Why Controlling Labor Costs Is Critical for Success

Why you need to control your labor expenses
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Controlling Labor Costs Is Critical for Success

Why Your Restaurant Needs to Control Labor Costs

There’s no such thing as a one-size-fits-all formula for restaurant success.  What works for the taco truck slinging two-dollar tacos doesn’t necessarily fly in a 20-seat, Michelin-starred fine-dining restaurant.

“However, what all restaurants do have in common is that at some point, they will have to pay people, and that means incurring labor costs.”

In all but the smallest concepts, you’re going to need a team. Depending on your establishment, these could be waiters, cooks, dishwashers, bussers, baristas, bartenders, managers; and if you’re big enough, administrative staff.  And they all want a paycheck. No matter how brilliant your concept, no one works for free.

So here’s where the going gets tough.  Every dollar that your restaurant earns needs to do four things: buy raw materials, pay your overhead, pay your staff, and finally, pay you and your partners.  

Your exact numbers may vary, but 90% or so needs to be split between:

  • Input costs (food and beverage)
  • Overhead (rent, utilities, et cetera)
  • Labor.  

The last 10% is for you and your partners.  

Of the three expense categories, labor is the one you have the most control over. Where other restaurant costs are crazy to control, managing labor costs is something that can be done with a little work.

Put simply, it’s a lot easier to shift your staff schedules than it is to talk your utility company into giving you a break on rates. Or, to get your landlord to cut rent enough to hit your profitability targets.  

There are as many ways to control labor cost as there are restaurants, and again, what works for the taco truck may not work for fine dining.  

Controlling labor starts with understanding your business.

You may want to ask yourself some critical questions:

  • At what points in the day, week, year are you busiest?  
  • How efficient is your kitchen staff?  
  • Are your team members standing around at any point unsure of their roles?  
  • Or are they so busy they’re making mistakes?
  • Is there a clear process between team members, including Back of House and administrative staff?
  • Is this process being monitored for inefficiencies?

Once you have some understanding of what each employee is doing and how they’re making (or costing) you money, you can look for efficiency.  Maybe you don’t need two servers for a slow Tuesday, but you need three for a fast-paced Friday night service. For the kitchen, you might be able to hire a prep cook and cut costly line cook over time.  

Your menu can also save on labor.  

Think about what you’re serving; could you cut labor-intensive menu items that don’t sell well? Will this affect the quality of your items?

For example, if bread or condiments aren’t essential to your concept, it might make sense to buy them, rather than paying your cooks to make them. This is often an experimental phase based on the response of your patrons.

On-shift labor control is critical as well.  

While it’s great to be prepared to avoid losing the quality of service you provide to your patrons, just because you scheduled three servers doesn’t mean you need them to stay all night.  

If you’re not as busy as expected, sending someone home helps your bottom line while keeping the team happy.  None of your servers want to stand around waiting for tables that aren’t coming; if they don’t have tables, they’re not making tips.  

It is also very common in many restaurant establishments to have “on-call” staff as well. These are servers or other employees you can bring in if the current team cannot the guests. In many cases, it means you’re not bringing in extra staff that you need to pay.

Labor cost control isn’t always about cutting.  

If you’re not seating tables because you don’t have servers, or because your cooks can’t keep up, you’re leaving money on the table.  It might be worth hiring more quality, experienced staff to bring in more revenue.

The same goes for increasing staff wages to retain employees. Turnover is a hidden labor cost; it’s often cheaper to pay more than to hire new staff members.

Benefits and payroll taxes are also part of your labor cost, though these are harder to control.  

Though payroll taxes track directly with tips and hours, it is often unexpected. Complete and accurate accounting will keep these costs from being a surprise on your balance sheet.  Benefits are trickier, but if you offer (or are required to provide them with) job perks, they too can help with controlling turnover.

All these savings add up, making the difference between success and failure. Regardless of how your business is doing, whether it’s the peak of busy season with lines out the door or the slowest month of the year, controlling your labor cost means that you’ll hit your targets, keep the lights on, and keep doing the things that make your restaurant great.  

If you’re looking to find ways to control your labor costs, Arrow Cloud Bookkeeping provides insight into how to cut unnecessary costs and help streamline your processes and technology, thereby increasing revenue.  

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