Labor costs are a significant factor when running a restaurant. Understanding how to calculate and optimize them is essential for maintaining profitability and quality service.
Starting a restaurant requires a good understanding of labor costs. In this article, we’ll break down the labor cost components, key benchmarks, and strategies to keep them in line with industry standards.
Labor is a significant expense in any restaurant, typically making up about 25-35% of total sales, with variations based on restaurant type and location. Tracking these costs effectively ensures the business stays profitable while maintaining quality service.
This summary provides key details about labor cost breakdowns, benchmarks, and strategies.
| Labor Component | Details | Range or Percentage |
|---|---|---|
| Labor as a Percentage of Sales | Labor costs typically range based on restaurant type | 20-40% |
| Key Labor Positions | Chefs, Servers, Managers, Kitchen Staff | Vary by position |
| Salary Breakdown | Fixed salaries for managers and chefs, hourly wages for other staff | Hourly: $7–$45/hr, Salaried: $48,000–$85,000 |
| Overtime & Benefits | Overtime rates and benefits like health insurance, paid leave | 10-15% buffer for unplanned costs |
| Software for Labor Tracking | Cloud-based tools for labor cost tracking | 7shifts, Toast, Restaurant365 |
| KPIs for Labor Efficiency | Labor cost percentage, sales per labor hour, turnover rate | Target: 25-30% labor cost |
| Legal Requirements | Compliance with minimum wage, payroll taxes, and benefits | Variable by region |
What percentage of total sales is typically allocated to labor in a well-run restaurant?
Labor typically makes up 25-35% of total sales, depending on the type of restaurant.
Quick-service restaurants tend to allocate around 20-30%, while fine dining establishments may spend up to 40% or more. A well-run restaurant usually keeps labor costs within this range to maintain profitability.
These percentages can vary by location and restaurant size, but they serve as general industry benchmarks.
What types of labor costs should be included when calculating total labor cost?
Labor costs should include all expenses related to wages and salaries, benefits, and payroll taxes.
Key components include hourly wages, salaries (for managers and some chefs), payroll taxes, overtime, health benefits, paid leave, training costs, and bonuses.
All of these expenses should be tracked and categorized separately for accurate cost calculations.
How should salaries, hourly wages, and benefits be separated in the labor cost breakdown?
Salaries, hourly wages, and benefits should each be treated as separate line items in the labor cost breakdown.
Salaries for managers and head chefs should be distinct from hourly wages for other staff like servers and kitchen staff. Benefits such as health insurance and paid leave should be tracked separately from wages to provide a clear overview of labor costs.
This separation ensures transparency and allows for more effective cost management.
What is the average hourly wage or salary range for key restaurant positions like chefs, servers, and managers?
Wages for restaurant positions vary widely depending on the role and location.
For example, a line cook might earn $14-$22 per hour, while a head chef could earn $25-$45 per hour or a salary of $55,000–$85,000+ annually. Servers typically earn $7-$15 per hour, plus tips, while restaurant managers make $22-$38 per hour or $48,000-$74,000 annually.
These figures can vary depending on regional market rates and the type of restaurant.
How do labor costs vary by restaurant size, service style, or location?
Labor costs are affected by the size of the restaurant, service style, and location.
Quick-service restaurants typically allocate 20-30% of sales to labor, while full-service establishments allocate 25-35%. Fine dining restaurants can allocate 35-40% or more.
Labor costs also tend to be higher in urban areas with a higher cost of living compared to rural areas.
What is the recommended ratio of front-of-house to back-of-house labor hours?
The ideal ratio of front-of-house (FOH) to back-of-house (BOH) labor hours depends on the restaurant's style.
In quick-service restaurants, about 30% of labor hours are allocated to FOH, while 42-50% goes to BOH. In fine dining, around 45% of labor is spent on FOH and 42-50% on BOH.
Adjust the ratio based on menu complexity and customer volume to optimize labor costs.
How should overtime, holidays, and staff turnover be factored into labor cost projections?
Overtime, holidays, and turnover should all be considered as variable labor costs.
Overtime and holiday pay should be budgeted for peak times. High turnover increases recruitment and training costs, so it’s essential to factor this into your projections.
It’s recommended to add a 10-15% buffer to account for unplanned labor expenses.
What tools or software are most effective for tracking and optimizing labor costs in restaurants today?
There are several cloud-based tools that help track labor costs in real time.
Popular tools include 7shifts, Toast Payroll, Restaurant365, and HotSchedules. These platforms integrate with POS systems to offer insights into labor expenses and make scheduling more efficient.
These tools help ensure that labor costs stay within budget while maintaining service quality.
How can scheduling practices be adjusted to reduce unnecessary labor hours without hurting service quality?
Scheduling practices should be adjusted based on sales forecasts to reduce unnecessary labor hours.
Use historical data to predict staffing needs, and consider cross-training staff to cover multiple roles. Automation tools can help create schedules that align with demand, minimizing downtime while maintaining service quality.
These adjustments help avoid overstaffing during slow periods.
What benchmarks or KPIs should be monitored to evaluate labor efficiency week by week?
Tracking labor efficiency requires monitoring several key performance indicators (KPIs).
Important benchmarks include labor cost percentage, sales per labor hour, labor hours per cover or per $100 in sales, and turnover rates. Regularly reviewing these KPIs helps identify areas where efficiency can be improved.
Tracking overtime and paid leave statistics is also important for managing labor costs.
How do legal requirements such as minimum wage, payroll taxes, and benefits compliance affect total labor cost?
Legal requirements like minimum wage, payroll taxes, and benefits increase the total labor cost.
Minimum wage laws set the base for hourly wages, and payroll taxes (such as Social Security and unemployment) must be included in labor calculations. Compliance with mandatory benefits like health insurance and paid sick leave further adds to labor costs.
Staying updated on labor laws in your area is crucial for accurate cost management.
What practical strategies can be implemented immediately to bring labor costs closer to industry standards?
To reduce labor costs, start by optimizing shift schedules based on sales forecasts.
Cross-train employees to increase flexibility and reduce the need for extra hires. Additionally, use scheduling and payroll software to track inefficiencies and ensure shifts align with demand.
Regularly review FOH/BOH staffing ratios to avoid overstaffing or understaffing.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.
Read more articles
- Average Profit in a Restaurant
- How Much to Serve Per Day in a Restaurant
- Cost of Opening a Breakfast Restaurant
- How Many Meals Should You Serve Per Day in a Restaurant?
- Cost of Designing a Restaurant
- Restaurant Budget and Initial Stock