Episode Transcript
[00:00:00] Speaker A: Your labor costs are killing you. I know because I get the same call pretty much every week, Chip. I'm paying my staff well. I've got good people, but my labor costs are still 35, 40%, sometimes higher in the slow months. I can't afford to cut hours because then service suffers or I lose staff because they go find jobs elsewhere. What am I supposed to do? And here's the thing. You don't necessarily need to cut hours. You don't need to pay people less. You don't need to run skeleton crews. But you need to get smarter about how you deploy.
Today we're talking about labor optimization. Real strategies that let you serve more customers with the same team or serve the same customers with fewer hours. All of that on today's episode of Restaurant Strategy.
There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
[00:01:16] Speaker B: Hey everyone.
[00:01:16] Speaker A: Chip close here. This is Restaurant Strategy and we're talking about one of the biggest challenges facing restaurant operators today.
Managing your labor costs right. Not just the cost of paying people, but the cost of not having the right people in the right places at the right time. Before we dive in, quick reminder, if you struggle with labor costs, food costs, or just overall profitability, I can help. I run a group coaching program called the P3 mastermind. So far, we've helped over 300 restaurants increase their profitability to hit consistent, predictable 20% returns. That conversation starts with a free 30 minute call. To schedule that call, go to restaurantstrategypodcast.com schedule and yes, that link is in the show notes.
Now. Are you tired of juggling schedules, tracking hours, worrying about HR compliance and dealing with all those last minute no shows? Well, it's time to say goodbye to the headaches and hello to Time Forge. Time Forge is a labor management solution designed for the fast paced world of restaurants with product offerings ranging from recruitment to retention of your team members. With Time Forge, you can simplify employee scheduling with automated AI schedules based on sales, weather and other event.
You can track attendance and labor costs in real time, keeping up with complex labor laws like fair workweek and meal penalties. You can recruit staff who live near your stores from our more than 11 million hourly job seekers. They have 11 million plus job seekers on their platform. You can pay employees their wages and tips on a daily basis after every shift. And you can communicate proactively with your staff, using messaging, surveys and more. And that's not all. Time Forge integrates seamlessly with most POS systems, giving giving you full visibility into labor and sales performance and suggesting when you should staff up or staff down. Whether you manage one location or dozens, Time Forge saves you money, time and stress so you can focus on what really matters, delivering exceptional service and growing your business. Thousands of restaurants trust Time Forge, so why not you visit timeforge.com restaurantstrategy today and see how time forged can help your team and your restaurant run like clockwork again. Timeforged.com RestaurantStrategy Strategy as always, that link is in the show notes.
So let's start today with a story. I'm working with a P3 member, right? Somebody who's in my program. She runs a 120 seat restaurant in Denver. Full service casual dining. She does about $160,000 a month in sales, which sounds great, right? But her labor costs are at 38%, right? She's barely breaking even. And I know Colorado is tough. Denver is a tough market, especially with minimum wage and the tip credit and all of that. It's expensive.
But she calls me up frustrated. She says, chip, I've tried everything. I've cut hours, I've reduced staff. But then service suffers and customers complain. I've tried keeping everyone and just hoping sales will increase, but that doesn't seem to be happening fast enough. I just don't know what else to do.
My question to you is, does that sound familiar? This is the classic labor trap. I always talk about this idea that revenue does not necessarily cure all sins because it takes time to grow your revenue to the point where you make 38% labor in line, right? To drive revenue enough that 38 comes down to 30 or 32. It's going to take a long time to do. It doesn't happen overnight. And you think you have two choices in this instance, right? You either cut labor, which will hurt service, or you keep labor high and that hurts profitability. But there is a third option. You can optimize your labor deployment. Here's what I mean, right? So she was scheduling, like most restaurant owners, schedule based on gut feeling and what they've always done. So Monday through Thursday she had the same crew. Friday and Saturday she added a few more people. Sunday she scaled back somewhere between the midweek and the weekends. But when we looked at her actual data, the pattern was completely different.
Monday lunch was dead, maybe 45 covers. But Monday dinner was actually pretty busy. They do like 120, sometimes more. I think that's because a lot of other restaurants in her neighborhood were closed. So she was able to capture all of the business, all the people that wanted to go out to dinner on Monday night.
But Tuesday was her slowest day overall.
[00:05:30] Speaker B: Right.
[00:05:30] Speaker A: But Tuesday lunch was busier than Monday lunch. Wednesday dinner, believe it or not, was almost as busy as Friday dinner. And she didn't realize that, at least not until she really looked at the. At the numbers. But see, she was still staffing Wednesday like it was a slow day. See, she was scheduling based on tradition, not necessarily on data. And it was costing her thousands of dollars every single month.
So here's the first principle of labor optimization. You schedule based on sales per hour, not sales per day. You need to break down your sales data by day of the week and time of day. So Monday lunch versus Monday dinner, Tuesday lunch versus Tuesday dinner. You have to look for patterns. Most POS systems can give you this data or your labor management system.
[00:06:13] Speaker B: Right.
[00:06:14] Speaker A: If you use margin, I'm sorry, seven shifts, or time forge or schedule fly.
[00:06:19] Speaker B: Right.
[00:06:20] Speaker A: They can give you this data.
[00:06:21] Speaker B: Right.
[00:06:21] Speaker A: But if you can, if yours doesn't for some reason, you can track it manually. So what I want you to do is for two weeks, I want you to record how much you sell in each day part. So lunch, mid shift, and dinner.
[00:06:33] Speaker B: Right.
[00:06:34] Speaker A: Do this every single day of the week. What you'll find, I think, is that your busy periods and slow periods aren't where you thought they were, and they don't necessarily follow a traditional pattern. Maybe your Thursday lunch is actually busier than your Friday lunch. Maybe again, your Wednesday dinner is just as busy as Friday dinner. Maybe your Sunday dinner is slower than all your other dinners. You won't know until you measure. Now, once you have the data, you can start optimizing. So in this case, my P3 member discovered that her Tuesday dinner was generating $2,400 in sales with eight staff members on the clock. So that's $300 in sales per staff member. But her Wednesday dinner was generating $3,600 in sales with the same eight staff members. That's $450 per staff member. So we moved one server and one kitchen person from Tuesday to Wednesday. Tuesday service was still fine with six people because there were few customers. Wednesday service improved because now we had adequate staffing for the volume. Same total labor hours, but in the end, a better customer experience, higher sales per labor hour. So now let's talk about cross training, because this is where you can really unlock efficiency Most restaurants have specialists, people who can do really only one job. You got servers who can't run food. You got kitchen staff who can't do dish pit, hosts who don't know how to bus tables. And this actually creates inefficiency. I think this is one of the big things we learned over the course of the pandemic. So during your lunch rush, your servers are slammed, but your dishwasher is standing around because the lunch dishes just haven't come back yet. During your dinner rush, your kitchen is backed up, but your hosts are just standing at the podium. Maybe cross training can solve this. When you train people to do multiple jobs, you can deploy them where they're needed most in real time. There's nothing to say your host can't bust tables during the rush and then go back to the podium when it slows down. Or your prep cook can jump on the line during dinner and then go back to prep afterwards. So I worked with a P3 member out in Portland, right. This guy runs a sports bar. He was spending $6,400 a week on labor for $24,000 in sales. That's 27% labor cost, which, especially in Oregon, is not terrible, but it also wasn't great. We implement what I call surge staffing. So during slow periods, he runs with a skeleton crew. One bartender, one server, one cook. But everyone's cross trained. The server can run food. The server can bus tables. The cook can help prep. When it's slow, the bartender can run food or help with busing or cleanup. When it gets busy. Game nights, weekends, happy hour, then, yeah, we bring in additional staff members. But because the core team is cross trained, they can handle the fluctuations without falling apart. The result, the labor cost dropped even lower to 24%. I'm not kidding. Yes, in Oregon, same service level, but better profitability. And his staff actually like the variety of working different positions. I always use the example of Disney. Do you know, at Disney, if you get a job at Disneyland, you will not work a job more than like an hour or two. So you're not going to be like, welcoming people at the Peter Pan ride for eight hours. They don't do that.
[00:09:41] Speaker B: Right.
[00:09:41] Speaker A: Maybe you're helping people onto the boats. It's a small world. And then going to take tickets at Peter Pan, and then you go over to do concessions. Here, people are cross trained, number one. It helps keep the. The people fresh all day.
[00:09:54] Speaker B: Right.
[00:09:55] Speaker A: But it also.
It also is important because when somebody calls in sick, you just say, okay, I need you to go over to the Peter Pan ride. This person has been trained to do that. It's the same thing with us.
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Now I take a second because we got to do it. We got to talk about technology now. I'm not talking about some fancy like AI software that will plug into your POS and scheduling software that costs an additional 500amonth. What I want to talk about is simple tools that will help you deploy labor more efficiently. So KDS systems have become a game changer. Instead of those paper tickets that get lost or they're hard to read or they get like grease on them, everything just shows up on the screens. Cooks can see what's coming. Servers can see what's ready and what's coming up next. Managers can see where the bottlenecks are without Having to bother the cooks who are trying to pick up food. What happens is the food comes out faster, the tables turn quicker, and you actually end up needing fewer people to handle that same volume. The handheld POS system, which I know so many of you guys are currently using, but if you guys are on the fence, if you're not doing it, these handhelds let servers take orders, process payments right there at the table. So no more taking the order and then having to run back and forth to a terminal.
Faster ordering, faster payment processing, faster table turns, higher sales per server. It's simple stuff, but it adds up, right? So when my client, right, she invested in those kitchen displays, she invested in the handhelds, she invested in a really great time management solution, Time Forge, which is a sponsor of the podcast. I'm unabashed in my love for that platform because of what it does. And within three months, she was turning tables 15% faster and her servers were handling 20% more costs, covers per shift. That is efficiency.
Running a restaurant means juggling a lot. Staffing, inventory, customer service and finances. Sales tax has to be done. And while no one plans to miss a deadline or miscalculate a payment, mistakes happen.
When those happen, they can lead to penalties, fines, and, yeah, added stress. That's why there's Davo by Avalara. Davo integrates with your point of sale system and automatically sets aside sales tax daily, giving you a clear of your actual cash flow. Then when it's time to file, Davo files and pays your sales tax on time in full, guaranteed. No more last minute scrambles or costly mistakes. Just seamless automation. Thousands of restaurants trust Davo and with a 4.9 star rating on G2, it's a proven solution. Your first monthly filing is free with zero commitment. Get started today at davosales tax.com restaurantstrategy. I will add in here. This fits in perfectly with what we're about to talk about again. Davosalestax.com RestaurantStrategy and yes, that link is in the show notes.
Now let's talk about productivity metrics. Because you can't measure, you can't manage, we don't measure. Most restaurant owners track labor cost as a percentage of sales. And yes, that is important. I talk about that a lot, but it doesn't necessarily tell you the whole story.
You need to track sales per labor hour. You take your total sales of the week and divide by total hours, right? So if you did $20,000 in sales with 400 labor hours, that's $50 per labor hour Is that good? Well, it depends on your concept and your market, but now at least you have a baseline. Track this by position. What's your sales per server? Hour, Sales per kitchen hour, sales per management hour. This tells you where you're efficient and where you're not.
I worked with a restaurant just outside Miami. It was in Fort Lauderdale that was tracking overall labor cost at 32%. Again, Florida is a tough market for labor, right? But still, that 32%. Given Florida, it seemed reasonable. But when we broke it down, their servers were generating $65 per hour, while their kitchen staff was only generating $45 per hour. What it meant was that the kitchen was overstaffed relative to the volume.
Here's another metric that most people miss.
Covers per labor hour. This is especially important for full service restaurants. So listen up. If you got a full service restaurant, if you served 300 covers with 50 labor hours, that's six covers per labor hour. You track this by day, part end, by day of the week. What you'll often find is that your covers per labor hour can vary wildly. So maybe Monday lunch you're doing four covers per labor hour, but Tuesday lunch, you're doing eight covers per labor hour.
That tells you that Monday lunch is overstaffed and Tuesday lunch might be understaffed. Now let's talk about scheduling discipline, because this is where so many of the people that I work with, when they come to the program, which is where they fall short. This is one of the things that we work really closely with them on. You create a great schedule based on data and optimization, but then you let people just switch shifts at the last minute. You let people call in sick without consequences. You just add people just in case you go into overtime. What you need is discipline when it comes to scheduling. When someone calls in sick, you don't automatically call in a replacement. You ask, well, let's look at the book. Can we handle the expected volume with just the remaining staff? If yes, you operate a little short that night. If no, then yes. Okay. You call someone in when someone wants to switch shifts. You don't just say yes. You look at the impact on labor costs and service levels.
[00:17:01] Speaker B: Right?
[00:17:02] Speaker A: So maybe switching a Tuesday shift for a Saturday shift changes your labor deployment in a way that might hurt your efficiency, therefore your profitability.
So I want to tell you tell you about a technique I call labor banking.
[00:17:14] Speaker B: Right?
[00:17:15] Speaker A: Labor banking is something I Learned from a P3 member is not mine. They run a chain of pizza places out in Texas. And instead of thinking about labor cost daily they think about them weekly, which now I just swear by. So if you're budgeted for 28% labor costs, that's your weekly target. Meaning if you have a slow Monday and use only 22% labor, then you've banked six points. You can use those points on Friday when you might run 34% labor because you're slammed. And actually, sometimes this is flipped. When Monday is slow, but you need a certain amount of people just to open the doors, you'll be at 34 or 36. But then on a Friday, Saturday night, when you're slammed and you got tons of revenue to go against the the labor hours you run at 22%. Depending on your concept, you'll see it one of two ways. But by managing it, it gives you the flexibility to actually staff appropriately for the actual volume. Rather than trying to hit the same labor percentage every single day. Manage by the week, not by the day. Which means some days you might be overstaffed, some days you might be understaffed, but over the course of the week, you will hit that target.
Now, let's talk about the elephant in the room. What do you do when you're genuinely, genuinely overstaffed? When you've optimized everything and you still have too many people? Well, first, you look at your productivity metrics. Are you generating enough sales per labor hour? If not, the problem just might simply be sales volume, not labor costs. Maybe you need to focus on marketing and driving more customers before you focus on cutting labor. Maybe you do need to look at check average and how you increase the per person average.
[00:18:45] Speaker B: Right.
[00:18:46] Speaker A: Second, look at your service standards. Are you delivering a level of service that justifies your labor costs? If you're running 35% labor, but your service is exceptional and your customers are willing to pay premium prices, then I don't know, maybe that's okay. But if you are genuinely overstaffed, yes, you have to make tough decisions. You always start with your lowest performers. The people who show up late, the people who always call in sick, the people who provide poor service or create drama. This is actually an opportunity to upgrade your team. So here's what my member.
[00:19:16] Speaker B: Right.
[00:19:16] Speaker A: What her restaurant looks like now, just a few months after we started working together, her labor costs are down to 31, down from 38. Her sales per labor hour increased from 42 to $58. Her customer satisfaction scores actually went up because service actually became more consistent. How? Well, because we implemented data driven scheduling, we cross trained for the key positions, we invested in that technology. We talked about and we actually created scheduling discipline with her managers. So, same quality of service, but in the end, much better profitability.
Now, your homework for this week is to pull your sales data for the last 30 days, break it down by day and day part, calculate your sales per labor hour for each day part, and find your most efficient periods. And find your least efficient periods.
Then look at your current schedule. Are you deploying labor based on the actual data or based on what you've always done? I guarantee you will find opportunities to optimize your schedule. Labor optimization isn't about cutting quarters. It isn't about having to run with a skeleton crew. It's just about being smart with your most expensive resource. Also your most incredible and your most valuable resource. Of course, I'm talking about your people.
When you do this right, you'll serve more customers, you will serve them better, and you will spend less money doing it. Also, the people who you keep will be better compensated. And that's the goal. Better service, better profitability, better business, happier employees.
[00:20:41] Speaker B: Right.
[00:20:42] Speaker A: That's it. I know this was heady stuff. It was complicated. There was a. We mathed a lot on this episode, but I hope you got a lot out of it. This might be one that you want to return to and listen to again. Share this one with your managers. Think more deeply about how you approach your labor. Listen. Appreciate you being here. Thank you so much for listening again. My name is Chip Close. This is the Restaurant Strategy Podcast, and I will see you next time.
