What Percentage of Gross Revenue Should Be Payroll for a Restaurant?
According to the National Restaurant Association, labor costs for a full-service restaurant average about one-third of sales. Labor cost percentages vary for different types of food service establishments, with fine dining restaurants incurring higher average labor costs because their food and service involves a greater degree of care and attention than less expensive alternatives such as quick-service takeout restaurants. Because labor costs represent such a significant expense, the financial survival of a restaurant may depend on keeping personnel expenses under control.
Restaurant labor costs involve all of the expenses incurred with respect to paying employees, including wages or salaries, employment taxes and employee benefits. To calculate labor cost percentage, divide payroll costs by the total amount of revenue your restaurant earns. For example, a restaurant that spends $30,000 on labor during a particular year and sells $100,000 worth of food has a labor percentage cost of 30 percent.
Restaurants incur labor costs in every area where personnel work to create food and deliver it to customers. Wages paid to the hostess who seats diners, the waiter who serves them, the prep and sous chef who prepare their meals, and the busser and dishwasher who clean their dishes are all part of a restaurant's labor costs. Some restaurants also include management salaries as part of their labor costs although conventions vary across the industry, especially for restaurants that are closely managed by their owners.
The less your restaurant spends on labor, the more you have left at the end of the day in profit. Controlling labor costs is a matter of paying close attention to customer traffic flow patterns and adjusting staffing so you have more staff available when you are busy and less staff when you are slow. Introducing efficiencies also helps to control labor costs; steps such as prepping ingredients in advance or purchasing a labor-saving food processor also save time and money.
Despite the fact that restaurateurs can tinker with schedules and trim unnecessary labor costs, restaurants must maintain a skeleton staff even when business is slow because demand and customer flow can be so unpredictable. Although some industries such as manufacturing treat labor expense as a variable cost, or one that fluctuates in direct proportion to revenue, keeping a skeleton staff in a restaurant is a fixed cost, or one that a business incurs regardless of whether it realizes any revenue.