Labor costs over 50%

Hi all,
I have a manager who is in charge of hiring, training, and scheduling. However, my costs are constantly above industry average. For example, January was the highest grossing month in two years, but we lost about $4K, due mostly to labor costs, which amounted to 51.7%. I know that they work hard, but something seems off. For example, he schedules 6 people to work a slow mid-week shift that generates on average about $1000. Is it acceptable to have labor cost this high? Any advice would be greatly appreciated!
Thank you in advance!

Definitely not acceptable. California is a different beast than any other state for labor and not just the $$$. Tighten up the schedule yourself and train him to schedule responsibly. I don’t know how many hours the 6 people work or how many hours your mid-week shifts are, but regardless 6 people is too many for $1,000. We’re only open 5pm-10pm mid-week and on those days I have the manager come in at 3pm to do prep while the cook and one driver come in at 5pm and the 2nd driver comes in at 5:30pm. If it slows down earlier than 9:30, then I let one of the drivers go home early.

This size staff can handle up to $1,700-$1,800 shift without downgrading service as well. It’s the slower mid-week shifts where we have UberEats on and other sites to boost revenue. Still stuck in the slow time of year right now with all the NY resolutions still intact. Our sales typically pickup towards the end of Feb/early March.

Yeah way over staffed. If your making $1000 in a 11 hour day you only need 3 employees inside and a driver and Your more then comfortable.

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Try using the Sales per Labor Hour method. This is simple and easy to track way for you and your managers to keep an eye on labor cost. It will take a little leg work to set up but once you do you will wonder why you waited. You can search the archives here to find discussions on this but here it is in a nutshell.

  1. Determine what labor cost percent you need and or would like to attain. 30% to 40% is industry norm. I’ll use 30% for simplicity sake although that is very unlikely in Cali.
  2. Determine how many total labor hours you can use and still achieve the 30% goal. Include the managers. This will take some math work. But here is an example.

Weekly sales = $10,000 Labor Goal 30% Weekly labor $ Goal $3000
Lets say your average hourly rate is $13. This will allow your 230 labor hours for the week. 3000/13= 230.76.

Now you know how many hours you have to work with to hit that labor % goal. ( 230 )
Your sales per labor hour goal under this scenario would be $43.47. $10,000/230=43.47

Now take the $43.47 figure and apply to each day and for the week when doing the schedule. Your $1000 Wed goal would be $1000/43.47= 23 hours. A busy Friday may be $3000/43.47= 69 hours.

This will simplify scheduling to where anyone could figure out how many hours to schedule. You will also need to set up some tracking paperwork and require that the ideal and actual labor hours are logged continually. This will give you and your manager daily and weekly feed back on the labor budget. We track labor hours to ideal daily-weekly-monthly and yearly. Our POS system also tracks this by the minute.

Now you may find that making budget on the slow days is difficult. It may be impossible to run any day on 23 hours. It may be easy to run a $3000 day on 69 hours. So you may want to adjust certain days up or down. We generally run over budget Mon-Tue-Wed, make budget Thursday and are below budget Fri-Sat Sun.

We have different sales per labor hour targets for different sales levels and they vary a lot. At our highest sales levels ~18-20K per week I am looking for $54+ per labor hour. At 10K I want to see $43. At 5K I need $29. The GM gets an extra $2 per hour for the pay period if he hits the goals. We calculate and pay the bonus every pay period.

I would fire my manager if we ran 50% labor!

We have varying levels of volume but they all run pretty much the same sales per labor hour over all.

We have a store that does low 20K’s. They run $54 SPLH. They have a percentage of deliveries and a cumbersome delivery area. Their over all payroll percent is 33%

2 other locations do 5K to 10K more in sales and run $56 SPLH. They have a higher pick up ratio and quick easy delivery areas. They run 31% and 32% Labor cost

Last location does does double to triple the sales of the other stores. They have a ultra cumbersome and way too large delivery area. They run about $57 SPLH with an overall labor cost around 29%.

We also do all our prep off site. The prep labor ads 4%

This is definitely the way to go! Discovered this system a few months ago on the forum thanks to some knowledge bombs from David, bodegahwy, and a couple others.

Also, get some feedback from your manager as to what their reasons were behind their scheduling. Maybe they got slammed the week prior? I know it took me awhile to get scheduling down, especially on the slower days. I generally schedule my morning drivers till just before our dinner rush, that way if we’re busier than normal we can easily keep 1 of both an hour or 2. Gives us a little scheduling flexibility.

Thank you so much for taking the time to answer my question. As always, very detailed and informative!

Thank you so much for your advice!

When I created our goals I had the benefit of a lot of history. I went back and got actual sales and hours per week for several years and put them in a spreadsheet. In the end I had at least several examples of what we had done in the past for each level of sales. Our goals represent levels we have actually hit in the past.

Out of several years business we had a couple of dozen weeks where our sales were between 10k - 11K. Looking at revenue per labor hour during those weeks the handful of best results were above $43. Maybe 1/4 of the weeks in the past had hit this goal so it was pretty easy for the managers to see that the goal was realistic and achievable. (Unrealistic goals are bad motivators)

Without that history it may not be easy to set the goals initially. I suggest you talk to the manager about how many crew it takes to get the job done at various levels. $1000, $1500, $2000 etc. I provide the sales forecast to the manager. He is responsible to schedule appropriately to hit my forecast. If my forecast for the night is $1600 and we want to have four in the kitchen and three drivers during the rush to do $1600 then that is the schedule I want to see. It is not up to him to decide that the forecast should be something else.

The other side of labor cost is clock-in/clock-out issues. I suggest that you review when your employees are clocking in and out and make sure it matches the schedule. A couple of employees clocking in 15-30 minutes early a few times a week adds up. Not getting people off the clock adds up even faster. Look at your pie hours in your POS and see if the closing managers are getting people out the door when it slows down. I have had managers that keep cooks around late to do the cleaning so they don’t have to.

Stagger your start times and overlap shifts. Our day manager comes in to open and stays until the rush slows (not until over, just until slows) The closing manager comes in at 5 and closes. This way they overlap for 2 hours or so and we have two sets of hands when we need them. Same with day driver and the dinner rush. That manager and driver are off the clock by about 7PM most nights but if we are busier than expected they can stick around another hour or if it never “happens” they can be out the door at 6:15. Our typical schedule might look something like the example below. We take orders from 11AM to 9PM. In the busy season the opening manager needs to be there about 10AM and we can generally get everybody out by 10PM. In our off-season the opening manager can come in at 10:30 and the closers can often walk out the door at 9:15 which helps hit goals at lower numbers.

Opening Manager 10-7 Rush slow down (9 hours)
Closing Manager 5-10 Close (5 hours)
Cook 5-7:30 Rush slow down (2.5 hours)
Cook 5-8:30 End of Rush (3.5 hours)

Opening Driver 11-7 Rush slow down (8 hours)
Driver 5-8 End of Rush (3 hours)
Driver 5-10 Close (5 hours)

Total hours: 36
$1600/36 = $44.4 per hour

We look at this weekly. The bigger nights tend to offset the slower ones. We would run the same schedule to do $1500 or $1700. At $1500 we would hit $41. At $1700 it would be $47.

If I look at the pie hours and see it slowed down to a trickle at 7PM and I see that the manager still had two cooks on at 8PM I am asking why!

The closing manager has to send me a text every night with Revenue, Door Time, Over/short and hours worked. What you measure and talk about tends to improve!

I’m enormously grateful for your detailed and insightful response!

I have been reviewing franchises and gleaned some info in the process.

They actually apply the labor hour method on an hourly level.

So they get sales for each hour of the day from their POS, and then allocate employees for each hour to ensure they meet their labor targets.

Eg :


11 AM - 3 employees
12 AM - 5 employees
1 PM - 5 employees
2 PM - 3 employees
3 PM - 2 employees
4 PM - 2 employees

Labor laws where I live would make this an impossible schedule. Each employee is entitled to at least 3 hours under the law. The 3 that start at 11:00 must be paid until 2PM the 2 that are added at noon must be paid until 3PM. From noon until 2pm I would have to pay for 5 employees. The point I am trying to make is Be aware of your local labor laws when making a schedule.

Wow. I have never heard of anything like that! We start our dinner shift at 5PM and are often looking to send people home before 8. It is pretty rare that there is not a volunteer though.

If that is not bad enough as of Oct 1 I have to pay $15 per hour minimum wage plus 4% vacation pay and Holiday pay of up to $22.50 per hour for statutory holidays even when the holiday falls on a day they are not scheduled to work.

I think they do it such that the 3 who came at 11 do stick around till 2.
and the ones who came in at 12 stick around till 3 atleast.

I cant speak about the labor laws, but every franchise restaurant biz I spoke with had staggered labor schedule, where people come and go throughout the day, based on the revenue generated per hour. I think the manager who creates the schedule would try to ensure the people get enough hours to make it worth their time to come in.

Wow! In my case, it’s mostly ineptitude, I guess. But California is no picnic either. I once caught one employee double-dipping into the tip jar, basically stealing from other employees. I fired him. He requested a hearing at EDD to get unemployment benefits. When I presented my case the administrative judge (or whatever these anti-business activists are called) confronted me with “Yes, but did you explain to him that this is wrong?” I mean, seriously, I have to explain to a 35 year old that stealing is wrong? After which, she granted him unemployment.

I am not sure about the labor laws in Ohio, but just for a courtesy sense we don’t schedule any shifts less than 3 hours. Sure, sometimes someone will get sent home early, but that is not the norm. In my opinion it is not “worth it” for someone to be scheduled less than 3 hours.

We have plenty of employees that are fine with it. Especially drivers. Come in at 5PM. Kill it for 2 - 2.5 hours and go. The all have other jobs so this one is just “extra” and making $20+ per hour for two hours works fine for them. We generally do not have kitchen people leaving before 3 hours but if we do there is nearly always a volunteer.

It really doesn’t matter what the reason is. California will grant benefits no matter what. An employee can quit on their own and just claim to they haven’t found another job. Had an employee recently granted benefits when he got in a fight with his girlfriend, quit without notice and moved back in with his parents. The rep cited extreme financial hardship since he couldn’t afford a place on his own. It’s a sanctuary state for people not to work if they so choose.