The Key to Controlling Labor Cost: A Shift-by-Shift Strategy to Create a Winning Labor Budget

Operators can easily be overwhelmed by the endless succession of challenges when it comes to managing labor cost and dealing with employees on a daily basis. Ever-changing factors such as high employee turnover, federal and state labor rules, increased cost-of-living expense and inconsistent sales volumes are just a few of the inexhaustible challenges confronting the average restaurateur as they fight to keep labor costs under control.

While the war on labor cost may never be totally won, the day-to-day battles can. The key to winning is to view each and every shift as an individual battle. You must have a battle plan if you expect to win more than you lose. Likewise, you must consistently execute the plan to accomplish your objectives.

Having a comprehensive labor budget is a must when preparing the best possible battle plan. Unfortunately, many operators misunderstand the concept of a labor budget. For instance, year after year, the National Restaurant Association's Restaurant Industry Operations Report reveals that the median ratio of labor cost vs. sales across all restaurant types is about 33%. This figure fluctuates when segmenting the results by check average, service style, menu theme or even sales volume. Some operators may refer to this or other similarly-patterned industry reports to create a fixed labor percentage target for their own restaurant; their thinking being that if they can hit a 33% labor cost then they can be profitable. But this approach to budgeting simply won't work. Effective budgeting requires planning, observation and historical analysis. If you are not prepared to take an analytical approach in preparing your restaurant-specific labor budget - and an ideal labor cost target - then you may as well scribble percentages on the rings of a dartboard and hope that your dart lands on the bull's eye.

In order to create an ideal labor budget you must first create the ideal schedule. One of the biggest mistakes an owner or manager can make is to post the exact same schedule, day after day and week after week. Every restaurant has peaks and valleys with respect to customer traffic and overall sales. No two meal periods are alike and no two days of the week are alike; therefore, your schedule must change accordingly.

Fortunately, there is a proven formula for creating the ideal labor schedule. This formula requires a blend of historical data combined with the experienced assumptions of the operator. The historical data you'll need is the sales and number of guests served for each meal period. This information is readily available from you point-of-sale (POS) system. Additionally, you'll need to prepare a staffing guidelines chart and a master schedule for reference.