5 Best Practices for Finding Your Ideal Labor Budget

5 Best Practices for Finding Your Ideal Labor Budget

Throw away the crystal ball, it’s time to figure out your restaurant’s ideal labor budget once and for all.

What is this elusive “ideal labor budget,” you ask?

In a restaurant, the “right” labor budget is a practically perfect combination of labor, guests, sales and budgets. And when used properly can produce wider margins, bigger profits and happy owners.

For national chains handling hundreds of thousands of locations, running every store off an ideal labor budget can produce a substantial amount of savings across the entire business.

For independent restaurants and smaller chains, consistently hitting an ideal labor budget could pay for the cost of replacing a piece of equipment or make it possible to throw more marketing dollars on a new promotion.

Here are some best practices for determining your ideal labor budget.

Know Your Business
Understanding the key drivers of the business is kind of no-brainer, but it’s where the science behind good labor budgeting begins. On any given day, managers need to know things like how many guests were seated, what they ordered, how much they spent and the number of cooks, servers, bussers, hostesses and managers working, how long they worked and what they were paid.

Analyze Similar Stores
There is no universal standard when it comes to a “good labor percentage.” There are just too many variables and restaurants are too unique to come up with one glorious industry standard (though some would say it’s 30%). So what’s a savvy manager to do?

Sniff out other restaurants, groups or franchises that are in a similar market type and size and use them as the benchmark. Make sure you find an operation that has similar menus, prices, bring in about the same number of guests, have similar employment structures, and turn about as much business as you do.

Calculate Sales Per Labor Hour
Labor as a percentage of sales is the most popular way restaurants ensure budgets are consistently hit. But it’s not always the best measurement tool. Promotions, discounts, coupons and food cost increases can throw off the percentage and trick you into thinking you had too much or too little coverage.

Sales per labor hour, on the other hand, is a more accurate calculation because it’s not distorted by the way sales are affected by price increases and discounts.

Create a Labor Plan and Forecast
The crux of your labor plan shouldn’t revolve around cutting labor. It should focus on finding the right balance between quantity of staff and quality of service. Which is where forecasting comes in.

Measuring against forecasting, means you actually need to create a forecast based on a budget that tracks annual sales and labor expenses. So, instead of bringing in extra staff “just in case,” managers are able to accurately predict the absolute minimum staff needed. And if extra people were needed, managers can use historical data to make adjustments before another schedule is created.

Remember, Change is the only Constant
Staff, guests, food costs, equipment and economics are always in flux and are only predictable up to a certain point. The key is to keep profitability drivers on your radar, so if they do change, you’re able to make adjustments before it’s too late.

Companies: HotSchedules

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