How to Reduce Labor Costs in Your Restaurant

Every restaurant has them, they’re some of your most significant expenses, but they’re also one of the best predictors of success. No, it’s not a riddle: We’re talking about labor costs. They’re so important albeit one of the most challenging factors to control, because it’s the most effective KPI for determining the viability and profitability of your restaurant.

It’s not just about salaries, either. “Labor costs” encompass everything from wages to bonuses, payroll tax, healthcare, vacation and sick days, and overtime too. Though it seems straightforward to view these factors as the sole indication of where to cut costs, it’s actually more useful to address the labor cost percentage—that is, your labor cost as it relates to revenue (determined either as a percentage of total sales or of total operational costs). By tracking these trends, you can better understand and address cost control.

Labor cost is exponentially increasing because the minimum wage is always going up, which raises everybody’s salary across the board. Thus it’s more beneficial to track the percentage and how costs relate to revenue. Most restaurants aim for a labor cost percentage that averages between 20-30%, although that number changes depending on the specific industry. For example:

  • QSRs: 29.4%
  • Fast-casual establishments: 28.9%
  • Casual: 33.2%
  • Upscale casual: 30.4%
  • Pizza: 31.3%

Depending on what type of restaurant you are, you now have a basis for whether you’re performing well relative to the rest of the industry. If not, it’s time to make some adjustments.

Self-Service Technology

Making an initial investment in advanced technology will reap greater rewards in the long term. Self-service technology puts control into the customers’ hands, ensuring more accurate orders, eliminating lines and ultimately selling more food, both because of embedded upselling capabilities and because customers are more likely to increase their cart size when they’re not relaying it to a third party.

In particular, kiosks are getting more popular because you can buy them stand-alone without having to upgrade your point of sale system entirely. Learn more in-depth about how self-service kiosks are revolutionizing the food service industry.

All these devices combine to increase check sizes and lower your labor cost; after the initial investment, they start paying for themselves in a matter of days.

Point of Sale

Self-service technology works best when paired with a good point of sale system, as that’s what enables your employees to do their best work. When a PoS system is equipped with the right software, you can rely on it to automatically handle certain aspects of the job like inventory management, CRM, staff management and communication, sales reports, basic marketing, labor reports and employee scheduling.

The last two are especially important. Knowing how to analyze a labor report tells you what adjustments need to be made to influence the labor cost percentage effectively. Learn to analyze certain days, times and even seasons to optimize your schedule better, and see what dishes perform best and when. Even minor adjustments based on these factors add up to save on labor costs.

Employee Scheduling Tools

PoS systems that integrate some type of scheduling software are proven to reduce labor costs by 4%. A good employee scheduling tool automatically works for you, taking human error and time out of the equation.

A good program will make schedules more quickly, lower your input when sourcing shifts, reduce over- and understaffing, and track and reduce costs by analyzing the labor reports for you in this capacity. 7shifts, for example, saves clients between 1-3% on labor costs. The right scheduling tool should quickly implement beneficial changes once they’re identified, so you can start saving right away.

Adjust Hours

Sometimes, the answer isn’t over- or understaffing but simply that you don’t get much business on, say, Tuesday nights after 10PM. If you can identify slow nights based on your point of sale system’s progress reports, you can close early on those days, or open later if it’s more applicable to focus your resources on peak times instead. Automatic analysis of sales and labor reports will prioritize what works so you can lose what doesn’t.

Employee Training

When staff members are set up for success, they’ll form a more cohesive and efficient team. Hands-on, practical training now means they’ll spend less time struggling to learn and work simultaneously, which ultimately takes longer and provides worse results. By training better employees from the jump, you can schedule fewer workers while maintaining the same level of excellent service.

Employees should be well-versed in using all of your onsite technology such as the point of sale system and tableside self-services devices. They should be able to troubleshoot devices for customers even if they don’t use that technology on a day-to-day basis. It’s best to have new hires shadow your most experienced or best-performing employees to learn what makes an excellent member of the team, directly from the superstar’s mouth.

Communicate your restaurant’s standards so workers know what the job expects of them, and additionally provide easy access to the employee handbook as a reference; this prevents them from taking time out of management’s with every little question and ultimately leads to fewer costly mistakes. You should also hold refresher training courses every now and then in addition to semi-frequent performance reviews. All of this reinforces your expectations and helps your staff work toward achievable progress goals. Read more about why investing in your staff critically prepares your business for future success.

The restaurant industry has notoriously high turnover rates; staff retention is a major struggle for most of them to overcome. Constantly hiring and training new employees takes a massive toll on revenue, which you’ll see reflected in your labor cost percentage. If you pay staff well, give them benefits and treat them with respect, they’re more likely to stick with you long-term. You can offer additional rewards to incentivize retention, such as small prizes for the best-seller or recognizing an employee of the month. You’d be surprised how far even a simple thank-you will go toward raising staff morale.

It would be best if you also promoted employees who do well, or give them a raise, to demonstrate that growth is possible within the organization. Effort improves when they have a goal to work toward. Everyone wants to advance their professional career forward. This is why it’s important to never, ever raise menu prices or reduce employees’ wages to try and save money, because although it may be effective in the short-term, the long term negative impact on morale, profits and customer relations will lead to massive, irreconcilable losses over time.

By identifying the areas of your business that need improvement, you can optimize staff’s time to maximize efficiency. That’s what makes technology so vital to the industry; point of sale systems that can evaluate all of this for you saves time and shows you concrete changes to make. Every little bit counts; the more parts of your business that you can optimize and automate, the more these small changes will add up to reduced labor cost percentage.

KPIs exist to help you succeed. Learn how to analyze your labor cost percentage and affect reasonable action to improve operations, maximize the efficiency of your team, and build a more successful restaurant overall.

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