits, like health insurance or paid time off. Also, collect all employer-paid payroll taxes. Your Lavu POS system tracks gross sales data for any period.
Total Up All Labor Expenses
Add up every part of your labor cost for the period. This means gross wages, plus all benefits, plus all payroll taxes. For example, if weekly wages are $5,000, benefits are $1,000, and payroll taxes are $500, your total labor cost is $6,500.
Be thorough. Missing any labor expense skews your final percentage. Accurate data shows your true operational spending.
Find Your Gross Sales
Next, find your gross sales for the same period. This is total revenue from all sales, before deductions or discounts. Your Lavu POS system offers detailed sales reports. This makes the step simple and quick.
Match your sales period exactly to your labor cost period. Do not compare a week of labor costs to a month of sales. Consistency makes your calculation meaningful.
Calculate the Percentage
Now, use this simple formula: (Total Labor Cost / Total Revenue) x 100. This calculation shows your labor cost as a percentage of your sales.
Using our example: total labor cost is $6,500. Total sales are $30,000. The calculation is ($6,500 / $30,000) x 100. Your labor cost percentage is 21.67%. This number shows how much of every dollar earned goes to your staff.
Interpret Your Results
A healthy restaurant labor cost percentage typically falls between 25% and 35%. This range shifts by restaurant concept, service style, and location. For example, fine dining might have a higher percentage due to specialized staff.
Marty, Lavu’s AI analytics layer, benchmarks your current labor costs. It compares your numbers against industry averages. This shows if your percentage is competitive or needs attention. It identifies trends in your labor spending.
Act on Your Labor Cost Insights
Knowing your percentage is the first step. Take action next. If your labor costs are too high, review your scheduling. Are you overstaffed during slow periods? Cross-train employees to cover multiple roles.
Watch overtime closely. It inflates costs fast. Lavu POS tracks staff hours accurately. Marty AI predicts peak and slow times. This guides you to build smarter schedules. It ensures you have the right number of staff working at optimal times, reducing unnecessary expenses.
FAQ
What is a good labor cost percentage for a restaurant?
A good labor cost percentage often falls between 25-35%. This varies by restaurant type, concept, and location.
Does labor cost include salaried employees?
Yes, labor cost includes both hourly wages and salaries for all employees. It also covers benefits and payroll taxes.
How often should I calculate labor cost?
Calculate labor cost weekly for best financial control. This allows quick adjustments to staffing and operations.
Can a POS system help track labor costs?
Yes, a good POS system like Lavu tracks sales and integrates with payroll systems. This simplifies data collection for labor cost calculations.
What is the difference between prime cost and labor cost?
Prime cost combines your total labor cost and your total food and beverage cost. Labor cost is one part of prime cost.
How does overtime affect labor cost percentage?
Overtime significantly increases total labor cost without increasing sales proportionally. This raises your labor cost percentage and impacts profitability.
How can I lower my labor cost percentage?
Operators can lower it by optimizing schedules, cross-training staff, improving employee productivity, and reducing staff turnover. Marty AI identifies staffing inefficiencies.
