Understanding Fixed vs Variable Labor Costs

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photo credit Michael Plutchok via Wikimedia.org

by Deagon B Williams

Restaurant labor cost-  Ahh yes!  The dreaded restaurant labor cost issue…. It’s confusing and yet also really important. So let’s break it down into something that makes sense and is workable.  Labor cost is one of the two significant costs that is both variable and fixed. Not only that, labor cost is something which you can control to a certain extent and which you must manage with a fine tooth comb. Tricky stuff.

But not to worry. For starters, put all of your annual salaried employees into the fixed costs column. That is, you pay your General Manager regardless of how many tables you serve each month. Now, that leads us to the variable costs employees. These are the hourly employees. Important, but not critical to the business opening every day. Even though hourly employees generally cost less than annual salaried employees, they are still expensive.

A quick way to manage restaurant labor cost is to have hourly employees work only when truly needed. As in, you would have one server come in to set up for a particular service for all of the other servers. The other servers would be on a staggered schedule with the first arriving, also  the first to leave. So, server #1 comes in at 11am to set up for lunch and they work through the major part of the lunch rush but then leave at about 2pm. While Server #2 came in right at 12 noon for the lunch rush and then they would stay on to clean up until 3pm or so.

That means that all of the work gets done with the minimum of people on the clock. All your flexibility in labor costs comes in the form of variable labor costs, or your hourly employees. Scheduling them well can mean real savings. Generally, speaking a restaurant is shooting for a 25% labor cost.

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