DL Blog Banner - Calculating Restaurant Labor Costs in 5 Easy Steps

Calculating Restaurant Labor Costs in 5 Easy Steps

Calculating restaurant costs is a critical part of your job, but it doesn’t have to be difficult or time-consuming. It’s also worth the effort, because when you know what costs are, you can measure them against sales and get a good idea of how your restaurant is faring. You can then use that information to quickly pinpoint areas of improvement in your restaurant operations.

As you know, the two biggest expenses for restaurants are prime costs – or the combined costs of food/beverage and labor. Prime costs should not equal more than 55-60% of weekly sales, with labor costs being 15-17% of total weekly sales.

It’s simple to determine labor costs after the shift, but what’s the best way to plan proper shift coverage and future labor costs? If you’re not using predictive scheduling software, the next best option is to do a little math before preparing your schedule. Follow these 5 steps to simplify your routine and save time.

1. Estimate number of guests at a certain time

For example, you usually have 40 guests between the hours of 3 and 4 p.m.

2. Look at the number of staff needed to serve guests

1 cook hour allotted for every 20 guests = 2 cook hours
1 server hour for every 10 guests = 4 server hours
1 host hour for every 20 guests = 2 host hours

A total of 8 employee hours are needed to cover 40 guests.

3. Determine what each hour equals in wages

The cook’s average wage is $15 x 2 hours. Total cost = $30
The server’s average wage is $5 x 4 hours. Total cost = $20
The host’s average wage is $8 x 2 hours. Total cost = $16

4. Calculate the average check per guest

For this scenario, it’s $12.

5. Find your projected labor percentage

The projected sales for your 40 guests is $480. The projected labor dollars spent on 40 guests is $66. Divide the labor dollars by the sales and you get a projected labor percent of 13.75%.

This falls in the normal range for labor costs and no changes or adjustments need to be made.

The folks at eZCater came up with some really useful accounting equations (with an infographic!) for various costs associated with your concept. If you find your costs are higher for different time periods, you may need to look at optimizing labor schedules or making other adjustments to increase your profitability. Using restaurant back-office software that provides a top-level view of your operations and can automate scheduling is often useful to keep costs in check.

Keeping on top of hourly labor costs is an important part of managing your restaurant effectively. By properly calculating your costs, you can spot red flags and make adjustments proactively.

Related Posts

Reduce Restaurant Labor Costs Header
Top 5 Ways to Reduce Your Restaurant Labor Costs

As the owner or manager of a restaurant, you have a lot on your proverbial plate. Taking care of customers, Read more

Blog Header - Manage Your Inventory Variance, Not Just Your COGS
Manage Your Inventory Variance, Not Just Your COGS

I know my COGS numbers, now what? The restaurant industry has historically managed their teams to the Actual COGS numbers.  Read more

How Restaurant Profitability Translates to Being Shift Ready

Busy shifts are a common occurrence in the restaurant industry, but the cause of that busy feeling can vary. As Read more

New Release: 5.16

Decision Logic 5.16 introduces next-level features that keep your teams ahead of the industry curve. Our product team continues to Read more

L.O.V.E. Your Restaurant Data

No matter who you come across in the restaurant industry, the resounding consensus is this: restaurants are a people business.  Read more