5 Powerful Ways to Reduce Restaurant Labor Costs

The main motivation when dealing with employees and restaurant labor costs is finding that balance between how many employees you need on to run an efficient business with great customer service, and how few employees you can have on so you don’t go broke with labor costs.

With that said, today I’m going to give you some awesome tactics and strategies to reduce your restaurant labor costs because of course, when we shave costs, we increase profits. And more profits and more money is something everyone needs (didn’t the Oncler from The Lorax say something similar).

Ok, let’s jump right in. For those of you who are more advanced in restaurant management, I apologize because I’m quickly going to first talk about what constitutes labor costs, as well as how to calculate it, and then we’ll move on to how to actually lower it. I must not assume that everyone coming here is an expert in restaurant management. If you want to jump ahead to the five steps to lower labor costs, you can do so. It will only hurt my feelings a little bit.

What’s Included in Labor Costs?

Some people think that labor costs only include wages and salaried employees, but that’s only part of the picture. To find out your total restaurant labor costs, you need to consider all of the following:

  • Hourly Wages
  • Salaried Employees
  • Overtime
  • Payroll Taxes
  • Health Insurance
  • Bonuses

By adding all of these together, we can get our total expenses for labor. That’s the first step.

How to Calculate Restaurant Labor Costs

calculate labor costs

The calculation for labor costs is rather simple, especially once you have added up all of your labor. In order to get your labor cost percentage, you need to divide it by your total gross sales for any given time period.

The most common time period for this would be monthly, but weekly is even better. As I always try to remind people, the more often you track your numbers, the faster you’ll be able to spot issues, make corrections and improve those numbers.

For this example, let’s do a monthly time period. So in order to calculate your labor costs, simply add up all of your labor costs listed above for the month, and then divide that by your gross monthly sales.

Labor Cost Formula

Total Labor Costs ÷ Gross Sales = Labor Cost Percentage

Labor Cost Example

June Labor costs = $16,354; Gross Sales = $50,023

$14,354 ÷ $50,023 = 32.69%

What Should Your Labor Costs Be?

This answer is going to very based on many different factors, but in general restaurant labor costs should be maintained at around the 30% mark, ballpark. Ideally, we want to get labor costs as low as possible, but just like having a higher liquor cost isn’t always necessarily bad, neither is having a higher labor cost, as long as your margins are higher.

As a general rule, the more service that is needed, the higher the labor cost. For example, fast food or quick casual restaurants might incur a labor cost of 23 – 26%, while a fine dining restaurant could have labor costs as high as 40%. In the case of casual dining restaurants, you’ll want to look at the 30% mark as a benchmark to start with.

Ok, now that we’ve covered the basics of restaurant labor costs, let get into the strategy of exactly how to trim those costs without sacrificing service.

5 Steps to Lowering Restaurant Labor Costs Immediately

Step 1: Have an Excellent Training Program.

restaurant training

The truth is, the better trained your staff is, the better and more efficient they will be at their jobs. If you don’t create the expectations and the standards you demand from them, they will not carry them out.

This all falls under systemizing your restaurant and defining the roles and tasks for each team member so they aren’t wandering around like a lost child in the jungle. That means you need to create a training manual for each position of your business so it will run like smoothly and seamlessly.

Step 2: Determine How Much Staff You Need On-Hand to Serve the Number of Guests in the Restaurant

restaurant labor costs

This falls under both an art and a science, trying to figure out how much staff you need on-hand for each shift. So as a starting point, determine what you’ll need if you’re at full capacity. In other words, if you are at full capacity, how many servers, bartenders, bussers, barbacks, hosts and kitchen staff do you need on to effectively serve your guests?

For example, let’s say at full capacity you determine you need seven servers, three bartenders, three bussers, two barbacks and six in the kitchen.

From there, determine what percentage of full capacity you will be at on other nights. So if full capacity is 100%, then how full are you on a Wednesday night? 30%? 70%?

The best way to do this is by tracking the number of covers on each night, which is just another way of saying individuals.

One cover equals one person. If your staff is ringing in how many covers are at each table when they start a check, you can easily track this.

The other way is to simply track your sales. Not a perfect science, but as a rule, the higher the sales, the busier you are. At full-capacity sales will usually be similar, so you can look at your sales on other nights to see what percentage of full-capacity sales those are operating at.

So for example, on Wednesday nights you might look and see that sales are 50% of what they normally are at full-capacity, so cut your staff in half. 50% is obviously the easiest math example ever right here, but it at least gives you a place to start from.

You’ll also want to make sure you are staggering when they come in and when you cut the floor. You don’t want 5 servers coming in a 4:00 to relieve the lunch crew because you’re most likely going to be quite slow during that time.

That means that you might bring the first server in at 4:00, maybe another at 4:30, two more at 5:00 and the last one at 5:30. Then you cut the floor the same way in reverse order. By keeping your staff as lean as possible, while still providing great service, you can maximize your labor productivity and reduce your labor costs.

Step 3: Adopt the New Customer Service Model

QR Menu Code

By a “new customer service model”, I mean allow your customers to order and pay on their own by scanning a QR code and having your menu show up on their phones.

Basically, you are putting the POS device in their hand. GoTab is the leader in this technology. It is a free POS system that allows you to have fewer staff on, while providing a better customer experience for your guests. This system has proven to increase restaurant sales by 30%, lower labor by 10 – 15%, increase table turnover and increase how much money your staff can make.

Make sure to check out GoTab so you can adopt this new customer service model that is changing the way bars and restaurants are running their businesses. You won’t be sorry. If we were prioritizing this list by most effective to least effective, this one would be at #1. This has become THE way to increase sales and reduce labor. But I just did these in random order. Deal with it.

Step 4: Create a Remarkable Restaurant Culture

restaurant culture

Ok, I can hear you right through the screen. You’re like, “How in the hell does that save me money on labor.” I’ll tell you how. The better your culture, the more your staff wants to work there. The more they want to work there, the less chance they have of leaving. The less chance they have of leaving means less turnover, which means you don’t have to spend thousands of dollars and loads of energy hiring and training new staff all the time.

By investing more in your staff, providing them incentives and making your restaurant an amazing place to work, you will save loads of money in the long run. If you want to know more about how to create an amazing culture for your restaurant, you can check out this video tutorial I created here: https://www.youtube.com/watch?v=QWRTig9RaNg

Step 5: Train your employees to be hybrids.

And by hybrids, I mean that one employee becomes capable of performing tasks for multiple positions. This not only creates more efficiency during the shifts, but it also makes it easier to schedule if you’re short-staffed.

For example, you might have a host that you can train to also be a busser, and that way if you’re short on bussers, you can schedule that host to fill in for that shift.

In addition, even if he is scheduled as a host, he could also help out by doing some busser duties if there is nothing to do up front and if the bussers need help.

You also might have a server who knows how to bartend and during a busy shift can step behind the bar and pour some beers and wine for the well. Anything to help out. This creates teamwork and also efficiency. By having hybrids your options open up as far as what you’re able to accomplish for scheduling and creating efficiency in your restaurant.

And then one more thing I want to mention is that you need to pay attention on a daily basis to clock in and clock outs because some employees will clock in early when they aren’t supposed to, or they will milk the clock, so you need to take a look and say, “Hey, why was Bobby on until 10:15 last night when we cut him at 9:00 and he had no tables left?” Then you call Bobby in and let him know that this isn’t ok.

When you have multiple employees milking the clock, it can add up to a lot of lost money in labor. So that’s sort of a bonus strategy #6. You’re welcome.

So stop sitting around reading blog posts and start putting these strategies into actual practice and you will start to see immediate results. On the other hand, if you do nothing, take no action, you will get no results, and then you’ll go home and whine to your dog that nothing ever works out for you.

Don’t be that guy or girl. Make something happen. I appreciate you being here. I’m going to see you next time.