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Created a labor target for Manager I am happy with

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bodegahwy

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Over the years I have tried a number of ways to produce a labor target for my GM to hit and receive a bonus. Even though straight percentages work for me, it never seemed to work well with my managers… I started a new method a couple of months ago and am finding that I am happy with it.

Over the years, like most stores I would guess, we have done well, and not so well at times in hitting labor costs that I want to hit. I took the last three years as a starting point and broke down how many hours labor we had for every pay period. (That comes to 78 pay periods) I then took our sales for each of those pay periods and correlated them to the number of hours coming up with revenue per hour worked.

When I looked at the numbers it was clear that the busier we are the better we do in general and that a single revenue/hour target was not appropriate. I ended up creating four brackets of sales volume and calculating the average revenue per hour for each and also taking note of the best numbers we had achieved in each bracket. For example, we might run $38 revenue per hour when we are pretty busy and only $25 per hour when we are slow.

I set a goal for each bracket. The goal was a number that we had achieved in the past a couple of times but in every case better than we had been averaging for that bracket. I felt it was important for the number to be one that we had hit in the past for the managers to see that it was a reasonable target. For example, if a sales bracket is $12,000 - $15,000 per week (24K-30K per pay period) the goal might be $42 revenue per hour where a bracket of $8,000 - $12,000 per week might have a target of $38. When the manager runs the payroll report he can see the total hours worked. Simply divide revenue by hours. If revenue for the period was 25,000 and the goal is $42 he needs to show 595 total hours or less to hit the goal. This is a calculation that can easily be made from data on our POS at any time during the pay period so he can track how he is doing. He can also look at how many hours he has scheduled and the revenue forecast and see if the schedule makes sense.

If the team hits or exceeds the goal the manager gets $1.00 per hour extra for the pay period and the assistant managers each get 50 cents per hour.
 
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I also think this is the way to go. We moved to a weekly hour budget about 5 years ago and it has worked out very well. We have seen a substantial increase in sales per labor hour doing it this way. It is much simpler for the managers to manage. I could never seem to get a solid budget using a percentage system. We have a chart that list the ideal hours for the weekly sales and the bonus is based off that.
 
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Interesting concept, i can see the advantages over using a % based system. I personally have never liked the % based system because of the problems of it not scaling between higher and lower volumes and maintaining service levels. This is going on my todo list.
 
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pizzapiratespp said:
I also think this is the way to go. We moved to a weekly hour budget about 5 years ago and it has worked out very well. We have seen a substantial increase in sales per labor hour doing it this way. It is much simpler for the managers to manage. I could never seem to get a solid budget using a percentage system. We have a chart that list the ideal hours for the weekly sales and the bonus is based off that.
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Does this change based on the store? If so, how does that change? Where do you get the 40% figure for drivers and what is your standard delivery times?
 
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durbancic said:
Does this change based on the store? If so, how does that change? Where do you get the 40% figure for drivers and what is your standard delivery times?
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Yes is does change on the store. The store sample I provided is a 50/50 delivery to carry out ratio. My other stores have a higher delivery ratio. About 65/35. Those stores have higher driver hours and higher hours overall. ( delivery is expensive ) The stores with higher deliveries do run lower food cost due to the delivery charge being tacked on and also have a higher ticket average.

Our standard delivery times at 3 of the store are about 30 to 35 minutes average. 18 to 20 minutes out the and 10 to 12 minutes at the door. These are the averages. Some customers get it faster and some get it slower. One of stores that has an oversized delivery area runs 18 minutes out the door but closer to 40 minutes to the customer door. They have an even higher delivery hour allowance because the drivers spend so much time on the road. We burn through a good 700 to 800 hours a week just for drivers.
 
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pizzapiratespp said:
Yes is does change on the store. The store sample I provided is a 50/50 delivery to carry out ratio. My other stores have a higher delivery ratio. About 65/35. Those stores have higher driver hours and higher hours overall. ( delivery is expensive ) The stores with higher deliveries do run lower food cost due to the delivery charge being tacked on and also have a higher ticket average.

Our standard delivery times at 3 of the store are about 30 to 35 minutes average. 18 to 20 minutes out the and 10 to 12 minutes at the door. These are the averages. Some customers get it faster and some get it slower. One of stores that has an oversized delivery area runs 18 minutes out the door but closer to 40 minutes to the customer door. They have an even higher delivery hour allowance because the drivers spend so much time on the road. We burn through a good 700 to 800 hours a week just for drivers.
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Just for example, what percent do you allot for those stores with higher delivery? We average about 60% +for delivery.

Dan

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Pulling payroll now…will put some numbers to work and see what it looks like. Great post!
 
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What I did was take the total number of “extra” deliveries for the week.
Store A with the 50/50 delivery does at 20K a week and a total of 400 deliveries
Store B with 65/35 deliveries with the same sales might do 500 deliveries a week.
I take the 100 deliveries difference and and multiply that by the average minutes a delivery takes ( to the address and back ) about 15 minutes.
So 100 deliveries times 15 minutes = 1500 minutes or 25 hours.
The 25 hours will cost another $300 in labor and $150 mileage. Then we will collect about $300 in delivery charges. We make up the $150 in mileage with a higher ticket average that deliveries have.
 
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I have actually always trained my managers to staff this way but then focused on % when in reality say in my slower store they do not meet eye to eye as I have strict staffing guidelines to push growth and service but then it is impossible to hit a %. Maybe this approach will make it more clear to my managers what I am actually focused on, which is service.
 
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The hour system makes payroll much easier to run for managers at all levels. I wish I had implemented it much earlier than I did. I might be retired by now. It’s funny, I knew this system all along. Back in the 80"s I spent about 6 months working as an assistant manager at a auto parts chain. ( worst job ever, everyone walks in mad because their car in broken ) They used the hours per week system. I moved to pizza world a couple of years later and some how forgot all about it.
 
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pizzapiratespp said:
What I did was take the total number of “extra” deliveries for the week.
Store A with the 50/50 delivery does at 20K a week and a total of 400 deliveries
Store B with 65/35 deliveries with the same sales might do 500 deliveries a week.
I take the 100 deliveries difference and and multiply that by the average minutes a delivery takes ( to the address and back ) about 15 minutes.
So 100 deliveries times 15 minutes = 1500 minutes or 25 hours.
The 25 hours will cost another $300 in labor and $150 mileage. Then we will collect about $300 in delivery charges. We make up the $150 in mileage with a higher ticket average that deliveries have.
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Would you think that this guideline would apply in most all situations? Obviously, every store is different, but you could probably apply that rule across the board. Some shops might have to prep a little more things, etc. but overall? I guess this is assuming that your baseline numbers (the 50% example) are accurate.
 
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durbancic said:
Would you think that this guideline would apply in most all situations? Obviously, every store is different, but you could probably apply that rule across the board. Some shops might have to prep a little more things, etc. but overall? I guess this is assuming that your baseline numbers (the 50% example) are accurate.
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I guess you could use it as a starting point. What I did was take a week that ran good. Delivery times were good and payroll % was good. We didn’t have times where we were getting crushed and also little or no down time where people were having search for things to do. I totaled up the hours for that week and made it my ideal. Now we have made adjustments to the hourly budgets time and time again. The ability of the staff grows and shrinks at times. If you have a bunch of new people you are going to need more hours. If your crew are veterans you can run with less hours. We also adjust the hours every time we do a price increase. If we raise prices 5% you should re configure you chart or your price increase will just go out the door and you have become just a money handler. A simple example is:
Current sales = $10,000 a week and hourly budget is 300 hours
Current sales = $11,000 a week would be a budget of 316 hours
Raise prices 10% and your $10,000 week now becomes $11,000 so your new budget for $10,000 will be 284 hours and 300 hours for $11,000. We use 16 hours per $1000 in sales currently. That may be smaller or larger depending on what payroll percent you are attempting to run. We shoot for about about 17% for inside crew, drivers and prep. Managers are on top of the 17% and account for 150 to 170 hours per week, and run about 15% for the 4 of them.
 
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I know this is an old thread, but this is seriously great stuff! I’ve been digging through my numbers all day using this concept.
 
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Two years later we are still using this. We do not always hit the bonus but everyone is thinking about it. Somewhere I think I posted about it some time ago, but I added another component to this to keep it top-of-mind: Every night the closing manager sends me a text message. It looks like this: $1520 19.5 -$2.70 31.2 what that message would mean is:

$1520 net sales
19.5 minutes door time
Cash short $2.70
31.2 total labor hours worked.
 
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bodegahwy said:
Two years later we are still using this. We do not always hit the bonus but everyone is thinking about it. Somewhere I think I posted about it some time ago, but I added another component to this to keep it top-of-mind: Every night the closing manager sends me a text message. It looks like this: $1520 19.5 -$2.70 31.2 what that message would mean is:

$1520 net sales
19.5 minutes door time
Cash short $2.70
31.2 total labor hours worked.
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Can he text me too? I’d like to see those crazy Christmas ski sales.
 
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