How can you calculate your labor cost percentage?

1 What is labor cost percentage?

Labor cost percentage is the ratio of your total labor cost to your total sales for a given period. It is usually expressed as a percentage. For example, if your labor cost is $10,000 and your sales are $50,000 for a month, your labor cost percentage is 20%. This means that 20 cents of every dollar you earn goes to your staff.

2 How to calculate labor cost percentage?

To calculate your labor cost percentage, you need two pieces of information: your total labor cost and your total sales. Your total labor cost includes all the wages, salaries, benefits, taxes, and tips that you pay to your employees. Your total sales are the revenue that you generate from selling your food and beverages. You can use this formula to calculate your labor cost percentage:

Labor cost percentage = (Total labor cost / Total sales) x 100

For example, if your total labor cost is $12,000 and your total sales are $60,000 for a month, your labor cost percentage is:

Labor cost percentage = ($12,000 / $60,000) x 100

Labor cost percentage = 0.2 x 100

Labor cost percentage = 20%

3 What is a good labor cost percentage?

When it comes to what is a good labor cost percentage, there is no one-size-fits-all answer. It can vary depending on your type of operation, location, menu, and service style. Generally speaking, full-service restaurants should aim for a labor cost percentage of between 30% to 40%, while quick-service restaurants should aim for 25% to 35%, and bars and pubs should aim for 20% to 30%. However, these ranges are not fixed and your labor cost percentage could be higher or lower depending on your specific situation. The key is to track your labor cost percentage regularly and compare it to your goals and industry standards.

4 How to lower your labor cost percentage?

If your labor cost percentage is too high, it can eat into your profits and affect your cash flow. To lower your labor cost percentage, you should schedule your staff efficiently using historical data, forecasts, and reservations to avoid overstaffing or understaffing. Additionally, you should reduce overtime and turnover by implementing policies and incentives to retain your staff. Finally, increasing your sales can help lower your labor cost percentage by increasing your revenue. You can do this by improving your marketing, menu, pricing, and customer service.

5 How to use your labor cost percentage?

Your labor cost percentage is not just a number, but a tool that you can use to improve your food and beverage operations. Analyzing your performance by comparing your labor cost percentage to your budget, goals, and industry averages can help you identify any gaps or opportunities for improvement. Additionally, you can use your labor cost percentage to determine your break-even point and profit margin, so that you can adjust your pricing accordingly to cover costs and earn a profit. Furthermore, you can calculate your food and beverage cost percentage and contribution margin in order to optimize your menu by promoting high-margin items and eliminating low-margin items.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?