One of the many important costings and statistical figures in the domain of restaurant business and similar businesses is the costing of the labor and coming up with a percentage or numbers that how much that affects your revenue. This is one of the most important metrics to keep track of on a daily basis.
The reason is that labor is something that is related to an everyday time frame. This can be put second to renting. So, we will start by defining what the labor cost percentage is and then work our way to define how it can be calculated efficiently.
This is a term that describes the amount your restaurant is spending on labor, and it includes paycheck amounts as well as other figures such as taxes and employee benefits. This cost goes on to affect the prime cost of the restaurant and can, thus, affect your overall restaurant’s efficiency. According to Chron, the average figure for labor costs is 30-35% of the total revenue of food industry. Many professional restauranteurs know the methods to calculate this labor cost percentage and can provide examples that might be gibberish to the untrained eye. However, there is a method, and we can learn it.
Calculating Labor Cost Percentage
There are only a few steps and basic knowledge of what to include in “labor cost” of all the costings to make an efficient percentage calculation. Usually, the calculation of two different methods. One is labor as a percentage of sales and other is labor as a percentage of total operating costs.
Here is how the first one works
- Determine your restaurant’s labor cost. Includes all the money that has to be paid to the employees.
- Determine restaurant’s revenue. Revenue, in this case, is the bottom line. This can be found in the POS system dashboard; a system most modern restaurant has.
- Divide labor cost by annual revenue. Let us say that the restaurant paid $300,000 a year to employees and managed to bring up $1000000. Divide, and you will get 0.3
- Multiply by 100 to get the percentage figure as 30%
Here is how the second one works
- Determine the annual labor cost
- Determine the total operating costs
- Divide the annual labor cost by the total operating costs
- Multiply by 100 to get a percentage figure
It doesn’t seem so difficult now, does it? Only a few steps to consider and look at in a focused manner to get to a figure.
Lowering Labor Costs
This is something that varies from area to area. However, most common ways to reduce labor costs is to give bonuses and healthy and financially efficient benefits to employees. This can take the focus off of the employee wages and bring their focus on the benefits that the restaurant offers to them as an overall package.