# Forecasting labor costs

I am looking at a sandwich shop to purchase and figured I get a sense of their labor costs by mapping it out via their schedule.

I got the following info from the seller:
Revenue for busy and slow months
Employee schedule for last week
percentage of revenues for various time slots (70% lunch, 20% dinner, late night) etc.

I then mapped out the weekly schedule based on sales per hour for 2 types of months - 8 slow months and 4 high sales months.

If there is \$300 per hour in sales, I assigned 3 people for that hour
If there is \$500 per hour in sales, I assigned 5 people of that hour
If there is \$100 per hour in sales, I assigned 2 people for that hour

Based on this I see that I can run the shop at 19.50% to 22% of gross revenues based on wages between min wage and 10% on top of min wage.

I havent worked in a restaurant before.

Is this a good approach to calculate potential wages?

Am I missing any nuances that will put a wrench in my analysis?

Unless you will be the manager, someone will have to be paid a fair bit more than minimum wage(my shift managers earn 50-60% more, GM quite a bit more). Payroll taxes and workers comp cost me 12.6% on top of wages for restaurant labor(this is after nearly all of my employees have hit the cutoff for state unemployment taxes).

You are going to have to get in there a live it to know for sure.

We aim for a sales per labor hour of around \$80 for or rushes. So for a \$300 hour we would need about 4 people. 300/80 = 3.75 people. For \$500 we would need 6 people. 500/80 = 6.25

That’s just taking care of customers and does not include any prep or cleaning. By the end of the day we aim for \$56 sale per labor hour. That doesn’t include prep as we do that off site.

Now that’s us with delivery. It cost a lot to pay people to drive around all day.

At our top level of business we run about \$1,500 per hour (dinner rush Christmas week). that is just our busiest hour. For the whole rush on a night like that we run about \$1,200 per hour which puts us right at the same \$80 figure.

Our crew would be three phones, four cooks, one cut, six drivers and a manager/float. So 15 people. We can pull it off with 12 people but it sucks to have to do it. Same story with regard to prep & cleaning. Our labor goal when we get in to our upper end sales levels is \$54 revenue per hour worked. If our managers hit that for the week the GM gets an extra \$2 per hour for the week and the assistants get \$1 per hour for the week.

Would one of those 4 people be your delivery driver. As we don’t do delivery, wondering we would be saving on that extra resource.

Great point on the 12.6%.

I have added it to my wages math.

phew I knew the industry runs on margins, but didnt fully comprehend the fact until I put all the numbers in excel and noticed that 2% difference in my wage calculations as a result of payroll taxes etc, ate up 14,000 in profits.

Do you guys try to keep your sales per labor hour around \$80 on your slower days as well, or is this target just for your peak days?

Thanks!

Since we dont do delivery, I wonder if I can save on those 6 drivers.

So your case of 1200/hr sales divided by 15 people staff = \$80 revenue/hr/staff member
Extrapolating your numbers for my scenario with no delivery drivers, 1200/hr sales divided by 9 people staff = \$133 revenue/hr/staff member

So if I had \$300 in sales divided by \$133/staff member = 2.25 staff member should suffice I guess.

What is the base you pay for your shift managers and GM and what roles and duties do they cover?

Generally we split it down the middle. If we have 4 on staff to do \$300 per hour we have 2 inside ( 1 will be the manager). And 2 drivers. We require our drivers to do all the inside work also so they are essentially an insider while they are waiting for their deliveries.

Some stores have to run a bit heavy on inside. They will have 7 inside and 5 drivers on Friday. Our busy store has to run heavy on drivers. They’ll have 13 inside and around 17 drivers on busy nights.

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Great thanks for clarifying and the additional info.

We definitely try to but it is just the lunch and dinner rush. The rest of the day if we can make 50 per hour we’re happy. You can get higher than that with the right crew. We do \$1000 hours with 10 people all the time and things run smooth as pie. That’s a sales per labor hour of \$100. I find when we start doing \$120 it’s starts getting rough. Do \$120 for 2 hours straight and you’re toast.

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I find this the best way to keep track of your labor hour by hour. If you have 6 people on staff for the rush you know you need to \$480 an hour to make your budget. If you do more you are gaining and if you do less you are loosing.

Labor and food cost are your top 2 expenses but you have to put labor first because it can disappear. If you order too much food you just use it the next day. If you order too much labor it’s gone. ( well gone from you anyway).

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We would fall apart doing \$1000 with only 10 people. We need 8 drivers to keep our delivery times around 30 min. 7 drivers push our delivery times to about 40 min. We can get by with 4 people inside of 2 of those 4 are myself and my brother, but if it’s not we need 5 or 6 inside. My staff is fairly inexperienced so they will get better with time. I tell them stories about how we used to keep 3 ovens filled for 3 hours straight all the time on weekends and they can’t believe it.

Do you guys still deliver to mentone and Loma Linda? We did back in the day and was just too large of a delivery area. Especially with today’s labor cost. I’ve been shrinking Southridge delivery area a little more each year. We rarely ever go to deep rubidoux anymore. I’m finding that there is only so many square miles you can cover

Using sales per labor hour really allows you to see how costly delivery is

Yup we sure do. I don’t really see us shrinking our delivery area anytime soon though we get too much business from those areas. Maybe when we’re closer to maxing out our capacity inside then we can be more selective with our customers, but we’re nowhere near that now. I do plan to increase our delivery fees for the farther areas though as well as change the driver compensation from per delivery to per mile so it’s more fair for the drivers.

We don’t turn people away per se. We just increased the delivery fee and took the area off our online map. Then let supply and demand go into effect.

I always thought mentone was a good area. Meat and potato’s type people. Loma Linda was a bit on the snobbish side.

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Haha! Yup that’s pretty much my plan as well. I won’t take any areas off our online map, but I’ll keep raising the delivery fee to the far areas as needed. Mentone really isn’t that bad since it’s a straight shot to most of it. Loma Linda you get traffic to go along with the distance so that’s where we get the long time consuming runs. The sales per labor hour really helps you see how costly delivering is.