In today’s economy, reducing restaurant labor costs is a must.
Due to recent inflation, 91% of restaurants have raised prices since the start of the pandemic. According to the Consumer Price Index, menu prices are up 8.5%. However, this is considerably lower than the 13% increase in food-at-home prices, so restaurants must be finding a way to cut back somehow, right?
Whether it’s reducing turnover or cross-training your employees to handle multiple departments, there are a variety of ways restaurants can reduce labor costs and build a more sustainable business.
However, we want to make it clear that relying on layoffs to cut back is not the best strategy. Many restaurants still report staffing shortages as one of their primary issues. Layoffs increase your team’s workload, adding strain and stress. This may encourage other team members to quit, and before you know it, you are spending time and money to hire and onboard — which can cost $4,100 per employee on average. So, we have better options to reduce your labor costs.
First, you need to understand what your labor costs are and what they should be.
Food and labor are the two largest expenses for any restaurant, combining to take up anywhere from 65% - 70% of your revenue. Depending on the size and scale of your restaurant, labor costs should (ideally) take up roughly 30% - 35% of your total revenue.
This means that labor costs are one of the biggest levers you can pull to improve profits and open up revenue streams to invest more in training, research, and development.
There are two primary ways in which owners and operators can calculate labor costs:
Labor Cost ÷ Total Sales = Labor Cost as a Percentage of Total Sales
Labor Cost ÷ Total Operating Costs = Labor Cost as a Percentage of Operating Costs
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Both metrics can tell you different things about your business, and they each have their place. When citing the two biggest expenses for any restaurant, we used labor cost as a percentage of total sales, the most common number to monitor. Most recommend keeping this number between 25% - 40%.
However, labor cost as a percentage of total operating costs is also very helpful, since it can tell you how much of your total budget is being taken up by labor. This can vary depending on whether your restaurant is fast food or fine dining.
Food and labor costs are two of the largest expenses for a restaurant. Other expenses include utilities, occupancy, supplies, administrative fees, and maintenance.
In this article, we will focus on reducing labor costs. In previous articles, we’ve provided tips on how to reduce some other expenses.
The first step is to analyze your current labor costs and identify areas where you can reduce expenses. This can include analyzing labor hours, employee schedules, and labor productivity.
One effective way to begin analyzing labor costs is by examining the number of hours each employee works per week or month and identifying any patterns or trends that may be contributing to high labor costs. For example, you may find that certain shifts or days are consistently overstaffed, leading to unnecessary labor expenses (which we’ll explore later). Additionally, monitoring employee schedules can help optimize staffing levels during peak and off-peak hours.
Cross-training your employees can help reduce labor costs by ensuring that each employee can perform multiple tasks, sometimes in different departments. This can reduce the need for additional staff during busy periods, while increasing productivity during slower times. It also creates more flexibility for when someone calls in sick last minute.
Some employees may see additional training as more work. However, framing this as an opportunity to grow and expand their skill sets can help. By learning new skills and tasks (and trusting your employees to complete those tasks successfully), employees will feel motivated and more invested in your business’ success.
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There are a variety of ways in which technology increases productivity across industries — and restaurants are no exception. Oftentimes, the benefits that come along with technology are immediate, and since technology plays an ever-present role in our daily lives, there’s actually less friction than you might think when it comes to teaching employees how to use new systems (and learning them yourself).
Below are some ways in which technology can help restaurants improve their bottom line and employee satisfaction, while reducing time spent on admin tasks.
Roughly half of employees report that, when given the ability, they will exaggerate their hours worked. When someone doesn’t clock in or out at the right time, some time tracking platforms like Push will automatically send you an alert. This allows you to investigate and better monitor your employees for time theft.
Similarly, a study from Harris Interactive found that 21% of employees admit to “gaming the clock,” while 5% admitted to “buddy punching.” Considering that these are just the self-reported statistics – and self-reported statistics tend to paint the individual in a brighter light – the actual numbers are likely much, much worse. Time theft can eat up a serious chunk of labor costs.
Face ID recognition, which many people use to unlock their phones, is now a widely accepted part of our lives. And it can also enable your restaurant to save hundreds of dollars in labor costs.
Restaurant owners and managers spend a lot of time on admin tasks. Instead of getting lost in reams of paperwork and manila folders, technology can help you organize relevant documents. It has the added benefit of making tax season a breeze, as some platforms will auto-complete forms and documents, so you’re not spending hours searching for statements from last February.
As a result of recent economic difficulties, even large restaurants (like Ark Restaurants and Denny’s) had most of their back-of-the-kitchen staff working six days a week just last year. Some of the time, however, these issues aren’t the result of economic woes, just poor planning. If you can find a way to properly staff your restaurant at peak times – and cut back on staffing during the slower hours – you can better manage labor costs.
Shift scheduling technology will alert you when an employee is about to go into overtime. This can help you avoid unnecessary costs, and if you need to schedule overtime, at least you will be informed before you run payroll.
Providing enough breaks per shift, not scheduling someone for too many days in a row, and not keeping track of expenses: all of these can lead to serious consequences for your business. It’s best to utilize an HR system to keep track of these things, so you’ll always have a paper trail that doesn’t depend on actual paper. Fewer sleepless nights always make for a happier restaurant owner, and tech can help take care of some pesky things that bog you down.
The cumulative effect of all of these measures is more productivity and lower overall costs. If you’re not implementing technology to speed up some of your processes, then you’re likely spending more than you need to.
Analyzing your business' peak hours and adjusting staffing levels accordingly can help reduce labor costs. For example, you may find that you can reduce staff during slow periods or adjust employee schedules to avoid under-staffing during peak times. By having the right team at the right time, you can prevent wasting labor, while also stopping customers from leaving due to long wait times. Servers can optimize their tips and back of house won’t be stretched too thin. It’s a win-win-win.
This can be completed through Push's labor vs. cost forecasting feature. Push will automatically analyze how much money you’re bringing in during a certain period and compare that with how many employees you have working. It also leverages past data to make informed scheduling decisions. Optimizing your labor can snowball into greater cost savings and happier employees.
High employee turnover can be costly for businesses, as it can lead to increased training costs and reduced productivity. From August 2021 to August 2022, the average restaurant employee tenure was just 110 days — as an industry, we can do better. Implementing measures to improve employee satisfaction, such as offering flexible schedules, providing training opportunities, and offering competitive pay and benefits, can help reduce turnover rates.
Reducing restaurant labor costs can be achieved through various strategies like optimizing staffing levels, using technology, reducing turnover, analyzing costs, and cross-training employees. By implementing these tactics, restaurant owners can improve their bottom line while still maintaining high levels of customer service and quality. However, it is important to note that reducing labor costs should not come at the expense of the employee experience or safety, as this can lead to decreased productivity and increased turnover. A balanced approach is key to success. And when in doubt, ask your employees for their feedback. They may have their own ideas for how to save costs and reduce redundancies.
Ultimately, with careful planning and execution, restaurants can reduce their labor costs without sacrificing quality or customer satisfaction.
Push Operations can help you with a lot of what we covered in this article, from analyzing data to implementing face ID technology. If you’re interested, book a demo with our team today.
“In the labor numbers, we were reporting about a $300 to $400 difference than what we were getting through Push!”
-Tara Hardie, ZZA Hospitality Group, 16 locations
