What Is a Good Percentage of Labor Cost?Ī healthy percentage of labor costs guideline varies by industry and your particular restaurant’s business model. Upscale restaurants require higher labor costs, where employees are more specialized and often require more training. Not surprisingly, fast casual and quick serve restaurants have slightly lower labor costs, where employees can serve multiple customers more quickly and employees can often work across multiple areas. According to accounting firm BDO, here are the average labor costs for some common restaurant concepts: The type of restaurant concept you run will also impact labor costs, as different concepts require different skillsets and other fixed costs. Your location, staff size, and efficiency can all drive cost in one direction. There’s a number of factors that can impact your labor costs. Comparatively, a labor cost percentage that is too low indicates you’re not spending enough on your workforce, who are your most important asset to providing a top customer experience. While this isn’t a steadfast rule – fine-dining establishes, for example, allocate much more to labor costs - spending too much on labor makes it much harder for your restaurant to turn a profit. You should aim to keep your labor costs somewhere between 28-33% of your total revenue. You can calculate your labor cost percentage across different timeframes using our free calculator here. There are different ways to calculate labor costs, but simply put, your labor cost percentage is the percent of your total sales that is spent on labor. Here are all the components involved in calculating labor costs: They’re comprised of the total dollar amount spent on labor across your operation. Your restaurant’s labor costs are more than just employee wages. What is Labor Cost and Labor Cost Percentage? Knowing how to calculate labor cost percentage allows you to monitor this large expense and streamline your labor operations. As minimum wages rise around the country, location and locale also impact your restaurant labor cost. A quick service restaurant versus a full-service fine dining restaurant have different labor cost standards and require different approaches. The methods for controlling restaurant labor costs vary by the type of restaurant. Your prime cost, including your labor cost, is where you can improve to add more profit to your bottom line. Prime cost, made up of the total cost of goods sold (CoGS) and the total labor cost, represents most of the controllable expenses for a restaurant. Labor cost is a significant part of your prime cost, a metric many restaurant owners use to analyze the efficiency of restaurant operations. With the many moving pieces in a restaurant, labor costs are also always changing, requiring daily, weekly, and quarterly tracking and reporting. Labor is one of the biggest expenses for a restaurant. Your restaurant labor cost and labor percentage are two of the most essential business metrics to track, especially as minimum wages rise around the country.
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