Running a restaurant is tough, and as the owner or manager of a restaurant, you want to use every tool available to you. With a restaurant POS system, studying restaurant metrics becomes much more comfortable, and is vital to standing out in a competitive industry.
Because a significant portion of your earnings goes towards labor, today, we discuss the six-essential labor KPIs for restaurants. (Here are the top four sales KPIs every restaurant should study.)
Labor Cost Percentage
Have you ever wondered what a business process costs an organization or what the highest cost to a company building a product is anyway? It is usually either labor or food materials, depending on the scale of your business. Over the decades, we have seen a shift where overhead is consuming a bigger slice of the “product cost” pie.
When it comes to analyzing how much money is going towards labor, the first metric to look at is Labor Cost Percentage. Labor and food costs are your restaurant’s most significant expenses, so knowing the exact percentage going towards paying your staff helps control the budget.
Many people make the mistake of thinking the Labor Cost Percentage is for knowing when you are overpaying for labor. Still, you might find that you have been understaffing or under-scheduling, which could be impacting your bottom line just as harshly.
On average, the labor costs of a full-service restaurant should remain within 25% and 35% of total sales.
How to Calculate Labor Cost Percentage
Calculating the total labor cost is simple, follow the steps below:
Step 1: Accurately calculate each employee’s working hours.
Step 2: Multiply your employee hourly rate with the number of hours worked (including benefits and taxes per employee).
Step 3: Add the values for all employees together to get the total labor cost.
Step 4: Divide the total labor cost with the restaurant’s total sales (begin with total sales per month), and multiply by 100.
The result is your labor cost percentage.
The labor cost percentage KPI will be your guide in understanding your success better. There are different divisions in your restaurant and it is helpful if you have assessment indicators that are specifically for each division. There are several restaurants KPI sets that you can use. For this article, our focus remains on labor cost percentage KPI, which the percentage of sales according to the wages of your employees.
Another is the total labor cost percentage, which is not just about wages but also other things such as the management, service delivery, and many others. A functional restaurant labor percentage KPI also includes function labor charge out, the sick days or leave taken, the labor turnover and the average length of employment. Some restaurant managers also measure performance per pay. This figure shows how much is going into staffing your entire restaurant. For a more thorough breakdown, we recommend performing the same calculation for each department:
- FOH staff
- BOH staff
- Bar staff
- Cleaning staff
- Delivery staff
The top two departments to look at are the FOH and BOH.
Front of House Labor Cost Percentage
This KPI reveals the percentage of employees out of the total workforce that manages FOH activities. If you find that you have been overscheduling, breakdown the FOH Labor Cost Percentage for each position, including:
- Table bussers
You might have one too many bussers on duty that are throwing off your numbers, and with an in-depth breakdown, you can make the proper changes.
Kitchen Labor Costs Percentage
Just like the FOH, kitchen labor should be analyzed carefully. Drill down into each kitchen department to guarantee each person on duty is justifiably scheduled.
In-Depth Metrics Analysis
This kind of detailed breakdown of Labor Cost Percentages will reveal problem areas and their solutions. For example, you might realize you have too many bartenders on staff and can train the servers to handle the more straightforward bar needs, like pouring wine or opening beer bottles. Or you might find that the menu prices are just too low to support the optimal staff needed.
Lavu Pro Tip: If you haven’t updated your menu recently, now is the time to do it. See some tips on improving your restaurant menu here, and don’t forget to take advantage of upselling opportunities.
Your next step might be to review your scheduling process. Start using the scheduling feature in your restaurant POS to help you. It can alert you when an employee has hit his or her hour-per-week limit, as well as forecast future sales to suggest an efficient schedule.
Number of Guests Served, Per Server, Per Hour
Improving the table turnover rate is a high priority for most restaurant managers. There are several easy ways to improve restaurant turnover rates, yet it’s essential to know if there are certain servers that need extra training. On the other hand, you might realize that your serving staff is overwhelmed with the number of tables in their section, and it’s better to hire one more server to give better service overall.
For this, calculate the Number of Guests Served, Per Server, Per Hour. It will show insights into the efficiency of your staff.
The formula: Number of Guests Served Per Server Per Hour = Total Number of Guest Served/Number of Service Hours Worked
Compliments Per Server
Compare the number of guests with the number of comments that come in. You’ll find that top servers are scoring high in the above KPI (Number of Guests Served, Per Server, Per Hour) and receive the highest number of compliments.
If a server has a high volume of guests but low feedback, he or she might need a refresher training course. Consider scaling back table volume for that server until you have assessed his or her performance.
Server Errors Per Guest
Your restaurant point of sale is tracking just about everything, including how often mistakes occur. Track a server’s errors to see how often incorrect items are rung in, or have to be voided. Too many server errors lead to inflated costs, unhappy customers, and low team morale. Track the Sever Errors Per Guest to address the issue and reduce the number of mistakes.
With restaurants often vying for the same customers, it’s critical to use KPIs to your advantage. Increase your efficiency and profitability by tracking these restaurant labor metrics and make your restaurant less vulnerable to external pressures.
The important thing that you should always keep in mind is that whenever you utilize KPI’s, you should ensure that the restaurant will use the information that you will get. This way, making decisions will be easy and managing your restaurant will be a total breeze.
Learn other ways your restaurant POS can help you, and harness the power of restaurant POS data to earn more and perform better.