Restaurant labor cost percentage: formula, benchmarks, and how to lower it

The formula

Count everything you pay for the work: hourly wages, overtime, salaries, payroll taxes, and benefits. Some operators leave salaried managers out and some leave them in. Either is fine as long as you choose once and keep to it, so the trend stays comparable.

A worked example

Take a week with $40,000 in sales. Hourly wages were $10,200, manager salaries were $2,000, and payroll taxes and benefits were $1,800.

What is a good labor cost percentage?

It depends on the concept, the service style, and how much of the crew is fixed. Many full-service operators aim for roughly 25% to 35% of sales, and counter-service concepts often aim lower. Treat a range like that as a starting point.

Because part of the crew is there whatever the sales, labor percentage falls on a busy week and rises on a slow one. Compare weeks with similar sales, not a slow Tuesday with a full Saturday.

Sales per labor hour

A companion number is sales per labor hour, which shows how much each hour on the schedule earned.

Where labor cost leaks

Most of the avoidable cost sits in a few places:

• Overtime, especially when it is found on payroll after the week is over
• Schedules built from last week's guess instead of a forecast
• Forgotten clock-outs and punches left open
• Shifts that start early or end late without anyone deciding they should
• Cuts made too late in a slow night, after the cost is already spent

Catch it before payroll does

The fix is timing. Overtime that is predicted days ahead can be rescheduled; overtime that shows up on payroll two weeks later can only be explained. Comparing the schedule with the sales forecast, and checking punches against the schedule every night, moves the discovery from the end of the pay period to the middle of it.