Labor Percentage Related to Sales Numbers

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PizzaJack

New member
Hello to all of you Pizza aficionados, I am a new member and desperately need some help. I’m having a major dispute with my partner( a 30 year friend)concerning the labor, among other things required to run our restaurant. I help out when I can but I run another business. We are a full service restaurant doing about $6,500 to $7,000 per week. We are running at 30%($2050) not including SS and Taxes. We are about 60% Pizza\Stromboli 25% sandwiches and 15% dinners. We average 1400. on Friday night from 4:30 to 8:00 and have 4 making the food one counter girl and 2 servers sometimes takeout is 65%. WE probably make 50 pizzas and 10 strombolis. One Friday they actually quoted a customer 45 minutes for a walk in order. WE have 2 ovens capable simultaneously cooking 12 16" Pizzas at a time. My questions is my labor percentage high? What is optimal? What should the food cost be for and item Ie 16’ Pizza w 9oz of grande cheese? I think our food costs are over 32%. WE are paying our loan back but there is it no profit yet. There is a lot of down time in the afternoon but my partner says he needs people to prep. Any any suggestions\advice would be greatly appreciated. FYI he is not taking a salary just our loan payment each month and now he wants a salary that we can’t afford. I do not want him to work for free, but we can’t afford anymore payroll. I think he needs to work harder and cut back on other employees hours. Incidentally, because our pizza guy quit, he decided on a Saturday to close on Sundays without giving our customers any notice and had previously cut our Sunday hours with one weeks notice. Who closes on a SUNDAY during FOOTBALL Season? One final thing; he routinely closes and leaves the building 30 plus minutes prior to our published menu time(s) and clean-up starts 90 minutes prior.
PS He has been there over a year and still takes 3 minutes to make a pizza; is that normal? Thanks for reading!!!
 
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IMO:
Sounds like he is burnt out. He probably feels like this is a thankless job. When you feel like the business is your own you work harder. You think of ways to make it better. You don’t go home early. Put yourself in his shoes.

What you need to do is ask him if he thinks there can be any labor cuts. Ask him to shop around for a distributer with better prices. Raise your prices because your labor and food costs including SS and taxes should only be 50% of your sales. Most of us keep it at 25% food cost and 25% labor cost.

Tell him you will split the profit with him in a way that is right for your partnership.

PS. 3 minutes to make what kind of pizza? If its just one topping then that is too long.
 
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You didn’t say what the arrangement is. Equal partners? It doesn’t seem so if he is putting in more hours and not taking anything for it.

Hard to comment without knowing the arrangement but he is not acting like he is happy with it because he could be doing more. Not happy or just burnt out as it would not make sense to close Sundays if the place is not making a profit.

In any case, his actions do not indicate he is concerned with making it a go but maybe yours aren’t either??? Like I said though, we don’t know what the partnership agreement is.
 
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Sounds like your labour is way too high because you have too many staff.

We do 50 pizzas plus side dishes Mon - Wed with 1 on the make line, 1 counter staff and 1 driver. Friday (between 5 -9) we do 200 pizzas plus sides with 2 on makeline, 2 counter staff, 1 taking pizzas off the line and boxing/cutting, 2 drivers, plus me and two, one juniors doing dishes and one minor prepping (no knives or equipment). Saturday is around 150 pizzas with a couple of less staff.

I think you need to train staff to work more effectively, more efficiently and more smarter (not necessarily harder) and reduce the number on the makeline by half. I bet the staff on duty are slow, unmotivated, disinterested and poorly trained an poorly led going by the wait time and the quantity put out in the hours quoted.

If your partner is taking 3 minutes to make a pizza then the staff will follow this example.

Time to sit down withyour partner and thrash things out and then get yourslf into the shop and start hitting the “work or walk” button, because I bet my bottom dollar the partner is too pre-occupied with the business to drive the staff to better productivity. He has probably lost motivation working the hours for no return and not having you there to share the burden. He is probably also p1ssed off with you not being there enough to help, depsite you having another business.

So yes labour is way to high but this is easily fixed. Food costs are also too high but not knowing your pricing comments can’t be made but my little experience tells me that food costs will go up with poor productivity for some strange reason. Poor trained/motivated/directed people will not use the weighing or portion control measures and this blows out costs.

To be blunt I think the problem is a combination of what I have listed about staff, your partner and more importantly you not being there enough to help out and manage the palce as well.

Dave
 
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wa dave:
We do 50 pizzas plus side dishes Mon - Wed with 1 on the make line, 1 counter staff and 1 driver. Friday (between 5 -9) we do 200 pizzas plus sides with 2 on makeline, 2 counter staff, 1 taking pizzas off the line and boxing/cutting, 2 drivers, plus me and two, one juniors doing dishes and one minor prepping (no knives or equipment). Saturday is around 150 pizzas with a couple of less staff.
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Disregarding delivery drivers, then wa dave makes (sells):

50 pizzas plus sides / 2 staff = 25 pizzas plus sides per staff person
200 pizzas plus sides / 8 staff ( including Dave) = 25 pizzas plus sides per staff person
150 pizzas plus sides / 6 staff = 25 pizzas plus sides per staff person

I detect a trend.
 
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Our POS is set up to track “product” which are individual items that create work for an employee. A pizza is a product. An order of sticks, wings, or a salad is one. Also, a signature pizza order counts as an extra product since it is a bit more involved to make than a simple one-topping pie.

With that in mind, we figure that the manager alone can handle 17 product in an hour comfortably. With an 2nd person in the kitchen, each can handle 20 product. A third means they can all do 23 product each and 4 or more goes up to 26 each. The thought is that people work more efficiently when they can focus on fewer tasks - doing everything by yourself can be pretty hectic whereas 5 people all working on only one job can stand at their station and crank out the food.

Every setup is different. Our kitchen guys have to expedite/cash out carry-out orders and they also answer phones when all the drivers are out on the road. And now that I think about it, I haven’t rechecked our numbers since I set them at the current levels a few months back - we used to schedule by $-sales but that wasn’t working as well as it did 10 years ago… might be time to “tighten the screws!”
 
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Well I see a lot of different issues going on.

First you say you are running 30% labor (without taxes and I assume work comp) yes this is high. BUT you can only cut labor so much before you realize labor is not the problem…sales are. Sure there are a few things you can do to trim up your labor and I would look at your procedures to see what can be simplified in order to expedite orders.

You can also trim the schedule. You don’t need everyone coming and going at the same time. Staggering people in and out will trim a few hours. We have a pre closing list of duties for the early outs. Then someone stays and closes and you will be amazed how fast they are able to get done because they want to leave.

As for your food cost if you don’t know it, you can’t control it. Are you free throwing toppings? How do you know you use 9 oz of Grande on each pizza? Do you know your ideal food cost? (Meaning if all things are portioned correctly how much does it cost? How does that compare to what your actual costs are?)

We are closed on Sundays and it was the best decision we ever made. It allows us a day to regroup and refresh for the coming week. Sure the tactic was a bit off but none the less he is burnt out and trying to salvage what energy he has.

As for the closing early, if you are consistantly NOT getting orders in that last hour why not just change your hours?
Better to be closed than have people call to order and no one answers.
 
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(had to start a new post window messing up)

As for ideal percents. You can run 25% labor all day long and still not make a dime…Why cuz your other costs may be off the mark.

Make yourself a spreadsheet. Start with 100% (Projected Sales) and work your way down. Start with your rent, loans, and fixed expenses. What is left can be broken down into variable costs like food and labor and profit.

You can also make yourself a spreadsheet for labor. We track our labor day side and night side (by hand) everyday. We know how much we are over and make adjustments as we go. It helps us find the areas which are eating away our labor. We find day labor has to be higher because we do alot of prep during the day. Come up with an average hourly rate (including taxes, ss, insurance etc) and an ideal percent like 24. Your overall day and night labor should be within your goal.
Take your sales and multiply it by your percent. (this will give you your payroll $$$) divide this by your av. hourly rate and this will give you how many hours were available. Add up your hours and subtract. This will tell you if you are over or under for the day. Keep a running tally for the week.
You can do the same thing with projected sales and projected hours in making the schedule.
Hope that makes sense??? I also want to add you have to remember your partner is in this day in and day out. He needs to feel supported by you. I am sure he is burnt out and frustrated that he is working his a$$ off and not feeling like he is making any headway.
 
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If your buddy wants a salary, then I’m guessing the pizza business isn’t being subsidized by your 2nd business. But even assuming that, there are still too many unknowns for us to be able to say much about this, as has already been pointed out. For starters, what have you done to get things where they are, vs what he’s done?

If what you guys have put into this business is pretty much equal, except for the managerial functions he’s routinely performing, then yes, he should be getting something extra out of the business. Take the average amount of hours he puts in, subtract the average amount of hours you put in, then come up with a fair salary to compensate for the difference. It doesn’t matter if the business doesn’t have the cash flow to pay him right now; debt can be accumulated in an account payable to your partner. He’ll reap the benefits once/if the pizza restaurant is raised to a point where it can afford it. If things aren’t fair, your pizza business with have a disheartened leader at the helm. Even with an appropriately sized labour pool, the business won’t operate at its peak, and you both will lose out.
 
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run our restaurant
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What’s your partnership? 50-50, 70-30, 90-10?? Managing partner, or silent partner?? Who’s in charge of operations?
partner says he needs people to prep
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1 person can easily do the prep, you can also do prep the night before. *Why don’t you come in and do the prep?
he routinely closes and leaves the building 30 plus minutes prior to our published menu time(s) and clean-up starts 90 minutes prior.
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I wouldn’t recommend that, but the question is, who can? Sounds like he can and does. Who’s in charge?
PS He has been there over a year and still takes 3 minutes to make a pizza; is that normal?
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How long does it take you to make a pizza? If you can make one in 1 minute, then demand that he make one in 1 minute.
 
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Thank you for your reply. To answer your question we are equal partners, however, there is more to the story. He is a very long term, close friend, who was 43 and out of work. He approached me to start a Pizza business, and despite our mutual friends saying “DON’T DO IT” I reluctantly agreed. I run a successful technology business and my time has to be dedicated to that endeavour. I help out when I can I have four children under 13 and my priorities are with my family. My partners children are older. Having said that, there are many other factors that are too numerous to list in this forum. I do not want my GOOD FRIEND to work for free, however, if the business i not making a profit, where does the money come from to pay him or the employees. I have alreday put additional capital into the business (he hasn’t) and have not made a dime. Burnt out or not, the fact remains that he is doing nothing to make things better. Closing early, closing on Sundays with no notice to our customers, not shopping pricing; the list goes on and on. When I started my other business in 1993 I worked countless hours to make the business a success. Believe me, I am not bragging, I want this business to be a success, but where do I draw the line. I dine here with my family of six and pay for my food. His children\wife dine and do not pay for a thing. How can I complian when he makes minimal money for working. I just need to get my facts straight before I approach him with my concerns. I have tried before and i get the “YOU DON’T UNDERSTAND” reply. I worked eight days when he was on vacation, and although you might say,“only eight days”, it was not bad at all. My suggestions to make things run smoother fell upon deaf ears. I getting to the point of apathy and that is not good ! Again, thanks for your reply.
Jack
 
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Whether or not the business is making money if you are equal partners, with equal investments, you need to continue to invest equally into the business. He has put his time into the business, and you have put additional capitol into it. Do these figures equal out? Just because you have another business and younger children doesn’t give you the right to skip out on your part of the investment. If you can’t put the time in, you should reimburse you partner for the time he spends. Until the business is profitable, this should come in the form of capitol infusions to keep the business afloat. You worked countless hours at your other business to make it a success for you. You can’t expect your partner to work the same countless hours to make this business a success for both of you.

That said, labor percentages will vary by menu, business concept ect. 30% plus payroll taxes isn’t terrible unless your service is slow which it sounds like it is. As far as hours of operation, the two partners need to come to a consensus that is stuck to no matter what. These have to be a consensus, it can not be you dictating the hours unless you have a higher stake invested into the business.

EVERYONE out there who wishes to enter any business in a partnership needs to read this thread again and again. This is why a partnership agreement must be drawn up by an attorney with legal recourse if agreements are not lived up to. I know many friendships that have been ruined by business partnerships. One of, and commonly both partners, feel like they are getting the short end of the deal. It’s also harder for someone to put their heart and soul plus every moment of their life into a business that they will only reap half of the reward from. It seems like an easy way to get started in business by pooling resources, but many times it just leads to one or two people only half way trying to barely keep a business afloat.
 
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I agree with Paul on this 100%; you don’t say if you had a partnership agreement but its the key to any partnership working when there are issues no matter how good the relationship is/was at the beginning of the venture. I’ve seen partnerships go wrong both in my time in this industry but also prior to that in the financial industry when I have seen families ruined by fallouts, forced sales, deaths all of which had no ‘agreed’ solution (partnership agreement).

My advice is try to and discuss this issue dispassionately and if you can not do it between the pair of you seek some professional mediation in order to agree the steps to fix these problems and get a formal agreement in place.

re the labour figure - personally 30% based on your (low) sales doesn’t seem too bad (not ideal) but there is a limit to how little labour you can have versus low sales.

Best of luck with this one!
 
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You say that you’ve already put “additional capital” into the business, so does that mean that the two of you, being “two equal partners”, equally contributed to the business’s starting capital?

How much more, precisely, have you put into the business than he has? And how many more hours, approximately, has he put into the business? Multiply those hours by whatever you think is fair, whether that be $1/hr, minimum wage, or $10/hr and see how two compare in terms of overall contributions to the business. You mentioned that “he makes minimal money for working,” but what does that mean? Number are helpful, but generalizations… not so much. You need a solid, thoughtful starting point if you want to confront him with your grievances. If he’s putting more time into this business than you are (you’re also putting your time into the business whenever you contribute money, and your working time is, quite frankly, worth more, so you win there), then he may need to be compensated.

I say “may” because there are some other things going on in the background. You mentioned the family dine-ins. Your family is paying and his is not. Well, where are the numbers? If his family is dining for free, then all of that should be on paper so you know where things truly stand. Accounting is even more essential in a partnership than a sole proprietorship! How many times, and how much? All of this should be known.

Apparently owners don’t get to eat for free, but managers do? If the business were successful enough for you two to hire a manager, is this the deal you’d want to give him? Free food? All his/her family can eat, for free? Well if that’s not the case- if instead the manager would get what the other employees get, then really this is would your partner should be getting. Anything above that is a form of payment. Figure that stuff out! Let’s see some numbers!

And where does this man’s personal income come from, if he’s not receiving much of a salary from your guys’ business? Is he drawing off savings/investments/family? If the man’s overextended himself financially, at home, then you’d really better give him something to look forward to (I’m saying this under the assumption that after the math’s done, he’s put more time/money into this than you). You say “I do not want my GOOD FRIEND to work for free, however […] where does the money come from;” however, as I said in my last post, “debt can be accumulated in an account payable to your partner.” If this is more about fairness/morale than financial relief for you partner, then this is all that needs to be done; your business doesn’t have to be making money at the present time for you to offer this to him.

Like you said, get your facts straight. You’ve got to get all this stuff, and more, on paper, approximating whenever you run into any unknowns. If you don’t have all these numbers, then you both run the risk of being hasty while defending your own interests, compromising your friendship.

Good luck!
 
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I agree that he seems burnt out. However, is there something you can do to help him out? It may not even be pay. I dont recall reading how long he is there each day. Have you offered to go in a night or two a week and work in his place so he can have some off time? Are there things you can do for him, such as figuring your labor percentage, taking inventory and figuring food, etc? Other than the physical counting of inventory, you can do all of those things from home. Possibly work on some advertising and ideas from home too. The holiday season is coming up, why not have some christmas cards printed up and send them to your regular customers (preferably handwritten or at least signed individually). You can do that from home and could possibly even get your kids to help. You could even get a list of your new customers every week and send them a handwritten postcard or thank you card to thank them for giving your place a try.

Running 30% labor on 7k a week that doesnt include your partners hours, I feel is high. How much are you paying your employees? Start a contest amungst your kitchen staff. Learn to make a good pizza quickly or find someone that can do it quickly and challenge your staff to a race. If they can do it just as well and just as fast as you or the person you found, they win $50 or so. In other words, find a way to make them faster and better at their job. Come up with some incentive plan for everyone to make them work harder, such as holiday parties or awards throughout the year. If they feel appreciated, they’ll work harder for you.

While the business may have been his idea and you have another business, this business is yours too, and you are obligated to help it succeed as much as you can. I’m not saying that you should drop your family down from being your first priority, I’m just saying that i doubt their lives would be ruined if you worked 1 night a week or left for an hour or so here and there throughout the week to help your partner with the business.

He should start receiving some sort of payment, even it is just on the books as being owed to him in the future.

Finally, closing sporatically before your posted hours has to stop. It has a negative appearance for your business to your customers. If you two feel the need to reduce your posted hours, then do so, but dont just close early because he doesnt want to be there.
 
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Thanks for your reply. I have to clear up a few things. The deal we had was for me to handle the books, payroll, any technology (that’s my other business) help out when I could and not to be ther on a regular basis. Like I said I have another business and I have 4 children who still care that daddy is around. (only one teenager) I have tried for 8 months to make the place run smoother, however, the response I get is you don’t understand. We’ll I run a $5
Million Dollar Business and I do understand. I research everything that I do and don’t base business decisions on opinions. When i look at the video cameras all I see is him standing at the counter and other friends have also said to me all he does is stand around and boss people around. The staff does not respect him because they think he is lazy. Sometimes he takes naps for two hours in the afternoon. I am not the bad guy here; I was simply trying to help out a long term friend. Everyone gets burned out. Hiring more people is not the answer when you are losing money in a pizza shop. Again thanks for your reply. I will use the info you provided to make a case to my partner. I want this to succeed but I am ready to pull the plug because I don’t need to keep sinking money into a business that he is running into the ground.
 
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Thanks for your reply. I understand all of your points and they are valid. However, short of explaining the entire story, I didn’t sign up for what is happening and there is no partnership. He does what wants regardless of the effect it has on the business and wants me to foot the bill. Our menu states that we close at 10:00 PM why is he continually walking out at 9:30.? He shortened the hours twice already, (the staff still gets paid as if they were working the longer hours) without consulting me. I was ok with it, as long as notice was given to our customers. All I simply asked, was what are standard ratios. I am just trying to figure out if we need to cut some staff.
Thanks again,
Jack
 
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Thank You. I have thought about bringing in a consultant, however, it seems that no matter what I say it falls on deaf ears. I know it is hard in this forum to tell the entire story but I am not a greedy bastard who has his hand out at the end of every month looking for a check. I have actually turned down money that he has offered me and told him to keep it. I’m not sure he would listen to a consultant but it’s worth a try. He is a Taurus a stubborn Bull and I am an Aries a Ram so I guess we need your well wishes.
Thanks Again,
Jack
 
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I think I have opened a big can of worms here and would need a post as long as War and Peace to explain the entire situation. I have tried to get out and let him run with it but he won’t sign the papers. All I asked for was 7% interest on the remainig portion of my loan and the business was entirely his. He won’t sign. Therefore, I am stuck trying to figure out a way to see how I can make this better. He is not making money because he is doing nothing to make the business better. I was told by our main guy in the kitchen that he likes when I am there because my partner helps. They state that he is always in his office surfing the internet. We raised prices last year when we took over and we are right in the nieghborhood with everyone else in our area. I have treid to get him to cut labor costs because raising our prices in this economy will most likely hurt our business. Portion control is another issue. We have already switched suppliers to l ower our costs. If we are at 30% plus percent labor excluding taxes and we add another salary to the mix we will be closer to 40%. We made $1300.00 last month and he took that as Salary, (I was fine with that)plus he pays his wife $320.00 per month to run around and pick stuff up because he is too lazy to do it himself and doesn’t order properly. His wife works Monday to Thursday. She waitresses on Friday and Saturday and makes about $200.00 per weekend in tips.
His sons was the dishes and he pays them 25.00 for 3 hours work. Additionally, he makes money on deliveries. This summer most Fridays I was pulling and cutting pizzas sweating my butt off, after working all day at my other job, while he was out on deliveries. I haven’t asked for a dime for any of my time, how can I when we are just making it. Maybe I am getting a bit defensive but I am not the bad guy here. There is much more to the story and I have stories that would blow your mind. I guess I need to get out. I was supposed to be a silent partner. One final thing. I made sure we had $20,000 additional working capitol when we purchased the business. He blew through that in 3.5 months.
 
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