“From a manager and operational standpoint, the labor reporting has been invaluable. Our managers today have a better understanding of how to manage labor throughout the week so when the weekend comes, we’re not worried about overtime and excess cost.”
– Michele Lurye, Office & Financial Manager of JHG Restaurants
Walid Jamal tells the story of the American Dream through his company, JHG Restaurants’ Michigan IHOPs. His family emigrated from Lebanon when he and his brother Rabih were young. Their first jobs in the U.S. were as server and busboy at their local IHOP. Later, while Walid and his brother were finishing college, the franchisee reached out with an opportunity.
Rabih stepped away from a full-time job to pursue the opportunity, and Walid started working weekends while in college before graduating and jumping on board full-time in 2006.
Yet for years, Michigan IHOP franchisee JHG Restaurants struggled with cumbersome accounting processes and to produce reports that were timely enough and intuitive enough to be used by managers to effectively grow margins.
R365’s scheduling module has been especially useful, helping managers build weekly shifts according to historical labor data and forecasts. Managers can further sharpen labor costs by using actual versus theoretical reporting to find all sorts of variance, including when team members are clocking in too early or too late.
The adaptability and innovations of Restaurant365 are extremely important to me. I know there’s always a new tool or technology that will help improve my business, and I always want to be working with a company that truly serves its customers by making managers’ jobs and the company’s job easier.”
Walid Jamal, President
JHG Restaurants
With the help of actionable data and reporting, store managers can help control labor costs, without negatively impacting the customer experience or employee retention rates. If you want to understand the details of your labor costs at the store level, here are some fundamental concepts and metrics to track.
Overtime pay is typically 1.5 times the regular pay rate of an hourly employee, which can quickly start to increase labor costs for a restaurant. Even if it’s just a little each week, employee overtime can add up quickly, leading to a large impact on your bottom line over a month or quarter. Most restaurants aim to use employee scheduling or labor tracking tools that can catch overtime in the labor data, correcting issues before they happen.
From a manager and operational standpoint, the labor reporting has been invaluable. Our managers today have a better understanding of how to manage labor throughout the week so when the weekend comes, we’re not worried about overtime and excess cost.”
Michele Lurye, Office & Financial Manager
JHG Restaurants
Because your actual dollar amount for labor cost can fluctuate day-to-day, restaurants typically calculate labor cost as a percentage of sales. Your labor cost percentage represents how labor hours are tracking with your sales (revenue).
You can calculate your labor cost as a percentage of sales for a specific period using this formula:
Total Labor Cost / Total Sales = Labor cost as a percentage of total sales
This data can even be broken down into individual time periods. Understanding your labor cost as a percentage of sales on an hourly, daily, and weekly basis can help you spot trends and see what day parts you can improve.
Your sales per labor hour (SPLH) tracks sales alongside your labor hours. SPLH is one of the key indicators of labor productivity. It tracks which service times are the most productive, and which can be improved. This same concept can also be applied to the number of guests you serve per labor hour.
With information from your POS system, you can track time for staff alongside sales reports (or customers served). A low SPLH may indicate employee scheduling issues like overstaffed shifts. A high SPLH may hint that your shifts are understaffed, which can result in poor customer service or negative employee morale.
Understanding the optimal goal for SPLH or guest count, broken down by day part, can help you maximize the results of your labor spend.
You know that your front-of-house team is critical to healthy sales levels and a positive customer experience. But how do you track FOH performance over time?
In addition to your sales per labor hour, you can get even more detailed than SPLH by calculating your sales per server hour. This is calculated by dividing total server sales by the number of service hours worked.
Sales per server hour data can help showcase the efficiency of your servers. If the numbers could use improving, you can consider store-level training, such as a refresher on how to upsell tables. Training servers on how to suggest food and drink pairings can help maximize sales.
In addition, once you understand your sales per server hour, you can analyze any potential issues with overstretched staff that can result in negative customer service. If servers are having issues with table turnover rate, you may need to adjust goals for this metric. And if your service standard is very high, as with fine dining, your sales per server hour may look different than if you are a quick-table-turn family restaurant.
Average sales per server differs from sales per server hour. Sales per server hour can help you look at the entire team. However, it doesn’t track the success of individual team members. Examining average sales per server can help you examine individual team member performance.
Calculate the average sales per server by dividing total sales for an individual server by the total number of guests served by that same individual. By comparing these data points, you can understand how effective a server is at upselling or maximizing sales.
This metric can help you leverage your high-value restaurant employees in your scheduling. Your servers with the highest average sales should be scheduled during peak business hours to increase your revenue while improving your margins on restaurant labor cost.
However, it’s necessary to look at these numbers in context. It’s important to note that the highest average sales aren’t necessarily always the goal. There is a balance between optimal sales levels and optimal customer service. You may also need to consider the scheduling requirements of your servers, who will need to work enough hours to make a living without experiencing burnout. Without these considerations, you may otherwise experience high turnover.
You can also examine your labor cost by staff role. Detailed costs show what each role is contributing to your total labor cost. By understanding how your labor cost differs across teams, you can take a more granular approach to optimizing labor, team by team. And as you understand the differences between staff, you can also set and track labor percentage goals by role.
Every store manager should be tracking restaurant labor costs, from the nitty-gritty details to the high-level metrics. With the right technology tools, store-level managers have access to data-driven tools that can optimize labor costs.
If you would like to easily track labor data and gain insight into your operations to increase efficiency and boost profits, consider a comprehensive, restaurant-specific management solution.
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