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Wages are one of the largest expenses for any restaurant. As an owner or manager, it’s crucial to keep your labor costs under control so that your business remains not only profitable but also competitive.
However, when wage expenses start to spiral out of control, they can seriously impact the financial health of your gastro business. How do you know if they’re getting out of hand? Simply by tracking them accurately. That’s why we’ve prepared five practical tips to help you monitor and reduce your labor costs effectively—without jeopardizing service quality or your team’s satisfaction.
What Is “Labor Cost” and How to Calculate It?
“Labor cost” is essentially the price of the workforce needed to run your business. It includes wages as well as social and health insurance contributions, benefits, and other employee-related expenses.
How to calculate it?
To calculate labor cost:
How to calculate it?
To calculate labor cost:
Ideal labor cost
In restaurants, labor costs typically account for 25–40% of revenue. For instance, a bistro or fast-food outlet might have labor costs around 25%, whereas a high-end restaurant could approach 40%. The key is to find a balance—saving where possible without affecting customer experience.
Common Causes of Unnecessary Labor Costs
Labor costs are inherently high, so it's vital to avoid paying more than necessary. Common factors that inflate these costs include:
📅 Poor Shift Planning:
Without understanding peak and off-peak times, you might overstaff during quiet periods or understaff during busy ones.
⏰ Unnecessary Overtime:
Last-minute scheduling or lack of organizational tools can lead to frequent overtime, significantly increasing expenses.
🚶♂️ Excess Logged Hours:
Employees might report more hours than actually worked due to extended breaks, late departures, or other reasons.
📅 Poor Shift Planning:
Without understanding peak and off-peak times, you might overstaff during quiet periods or understaff during busy ones.
⏰ Unnecessary Overtime:
Last-minute scheduling or lack of organizational tools can lead to frequent overtime, significantly increasing expenses.
🚶♂️ Excess Logged Hours:
Employees might report more hours than actually worked due to extended breaks, late departures, or other reasons.
Do you know how to correctly calculate food cost?
This metric can be calculated on several levels, which you can read about in our article on food cost. This includes taking stock inventory into account, as mentioned.How to Effectively Reduce Labor Costs
1. Monitor Working Hours and Overtime:
⏱ One of the most important steps to saving on wages is accurately tracking worked hours. When you have a clear overview of who is actually working and when, you can better optimize shifts and eliminate unnecessary overtime.
How to do it?
📱 Implement Electronic Systems: Introducing systems that track worked hours is essential. A great example is a time-tracking system or a POS system that staff must log into.
📈 Regular Data Analysis: Take time each week to review the records. Watch for trends—for example, times with low order volume but a high number of staff—and adjust shifts accordingly.
Example:
If you notice that on Thursdays between 3 PM and 5 PM there's minimal foot traffic but the full team is scheduled, that's a clear opportunity to save.
On the other hand, during the Friday rush, the situation might be the opposite, which affects service speed and guest satisfaction.
⏱ One of the most important steps to saving on wages is accurately tracking worked hours. When you have a clear overview of who is actually working and when, you can better optimize shifts and eliminate unnecessary overtime.
How to do it?
📱 Implement Electronic Systems: Introducing systems that track worked hours is essential. A great example is a time-tracking system or a POS system that staff must log into.
📈 Regular Data Analysis: Take time each week to review the records. Watch for trends—for example, times with low order volume but a high number of staff—and adjust shifts accordingly.
Example:
If you notice that on Thursdays between 3 PM and 5 PM there's minimal foot traffic but the full team is scheduled, that's a clear opportunity to save.
On the other hand, during the Friday rush, the situation might be the opposite, which affects service speed and guest satisfaction.
2. Proper Staff Allocation
👨🍳 Every part of the establishment—from the kitchen to the dining area—has its own specific needs. If staff are poorly allocated, some employees may become overburdened while others are underutilized, leading to inefficiency.
Practical steps:
📊Analyze Operational Needs: Monitor when more staff are needed in the kitchen for meal prep and when more are required on the floor—for example, during lunch or dinner service.
🔄Flexible Scheduling: If you have more reservations in the evening, reinforce the front-of-house team. On the other hand, when online orders are high, it's important to strengthen the kitchen team.
Example:
If you're expecting a busy dining area on Wednesday evening, it’s better to have more servers scheduled. During Saturday lunch, when many customers order via apps, the focus should be on having a stronger kitchen crew.
👨🍳 Every part of the establishment—from the kitchen to the dining area—has its own specific needs. If staff are poorly allocated, some employees may become overburdened while others are underutilized, leading to inefficiency.
Practical steps:
📊Analyze Operational Needs: Monitor when more staff are needed in the kitchen for meal prep and when more are required on the floor—for example, during lunch or dinner service.
🔄Flexible Scheduling: If you have more reservations in the evening, reinforce the front-of-house team. On the other hand, when online orders are high, it's important to strengthen the kitchen team.
Example:
If you're expecting a busy dining area on Wednesday evening, it’s better to have more servers scheduled. During Saturday lunch, when many customers order via apps, the focus should be on having a stronger kitchen crew.
🚀 Do you want a modern solution for automated expense calculations and financial monitoring?
3. Adequate Staff Training
🎓 A Well-Trained Team Saves You Time, Stress, and Money. Employees who understand the basic processes and know what’s expected of them work more efficiently and make fewer mistakes.
What should training include?
Why is it worth investing in training?
If every employee knows the basics—such as how to operate the cash register—the risk of having to improvise when a key staff member is out sick is greatly reduced. Additionally, a well-trained team can handle more work in less time, which leads to cost savings.
Pay close attention to hiring new staff as well. It always pays to focus on quality over quantity. That’s why it’s important not to cut corners during the selection process.
🎓 A Well-Trained Team Saves You Time, Stress, and Money. Employees who understand the basic processes and know what’s expected of them work more efficiently and make fewer mistakes.
What should training include?
- Basics of working with the POS system
- Customer service standards – ensuring everyone knows how to treat guests and handle any issues that arise.
- Overview of company policies – employees should understand your business rules and know their responsibilities.
Why is it worth investing in training?
If every employee knows the basics—such as how to operate the cash register—the risk of having to improvise when a key staff member is out sick is greatly reduced. Additionally, a well-trained team can handle more work in less time, which leads to cost savings.
Pay close attention to hiring new staff as well. It always pays to focus on quality over quantity. That’s why it’s important not to cut corners during the selection process.
4.Review Work Time Reports and Look for Improvement Opportunities
📋 It may sound obvious, but regularly reviewing work time data is essential. It can reveal resource waste that might otherwise go unnoticed.
How to do it?
📊 Monitor sales and shifts: When you notice certain shifts have higher labor costs, try to find out why. Maybe there are fewer customers at those times than you expected.
🔮 Plan ahead: It makes sense to strengthen your team during holidays or local events. Conversely, during quiet winter days, you can shorten shifts.
Tip:
Use data from your POS system to predict customer flow and adjust schedules based on seasonality, weather, or other factors like reservations. Every small improvement can have a big financial impact by the end of the year.
📋 It may sound obvious, but regularly reviewing work time data is essential. It can reveal resource waste that might otherwise go unnoticed.
How to do it?
📊 Monitor sales and shifts: When you notice certain shifts have higher labor costs, try to find out why. Maybe there are fewer customers at those times than you expected.
🔮 Plan ahead: It makes sense to strengthen your team during holidays or local events. Conversely, during quiet winter days, you can shorten shifts.
Tip:
Use data from your POS system to predict customer flow and adjust schedules based on seasonality, weather, or other factors like reservations. Every small improvement can have a big financial impact by the end of the year.
5. Utilize Smart Tools for Planning and Cost Management
💡Paper and Excel are great tools for everyday management. However, if you want to identify where to save money or where to increase revenue, you won’t manage without a specialized financial management tool for the hospitality industry. Technology can be your best helper. Tools like Dishboard offer you detailed insights into labor costs, shifts, and other expenses—all in one place.
💡Paper and Excel are great tools for everyday management. However, if you want to identify where to save money or where to increase revenue, you won’t manage without a specialized financial management tool for the hospitality industry. Technology can be your best helper. Tools like Dishboard offer you detailed insights into labor costs, shifts, and other expenses—all in one place.
Overview of cash flow and other key metrics in Dishboard
What can Dishboard do?
Whether you’re already using some of the tips mentioned above or not, combining all five will help you take your business’s finances to the next level. And extra money is always welcome.
- Shows exactly how much you pay for each employee.
- Allows you to track history and plan future costs with a payment calendar.
- Offers features like automatic data recognition on invoices using AI—so you don’t have to manually enter every detail.
- Enables bulk payments through bank account integration, including creating QR codes for bank transfers.
- Automatically generates Profit & Loss (P&L) statements.
- Provides a 24/7 cash flow overview, so you always know where your finances stand.
Whether you’re already using some of the tips mentioned above or not, combining all five will help you take your business’s finances to the next level. And extra money is always welcome.
Looking to achieve the same great results in your restaurant or hospitality business?
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