Pay attention to employee productivity and staffing levels to optimize labor cost.
Managing employee productivity is an essential business skill for any company, and is of course inextricably linked to labor cost. Some of the challenges in business include asking what our productivity should be and, of course, what is an ideal labor cost. Like so much in business, it depends. This is a challenge because there are no hard-set rules to follow and each establishment is as unique as the type of business you run, the mix of your clientele and the diverse makeup of your team. The challenge lies in finding what works in your establishment and creating your own rule of thumb that works best in your business.
Let’s think about what this all means in financial terms. As an example, let’s suppose we have a restaurant with a profit of 6%. Through some errors in scheduling, we have over-staffed our restaurant by an extra $450 in labor cost for the week. So, the question is how much do we need in additional sales/revenue to pay for the extra labor cost? Here’s a hint, the answer is not $450.
Here’s why … Of course the extra labor cost must come from your restaurant’s revenue. At 6% profit, our sales would have to increase by an additional $7,500 to cover the extra cost of labor ($450/.06 = $7,500). Two questions: what would it take us to increase your sales by $7,500 for that week, or what would it have taken for us to control the labor cost in the first place? Here’s a better question: what would it take to get an additional $7,500 in sales a week without an increase in labor dollars!
Here are five (yes, five) tips to increase productivity and lower your labor cost, in other words, move to maximizing your profit.
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Mike has worked across Canada as a food and beverage professional and currently divides his time between writing and teaching people how to start and run their own businesses.