Question 1

What is labor cost percentage?

Accepted Answer

Labor cost percentage is the total cost of all your staff (including wages, salaries, taxes, benefits, etc.) expressed as a percentage of your total revenue. It's one of the most significant and controllable expenses in a restaurant, making it a critical metric for financial health.

Question 2

What should be included in total labor cost?

Accepted Answer

Total labor cost is more than just wages. For an accurate calculation, you must include:Wages & Salaries: For all staff, from hourly employees to salaried managers.Payroll Taxes: Employer contributions for things like Social Security and Medicare.Benefits: Health insurance, paid time off, and other employee benefits.Other Costs: Workers' compensation insurance, uniforms, and training costs.

Question 3

What is a good labor cost percentage for a restaurant?

Accepted Answer

The ideal labor cost percentage varies by restaurant type, but a general industry benchmark is 25% to 35% of total revenue.Quick Service: 25-30%Casual Dining: 30-35%Fine Dining: 30-40% (often higher due to more specialized, higher-paid staff).

Question 4

How can I reduce my labor costs without firing staff?

Accepted Answer

Reducing labor cost is about efficiency, not just cutting headcount. Strategies include:Schedule Optimization: Use sales forecast data to schedule staff according to your busiest and slowest times, avoiding overstaffing during lulls.Cross-Training: Train employees to perform multiple roles (e.g., a host who can also bus tables). This creates a more flexible and efficient team.Improve Productivity: Invest in technology (like a modern POS system) and streamline kitchen and service workflows to help your staff do more in less time.Reduce Turnover: High turnover is expensive due to hiring and training costs. Focus on creating a positive work environment to retain good employees.

Question 5

What is "Prime Cost" and how does labor cost relate to it?

Accepted Answer

Prime cost is the sum of your total food and beverage costs (Cost of Goods Sold) and your total labor costs. It represents the bulk of your controllable expenses. Most restaurant operators aim to keep their prime cost at or below 60% of total revenue. Managing your labor cost is a critical part of keeping your prime cost in a healthy range.

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