Measuring and Managing Labor Costs

No single measure can be used to evaluate labor productivity; management must employ multiple measures collectively. Management must have a better index of labor productivity and no single measure can efficiently accomplish that. Therefore, additional measures are needed to properly analyze labor costs. The additional information needed is readily available as it is compiled on a daily or weekly basis. These measures are:

  • Covers per labor hour
  • Labor cost per cover
  • Labor cost per labor hour

Where do you start? Each time payroll is processed; total labor hours by job category are tallied. Management will compare actual hours worked to those originally scheduled and look for variances. If hours worked are greater than scheduled hours, they will investigate to determine the job category where the variance occurred.

Employee schedules are determined not by revenue but by covers or what you might refer to as customer counts.  The "covers per labor hour" is perhaps the best indicator of labor productivity because it is not distorted by the way sales are affected by price increases and discounts. Although some drops in customer counts occur in the long run when prices are increased, covers per labor hour remains the most effective indicator of employee productivity. The number of covers per labor hour is calculated for each job category as well as for the entire payroll by dividing total labor hours by the customer count.

The "labor cost per labor hour" is another productivity index. It is calculated by dividing total payroll by total labor hours. When calculated by respective job categories, one can readily see the wage differentials between jobs. This information can assist management in establishing wage ranges for each job category. 

The third index of productivity is the "labor cost per cover." This tells us how much labor is used to serve each customer that comes into your restaurant. The total payroll is divided by the number of customers. Analysis of this index by job category will show a very wide spread between categories like hostess/cashiers, servers and cooks. The averages in each job category are controlled by the number of employees, the average hourly wages, and the number of hours worked.

There are some great labor scheduling tools available to help control costs, save management time building schedules and keep your employees informed and connected. There is no excuse to be using spreadsheets or substandard scheduling applications. It also means that finding the right software provider will likely mean finding the least expensive provider that integrates with your existing POS system and payroll software.

PeachWorks Schedule allows you to spend less time creating schedules and managing conflicts and lets your employees view their schedules and manage availability requests from the internet or their mobile phones. Learn more here.

A Quick Win And A Leg Up For Competitive Restaurants

I saw what seemed to be a provocative headline in Business Insider: "3 Reasons Why Chain Restaurants are Struggling". It was an article by Kate Taylor who said America is losing its appetite for chain restaurants and cited data from a Restaurant Performance Index from the National Restaurant Association. Kate offered three causes for a decline: 

  • Uncertainty about the current presidential election
  • There are too many restaurants 
  • Grocery prices are too low. 

The election will be over soon, so that left me with her other two factors to consider.

My first instinct when I hear there are "too many restaurants" is to think about competition. The level of stores and patrons will eventually come to equilibrium, but those that survive and thrive will be those that work smarter. And the idea of "grocery prices are too low' means you're competing again; this time with the consumer option of eating at home instead of dining out.

It might not be surprising that I immediately thought of how PeachWorks could be a powerful ally in restaurant competition, but even I didn't fully understand the extent of impact that automating back-office operations provides until I thought about it a bit.

Let me start with something I'm sure most restaurateurs think of when they hear "automation" - cost control. It's self-evident that taking the guesswork out of managing inventory, food waste, and staff scheduling results in invaluable cost savings, especially when compared with a 20-year old staffer and a spreadsheet. More money to the bottom line is a good thing regardless of economic conditions. But in super-competitive environments where only the strong survive, cost efficiency can take on a whole different role.

The economic argument was a no-brainer. But the big difference-makers in competition might just be food quality and dining experience consistency. Let's dig a bit deeper. We all have our favorite restaurants, whether for breakfast, lunch, or dinner. Yes, we might try somewhere new occasionally as an experiment or change of pace, but we know what we like and we know what to expect. Loyal, repeat customers might be a restaurant's best friend. It's so much better to keep good customers than to have to replace them. The last thing we want is to disappoint them and risk losing them to a competitor. No restaurant manager wants to hear, "For some reason, my chicken wasn't as good as the last time", or "Are you doing something different with your fries?"

A restaurant's best attributes for attracting and keeping customers are efficiency and consistency. And not coincidentally, we've used those two traits as descriptors of the benefits of PeachWorks for some time. Our suite of cloud apps strengthens almost every facet of back-office operations. Stay competitive. Automate with PeachWorks!

Are You Ready to Report Nutritional Information?

The May 5, 2017 menu labeling regulations deadline is approaching, and if your restaurant has already completed menu nutrition analysis, you may be in a good position to meet that deadline. Restaurants with “20 or more locations doing business under the same name and offering for sale substantially the same menu items” will be required to comply with the FDA’s menu labeling regulations. This means posting certain nutrition information for standard menu items on menus, menu boards and elsewhere in the restaurant. If you haven’t already done so, completing an accurate menu analysis according to FDA’s reasonable basis standard should be your top priority now. If you already have complete menu nutrition analysis, your next step should be verifying the accuracy of your current nutrition information. 

As outlined in the FDA’s menu labeling guidance document and the final rules, restaurants must have a “reasonable basis” for nutrient declarations. In other words, restaurants must meet specific requirements to determine the calorie information listed on menus and menu boards and values for the required additional written nutrition information. The FDA states that it may require, upon request and within a reasonable period of time, restaurants to provide information substantiating nutrient values, including the method and data used to derive these nutrient values as well as up to two statements attesting to accuracy and reasonable steps. 

Make sure you have the tools that will allow you to easily report nutritional information on your menu items.

PeachWorks Recipes is the easiest way to get nutritional information and ideal ingredient usage for every item on your menu. With Recipes, you can quickly manage your recipes using our global ingredient database that taps into sources including the USDA. Build menu components for commonly used groups of ingredients, and use them over and over in multiple menu items.

The Importance of Basic Costing for Restaurants

Like any other business, the goal of every restaurant is to turn a profit at the end of the day. In order to understand how to make a profit, you must first understand what makes up the cost. By looking at the various costs involved in the operation of the restaurant and by understanding them you can make your restaurant a success. You need to understand these before you start looking for applications that will help you control your costs.

Recipe Costs

Food Costs

Labor Costs

Overhead Costs
The amount you spend on a recipe and how much it costs to serve a portion of that recipe. Recipe cost contributes to your overall food cost.The cost of all the edible ingredients that go into the food you serve to your diners. This is the sum total of your recipe costs and is important for keeping track of your profitability.Costs that includes salaries, benefits, and bonuses you pay your employees.Everything else that falls outside of food costs and labor, e.g. building rent, equipment, taxes, utilities, etc.
Profit vs. Costs
To calculate your profit you would take your total sales for a period and subtract all of your food, labor and overhead costs.

Understanding the Numbers

The key to a profitable business is managing your costs to ensure you have a healthy profit. There are tools to help you identify early in the process if you have food or labor cost issues. The sooner you are aware of these issues, the sooner you will be able to correct the problems and add to your profits.

  • The target for recipe costs should be in the 30% to 45% range of your selling price
  • Make sure your employees are following the recipes
  • Avoid overstocking or overproducing inventory
  • Make use of seasonal ingredients
  • Stretch the use of each Ingredient

The goal of any business is to make money. Keeping track of the costs involved with running your restaurant whether it’s food, labor, or overhead costs, will help you stay competitive and profitable.

Need tools to make your restaurant more profitable? Learn about PeachWorks's full feature Recipe App with built in costing and USDA nutritional reporting.

Why do I need to manage inventory?

How do you know if you are properly managing your inventory?  Do you have employees stealing? Do you have product that is going bad before you can use it? Studies show that restaurant managers do not reconcile inventory as often as they should, in some cases never. Mismanagement of inventory can be a costly mistake. Here are some tips to consider:

  • Your cost of goods sold, or COGS, is the single largest expense for your restaurant.
  • Your inventory is money on the shelf. You must control how much product you have on hand. The more product you have could lead to waste and theft.
  • Proper inventory management allows your customers to receive the freshest product which will ensure your customers return again and again.

What is the key to good inventory management? As a Manager, you must find the balance between having enough product and too much product on the shelves. It’s this balance that can be the difference between a successful or failing restaurant business. How do you know if you have inventory issues? Below are trends that should alert you that something just isn’t right:

  • The same person takes inventory every week or month.
  • Inventory is increasing month to month while your COGS are declining.
  • Your days of inventory is higher than 7 days for most products.
  • You have drastic decreases in your inventory while your COGS are increasing.
  • You consistently run out of product.

Keeping a closer eye on inventory and implementing inventory management process and tools will allow you to control your inventory loss.

Want to learn how to better manage your restaurant inventory? Check out the PeachWorks Inventory App to take all the guesswork out of inventory.  

Already using our Inventory App? Start adding items and get a better hold on your inventory today!