How to cut restaurant labor costs

The recent labor shortage and rising costs have prompted restaurant owners to look for ways to cut down costs in any way possible. Traditionally 22%-25% labor cost as a percentage of sales is seen as optimal, however recently some restaurants have seen it go up as much as 45% or more. In the new normal, restaurants can still achieve 26-28% of sales by analyzing their KPI’s (key performance indicators) and creating a plan to keep those indicators in check.

Invest in reporting

It's important for you to know what your Business’ KPIs are. No one should know better than you, what and how you are measuring your operational performance. If you have not done this exercise, it's important for you to establish them and build systems to measure them accurately. Ensure your managers in each location understand what labor metrics you're trying to achieve.

Start analyzing your sales per labor hour on a half-hourly or hourly basis for every day of the week. Compare last week to current week. In some cases you may be analyzing last year same week and same day to this year same week and day to account for seasonality. Obviously, you can’t compare the week before the labor day to one after, because sales tend to slow down after Labor day.

It's important to check the variance of scheduled hours to actual hours daily to make sure people aren't coming in early/staying late when not asked to, and ensure breaks are being taken. Does your POS system allow you to report current days sales results with labor %/sales per labor hour? Check that regularly through their shift and make changes to staffing as they go and compare sales to prior weeks' results.

Optimize labor

Do you have schedule validation in place in your POS, i.e. does it enforce clock ins/ clock outs? Do your employees clock in 10-15 minutes early, and don't clock out until 10-15 minutes after shift ends. If it is approved overtime, that is understandable. However, non-approved time should be limited as the hours quickly add up over time across many employees. If you have 50 employees on the shift, that equals 25 hours of lost time. (25 x $15 = $375 ) in lost wages, for that shift. 2 shifts per day = $750, 3 shifts = $1,125. Also, you have to monitor their breaks and meal periods.

When looking at scheduling, try double tasking, having a line cook do prep, or a baker host, which will trim some of the downtime workers have.

Ensure non-productive work gets done when the non-productive hours are scheduled. There really shouldn't be any distractions of productive labor during peak periods.

Optimize pricing

When looking at menu prices look at the ‘hot’ items, top items that you sell a lot. Raise prices on those reasonably but not too much. This should increase your per ticket average. Try to have some low-cost-to-you items on your menu that can be upselled to enhance the customer experience. Also, compare your pricing to your competitors. You'd be surprised how much much money you might be leaving on the table by not optimizing your pricing in line with the competition.

Optimize your menu and steps of preparation

Are there processed quality foods you can buy that will save a lot of steps? Is there a similar pre-made product? Or pre-shredded cheese? Or frozen potatoes? Or pre pattied burgers? Just to be clear, don’t mess with anything that will destroy your food quality, but sometimes it’s okay to take a 10% drop in quality for the sake of increased consistency and reduced labor cost.

See what routines you can change when it comes to prep work. As an example, slicing vegetables of two days worth takes roughly the same amount of time as one day, since most of the time is in the preparation of cutting and cleaning the equipment afterward.

Optimize your layout and react quickly with changing conditions

Close down sections when you don’t have the guest count to fill (and reduce the amount of staff you have). If guests want to sit in a closed section let them, but make sure you have a system in place that ensures they aren’t left without service.

Try and break down what side/prep/cleaning work that needs to be done daily into a specific amount of time required, and ensure that time is being adhered to. It's surprising how quickly a cleaning task that takes 25 minutes suddenly becomes an hour when there's no eyes watching.

In summary...

You can never 100% accurately predict your labor demand. The slower part of the season is very difficult. You are busier in the slow time but the restaurant is not. Generally, the costs go up when it's slower. Beating your head against the wall trying to figure it out and keep it at 25% doesn't work. It's easy when you have steady, consistent business but it goes out the door in a seasonal situation. Get out of the office and get to work. Put in work to cut labor to as low as possible. Put the money in your pocket and you'll gain more knowledge about the operations of your business than ever before. Don't overschedule before the busy season in preparation. The staff you have will make it happen and others will come along.

Also, you need to have patience. Optimizing labor is complex and rarely gets fixed completely in a week. make a goal where you want the labor to be next week, and the following week and so on. If you want a 10% improvement (which might be doable, 10% of 47% is 4.7%) then your next week will be at 42% not 37%. Basically, don’t try to drop it to 30% in one week (that will usually create far more problems).

Also, one can’t overstate the importance of technology when it comes to reducing labor and cutting costs. Recently we have seen a huge increase in the use of self service Kiosks and QR codes that allows the guests to place orders without any cashier and server involved.

Heywaiter.app is committed in solving staffing challenges of indoor dining restaurants by allowing guests to send the orders and messages directly to the serving and kitchen staff without any human interaction. Please go to heywaiter.app or email info@heywaiter.app to learn more about how we can solve your staffing challenges and improve guest experience.