[00:00:00] I want you to imagine something. It's Monday morning. You're sitting in the office reviewing last week's numbers. Sales were okay. Not great, but okay. And then you look at labor.
[00:00:11] 36%. Your target is 30. And so immediately, you get frustrated. You're six points over budget. You start thinking about all the money you wasted, and you know what happens next. You open the schedule, and you start cutting shifts. You tell the managers to send people home early. You eliminate a food runner On Tuesdays, you get rid of the bartender. On Wednesdays, you tell the kitchen to make with one fewer cook. And by the end, yep, you've managed to reduce labor. Congratulations. Except now your servers are feeling overwhelmed. Food takes longer. Tables aren't getting reset fast enough. The guests are waiting for drinks, and your cooks are exhausted. And your best employees are starting to wonder why they even work here and whether they should find another job. But, hey, at least you saved a little money on payroll. But here's what I want you to understand.
[00:00:58] Cutting labor and improving labor productivity are not the same thing. And I think far too many restaurant owners confuse the two. Because sometimes your labor percentage is too high because you're just scheduling too many people. Absolutely.
[00:01:13] But sometimes your labor percentage is too high simply because your employees aren't generating enough revenue, they're not being productive enough. And see, if that's the problem, then cutting hours is actually going to make things worse.
[00:01:26] So today we're going to talk about how to improve labor productivity without destroying the guest experience. And I want to give you one simple metric that can completely change the way you think about scheduling. Let's get into it. On today's episode of Restaurant Strategy.
[00:01:40] 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.
[00:02:11] Hey, everyone. Thanks for tuning in. My name is Chip Close. I am your host here of the Restaurant Strategy podcast. We've been at this for more than 600 episodes. We put out two episodes every week. One focused on marketing, one focused on operations. You know, this is absolutely free. As long as you get an Internet connection, you can reach this podcast. The whole goal is to put out episodes, put out content that will help you increase the profitability of your restaurant. I put out books, I give talks. You find my content all over YouTube, Instagram, TikTok, anywhere you can find content. All totally free. Of course. There's a paid service I offer. It's a group coaching program called the P3 mastermind. It's the best way I know to work with independent restaurant owners and help them dial in profitability. If you ever want to learn about that, you go to RSprophet.com you can learn all about the program we run.
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[00:04:25] Okay, so if you've listened to this podcast for any length of time, you know I'm a big believer in what I call the 30, 30, 20 rule. 30% COGS, 30% labor and 20% for what we call everything else. Those are your operating expenses. Anything that doesn't fit neat and tidy in the first two buckets goes into that everything else bucket. 30, 30, 20. Right. And what happens is that all adds up to 80. The remaining 20% represents potential operating profit, of course, before taxes and debt servicing and depreciat appreciation. But that is how we run a profitable restaurant, by targeting 20% operating profit. Now, those are targets. They're not universal laws, but they give us a useful framework for understanding the financial health of a restaurant. And labor is a major piece of that equation. In fact, for many restaurants, it's the single biggest line item on the P and L. Right. Which means managing it effectively is incredibly important.
[00:05:22] But here's the problem.
[00:05:23] Labor percentage is a ratio. It's labor cost divided by sales. And that means there are two ways to actually improve the number. Yes, you can reduce the numerator, right? That's labor dollars. Or you can increase the denominator, which is sales. So let me give you an example. Imagine your restaurant generates $20,000 in weekly revenue, and your total labor cost is $7,000.
[00:05:50] That's 35%. Now, one way to improve that number is to simply reduce labor by 1,000 bucks. $7,000 becomes 6,000, and your labor percentage drops to 30%. Problem solved, right? Well, maybe. But what happens if cutting those hours damages the guest experience? What happens if you lose sales because service slows down? What happens if your servers are too overwhelmed because now they got more tables to even recommend another drink?
[00:06:18] And then what happens if guests stop coming back altogether?
[00:06:21] And see, now, just by cutting labor to get it in line, you've created an entirely different problem.
[00:06:27] But let's look at the other possibility. What if you kept labor at $7,000 and increased sales to $23,333?
[00:06:39] Now, your labor percentage is approximately 30%.
[00:06:42] Same labor dollars, but more revenue. And assuming the additional sales contribute enough after their variable costs, well, you've improved the profitability of the business. Just that simply. That's why I want you to stop thinking about labor management exclusively as cost cutting. I say this a lot. You will never hear me talk about cutting labor. You'll hear me talk about managing labor. And so that's why I want you to start thinking about productivity. So here's the metric. I teased this in the beginning. Sales per labor hour, sometimes called splh. It's incredibly simple. You take your total sales and you divide by the number of labor hours worked. That's it. So let's say Your restaurant generates $20,000 in weekly revenue and your hourly employees work a combined 500 hours. 20,000 divided by 500. That's $40 in sales per labor hour.
[00:07:37] Now imagine that through better scheduling and better training and better operational systems, you generate the same $20,000 using 45050 labor hours. Well, now you're generating $44.44 per labor hour. You've improved productivity by a little more than 11%. And if the average cost of those 50 hours was 20 bucks per hour, well then, yeah, you've saved $1,000 before, considering any additional payroll related costs. Now, that doesn't mean you should automatically cut 50 hours. That's not the point.
[00:08:12] The point is to understand how effectively you're using the hours you're scheduling. And I want you to calculate this number for your restaurant. Start with total hourly labor. Then break it down, front of house and back of house, maybe even down to individual positions. How much revenue are you generating relative to the hours you're scheduling? And how does that change? By day, by shift, by season?
[00:08:37] Because your Tuesday lunch probably doesn't need the same staffing model as your Saturday dinner. And, and yet you'd be amazed how many restaurants essentially use the same schedule every day, every week, same people, same start time, same number of hours, regardless of demand.
[00:08:53] And see, that's not labor management. That is habit. One important distinction. Sales per labor hour is a productivity measure, not a replacement for your all in labor percentage. Salaried management, payroll taxes, benefits and wage differences still matter. You do need both numbers.
[00:09:13] Now let's pause for a second and let's talk about scheduling because this is where the opportunity really starts to emerge. I want you to think about the way most restaurants build their schedules. The manager opens up the scheduling software, they look at last week's schedule, they copy it. Maybe they make a few adjustments for time off requests and they publish it. Sound familiar? Did this cut a little too close to home?
[00:09:38] See, the problem is that last week's schedule isn't necessarily the right schedule for next week. Because next week's demand might be different. Maybe there's a holiday, maybe there's some local event. Maybe the weather is going to be terrible. Maybe you've got a big reservation one night. Maybe business has been trending down. Or maybe you're expecting an unusually busy weekend. See, your schedule should reflect those things, which means your labor planning should start with a sales forecast, not with employee availability, not with who wants which shift with expected demand.
[00:10:14] Now, obviously employee availability, it matters. But the forecast determines how many hours the restaurant can afford. Then you build the schedule within that budget. And here's where I want you to get more precise. Stop thinking exclusively in full shifts and think about the shape of demand.
[00:10:34] Maybe your restaurant opens at 11, but lunch doesn't really start until 12:30. Do you need your entire team at 10:30? Maybe not. In fact, probably not. Maybe some employees can arrive later. Maybe others can leave earlier. Maybe you stagger start times. Maybe you use shorter shifts during slower periods. Maybe you can cross train employees to handle multiple responsibilities.
[00:10:58] Now, of course there are legal and practical considerations here, right? You need to follow scheduling laws and break requirements and reporting time, payrolls and any other applicable regulations. And obviously you need to communicate schedules fairly. But within those boundaries, there's often significant room for improvement. Let me give you an example. Imagine your dining room gets busy between 6 and 8:30, but you've got every server scheduled from 4 to 11.
[00:11:26] Well, maybe that's necessary, but maybe it isn't. Maybe you need a smaller opening team, a larger peak team, and a smaller closing team. So instead of paying everybody for seven hours, you build a schedule around the actual flow of business and you maintain appropriate coverage.
[00:11:45] That's smart scheduling, and it's not simply cutting. Now, here's where I want you to connect this conversation to something we discussed recently in one of our pillar episodes, all about hiring and training. You can remember back a few weeks because one of the biggest opportunities to improve productivity is to make your employees better at their jobs. Let's think about two servers. Both work a six hour shift. Both have similar sections. Both serve approximately the same number of guests. But one generates $1500 in sales, the other generates $1100.
[00:12:22] That's a $400 difference. The same six hours, same guest volume, but way different revenue. I wonder why.
[00:12:30] Maybe one is better at making recommendations. Maybe one is really great at selling appetizers or second beverages. Maybe one knows the menu better. Maybe one is better at timing their tables. Maybe one creates a more compelling guest experience.
[00:12:46] Whatever the reason, there's an opportunity to investigate. And instead of immediately cutting the lower performing servers hours, well, what if you simply train them to be better? What if you help them develop the skills that make the other server successful?
[00:13:02] Now imagine that improvement spread across your entire team.
[00:13:07] That is labor productivity. And it's one of the reasons I believe training is such an important profitability strategy. Because better employees don't simply provide better service.
[00:13:17] They often generate more revenue. They make fewer mistakes, they waste less product, they work way more efficiently. And guess what? They often require less constant supervision. And all of those things, you better believe it, affect the bottom line.
[00:13:33] Now, I want you to apply the same thinking now to the kitchen. Are your cooks organized? Are their stations properly stocked? Are the recipes standardized? Are prep lists accurate? Are employees constantly walking across the kitchen to find ingredients or equipment? Are they spending time doing work that could have been completed more efficiently?
[00:13:52] Because a poorly organized kitchen creates unnecessary labor. And you can't fix that problem simply by telling people to, you know, walk faster. You fix it by improving the system.
[00:14:04] Here's another thing I see all the time. A restaurant has a broken process, and instead of fixing the process, what do they do they throw bodies at the problem? Meaning they add another employee to the schedule.
[00:14:15] The food's running slow. Well, add a runner, the bar is backed up. Add another bartender, the kitchen can't keep up. Add another cook, and now sometimes that's exactly the right solution. The bartender is the perfect example where you get two people working a busy bar by putting a third person on the bar, just having them work service bar. Then when the bar is two or three deep, those two people can just service the guests in front of you and we can get drinks to the table faster.
[00:14:42] Right? So yes, sometimes that is the right solution.
[00:14:46] Sometimes though, before you make that decision, you simply just need to ask one question.
[00:14:52] Is the problem a lack of labor or is it just a lack of organization?
[00:14:57] Because maybe the bar is actually backed up because the cocktail menu is unnecessarily complicated. Or maybe the kitchen is struggling because the menu has way too many items. Maybe food is running slow because the pass is disorganized. Maybe the host stand is overwhelmed because the reservation system isn't being managed properly.
[00:15:15] So in those instances, adding labor might temporarily solve those problems. But I think most often it hides the problems. And so then you wind up with an operation that's way more expensive than it needs to be. So before you add another position, before you throw another body at the problem, actually sit back and study the workflow. Simply watch what happens during service and see if you can identify the bottlenecks.
[00:15:40] Ask the employees what slows them down and look for ways to improve the process.
[00:15:44] Sometimes the answer is another person. I agree.
[00:15:48] But more often than not, I found it's simply a better system. And knowing the difference can save you a tremendous amount of money.
[00:15:57] All right, so we're, I don't know, what, 10, 12 minutes into this, right? Let's put a dollar amount on all this. Imagine you find 10 unnecessary labor hours per week, maybe through better scheduling, maybe through cross training, maybe through simplifying some process back in the kitchen. And let's say the all in cost of those hours is $20 each. That's $200 per week. And over 52 weeks, that's $10,000, right? That's $10,000. Now that doesn't mean you should walk into the restaurant tomorrow and eliminate 10 hours. I want you to find 10 hours that aren't creating sufficient value hours that can be removed through better planning without, without, without compromising service or safety or the well being of your employees.
[00:16:44] So to find those $10,000, here's your assignment. For the next four weeks, I want you to simply track three things. Number one, your daily sales. Number two, your hourly labor hours and your sales per labor hour.
[00:16:57] Look for patterns. Where is productivity strongest? Where is it weakest? Which shifts are consistently overstaffed? Which shifts are consistently understaffed? And where could better training simply improve performance?
[00:17:11] Then I want you to make one change, just one, and I want you to measure the result. And then you build from there.
[00:17:19] Let me leave you with this. When your labor percentage is too high, your first instinct might be to cut hours.
[00:17:27] But I want you to resist that instinct long enough to simply ask a better question.
[00:17:32] That question is this. Are we getting the most out of the hours we're already paying for?
[00:17:38] Meaning, are your employees properly trained? Are the systems efficient? Are you scheduling based on demand? Are you generating enough revenue from the guests that you're serving?
[00:17:49] Because the goal isn't to operate with the fewest possible employees. The goal is to operate with the right number of well trained employees, working efficiently, delivering a great experience in generating profitable revenue.
[00:18:04] That's how you improve labor productivity and that's how you build a more profitable restaurant, which is the thing that matters, right?
[00:18:13] Listen, my name is Chip Close again. I am your host here of the Restaurant Strategy Podcast. I appreciate you guys listening, making this show part of your week. If you want to learn more about the coaching program I run, it's called the P3 mastermind, go to RSProfit.com and one final request, if you get any sort of value from this episode or any of the other episodes, go to Apple Podcasts. Leave us a five star rating and review. Go do that now and I will see you next time.
