Article

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.

Forecasting Guest Counts by Meal Period

The most important element of scheduling is to accurately forecast the number of guests you anticipate serving for any given shift. If you predict too low then you may end up being understaffed for the shift. Too high and the problems associated with overstaffing occur. Accurately predicting customer counts requires knowing historical customer counts. Customer traffic may vary from day to day and week to week, but over time patterns are established. The chart below illustrates this point:

Note that over a nine week period of recorded customer counts, this restaurant had as few as 92 customers on a Friday night, and as many as 151 customers. That's more than a 60% swing in customer counts on any given Friday. Even so, the pattern established by tracking customer counts reveals that the six week average for Friday nights ranges from 120 to 125 guests. If you create a schedule to handle the average expected number of customers, then it will be easier to react to sporadic increases or decreases on any given night.

Another great benefit of using your POS to track customers is that most POS systems have the ability to not only track customers by meal period, but also by the hour, half-hour, or even 15-minute intervals. Tracking your guest counts by meal period is good, but knowing the peaks and valleys within a given meal period can be extremely valuable when scheduling staff.

For instance, let's assume your restaurant does an average of 100 covers for lunch. If those guests straggle in between 11 a.m. and 2 p.m. at the rate of 30-40 customers per hour, then you can probably get by with a couple of line cooks and two or three servers. But let's assume that 80 percent of your total lunch traffic comes between 11:30 a.m. and 12:30 p.m. That's 80 customers in one hour. It may take an additional line cook and two or three more servers to provide adequate service.

Staffing Guidelines Chart

In addition to anticipating guest counts, it can be important to know the number of guests per hour that a particular job position can handle (i.e. server, line cook, bartender, bus person, etc.). Using the earlier example where a restaurant expects to serve 80 customers in one hour, it may be very helpful to know how many line cooks it takes to serve your menu, using your preparation procedure, to 80 guests in an hour. What about the number of dishwashers, servers or bartenders?

There is no industry standard that can be applied when calculating these numbers because each restaurant has variables unique for that restaurant. Kitchen design, dining room layout, menu and service style affect the efficiency of the production system that begins with seating a guest and ends with the delivery of the meal and payment.

Some labor experts recommend the creation of staffing guidelines; however, for startup restaurants with little or no history, determining the ideal number of staff needed to provide outstanding service can be a crapshoot. Of course, the more hands-on managerial experience you have, the better equipped you will be to estimate optimum staffing levels.

Master Staffing Worksheet

Once you have an idea of how many customers you expect to serve, and you know how much staffing is needed to serve them, you are ready to create a master staffing worksheet.

A master staffing worksheet is a helpful tool for showing the staffing requirements for each day of the week. By referring to a weekly master staffing worksheet, the preparer can verify that the proper number of staff have been scheduled for each shift. Keep in mind, the master staffing worksheet is used as a reference only. Your actual schedule should be reflective of the forecasted sales expectations for each day of the week.

The master staffing worksheet should be divided into sections for each job department such as servers, line cooks, etc. Alternatively, you could have a master staffing worksheet for each job department or, one for the front of the house (FOH) and one for the kitchen (BOH). This is handy when more than one department head is preparing schedules.

Note that the master staffing worksheet doesn't have employee names; rather it simply lists the job position in the spot where the employee's name would be. The scheduled hours for each position should allow for the necessary coverage to service the peak customer traffic times and to be able to complete other tasks such as prep work, cleaning, and scheduled maintenance. Many operators choose to create staggered shifts with overlapping starting and ending times. This way, enough staff can be available at crunch time when they're needed, then reducing the number so people won't be standing around with nothing to do once the crunch is over.

Some operators incorporate split-shifts (an employee works a few hours at one meal period, takes a break, and then works a few hours at another meal period) or mid-shifts (overlaps from one meal period to the next) so as to maximize productivity. There are varying opinions as to how this practice impacts the employee's job performance, attitude or morale. Nevertheless, it has proven to be a successful result for some operators and it provides a resolution to having the most employees available when needed.

Completing the Weekly Schedule

Using the guidelines established above, it is now time to complete your weekly schedule. However, do not rely solely on the number of recent customers. You must also take into consideration special circumstances or events that may impact routine sales patterns. Looking back to the prior year for the same time period can be helpful to identify circumstances or events that could cause a sudden increase or decrease in guest counts such as conventions, major sporting events, holidays or other annual occurrences. Likewise, depending on your concept, you'll need to anticipate increased or decreased customer traffic for certain holidays, spring break or tourist season highs and lows. Other factors such as road construction or inclement weather need to be considered as well.

One very important factor to consider when scheduling your staff is that peak meal periods only last about two to three hours. It's not realistic to have an employee come in for only a couple hours. At the same time, it's also not very profitable to schedule an employee just to give them more hours. One of the most effective ways to offset this dilemma is to cross-train your staff. For instance, additional line cooks may be needed during peak meal periods. By cross-training your prep cooks to perform designated line cook duties such as fry station or salad service, you can temporarily relieve them from doing prep duties to fill these stations. Once the rush is over they can return to their prep duties.

Cross-training can work in reverse as well. Let's assume your restaurant needs a bartender and a hostess during peak meal periods, but does not need them during off-peak hours. Having servers that are cross-trained to work the bar or seating guests can fill the void during off-peak hours.

Calculating Both the Daily and Weekly Labor Cost

The schedule form you use should make it easy to calculate the number of hours and pay rate for each employee scheduled. Calculate the total cost for each employee by adding the totals hours worked and then multiplying by the employee's pay rate. Ideally, you should be able to subtotal the hours and dollars by job department and day.

The weekly schedule becomes your labor budget. The goal for management is to stay within the budget on a daily basis. Keep in mind that a labor budget must be a soft budget. In other words, it must be flexible enough so that adjustments can be made that correlate with customer traffic patterns.

Tracking Your Labor Daily

The secret to winning the labor cost war is to win the daily battles. This is where good management practices can have a huge impact on your bottom-line. One of the most effective measures for controlling daily labor cost is to use a well-known industry tool - the manager's shift card (see example below) This form is used as a mini-day planner and includes a roster of the staff working during each shift. Each morning (or evening before) the manager lists the employees and the in/out times scheduled for each shift, along with other shift-specific notes such as daily specials, vendor orders that need placing, banquets, etc.

The primary objective of the roster is so that the manager on duty (MOD) can easily monitor that employees clock in and out according to their scheduled (and keep in mind -- budgeted) hours. It also helps an observant manager to quickly make adjustments such as cutting staff early or keeping some on based on the customer traffic patterns for that particular shift. The most effective use of this tool is to have employees bring their clock-in and clock-out time slips (most POS systems have the option of printing these as the employee clocks in and out). This practice helps to ensure that employees don't let other employees clock in for them -- and, it allows for the manager to quickly update the POS for staff that forget to clock in or out.

The effectiveness of this tool is phenomenal. It's not uncommon for the MOD to easily shave a few labor hours without affecting customer service. More importantly, this shift-by-shift monitoring of daily labor ensures budgeted labor numbers are not exceeded -- at least not unless actual sales forecast are exceeded as well.

Success Found in Having Systems

Creating a labor budget, monitoring guest counts and using tools and forms on a daily basis are but a few of the systems and controls a restaurant operator must have if they expect to be successful or able to maximize their profit potential Some operators make a good profit without having these systems, but imagine how much better their bottom-line would be if they incorporated better systems into their operations.

Being as labor cost most likely ranks as the single biggest expense category for any restaurant, it's no wonder operators view the control of labor cost as a war. Having tried and proven labor cost-controls - and management that knows how to use them - are akin to having ammunition and skilled troops. You need both to win the battles.

How to Measure Labor Productivity

Productivity is directly related to efficiency. Most restaurant operators would agree that they want their staff to be as efficient and productive as possible during the time they are on the clock. But how do you maximize and measure efficiency or productivity?

It's hard to compare productivity with industry averages because, like most industry statistics, the results are broad-based and don't take into consideration the uniqueness of each operation. Statistical benchmarks considered maximum productivity for one type of restaurant operation doesn't necessarily apply to all restaurants. Besides, most industry-average statistics are limited to labor reported as a percentage of sales. While helpful, labor cost percentages aren't a good measure for productivity.

The two most widely used methods for measuring restaurant labor productivity are to calculate the sales per labor hour and number of guests per labor hour. Chain operators use these measurements to compare productivity between same-brand corporate units.

The formula for computing these numbers is simple and can be calculated for any restaurant, whether you use a cash register, POS (point-of-sale) system or simply a cigar box to collect daily receipts. Likewise, most restaurants already have a method for recording labor hours so they can correctly report payroll.

Sales per labor hour (S/LH ) is calculated by adding all the sales for a specific period (hour, day, week, etc.) and then dividing the total by the total number of labor hours used during the same time period.

SALES PER LABOR HOUR EXAMPLE:

Period being reported: Week of 1-11 through 1-17

• Total sales reported for the week: $30,465
• Total hours worked for the week: 1,031 hours
• Sales per labor hour: $29.55 (30,465 / 1,031)

The guests per labor hour (G/LH ) is calculated in the same manner, but instead of using total sales you substitute with the total number of guests served for the period.

GUESTS PER LABOR HOUR EXAMPLE:

Period being reported: Week of 1-11 through 1-17

• Total # of guests served for the week: 2,315
• Total hours worked for the week: 1,031 hours
• Guests per labor hour: 2.2 (2,315 / 1,031)

The S/LH and G/LH during peak meal periods is where you want to focus your efforts when it comes to increasing productivity. Likewise, examining off-peak hours productivity ratios provides an opportunity to cut labor expense or redirect workers towards non-service tasks such as prep, weekly cleaning or maintenance. Ultimately you are trying to achieve the greatest amount of hourly sales possible. The only two ways you can do this is to increase your check average or increase the number of guests served. At the same time you need to keep labor hours at a level that can sustain the highest level of service while using the fewest number of labor hours.

Keep in mind one very important fact that pertains to any restaurant: For every unique restaurant concept, there is an optimum level for sales per labor hour and number of guests served that achieves the highest level of efficiency while satisfying the greatest number of guests. The challenge for the independent operator is to establish that benchmark for their unique operation.