{"id":1242,"date":"2021-08-10T09:59:34","date_gmt":"2021-08-10T09:59:34","guid":{"rendered":"https:\/\/polaris-elements.co.uk\/?p=1242"},"modified":"2022-06-10T10:34:46","modified_gmt":"2022-06-10T10:34:46","slug":"understand-actual-labour-costs-before-it-is-too-late","status":"publish","type":"post","link":"https:\/\/polaris-elements.co.uk\/understand-actual-labour-costs-before-it-is-too-late\/","title":{"rendered":"Understand ACTUAL labour costs before it is too late"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Of the five major costs in the hospitality sector \u2013 equipment, utilities, food, and a POS system &#8211; labour cost is one of the most important. Labour costs are not only one of your largest costs it&#8217;s also part of your prime cost \u2013 a key performance indicator that helps determine your profitability.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Good news, it\u2019s a controllable cost!<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But as essential as labour costs are, controlling them can be a huge challenge. Labour cost is ever changing, usually upwards, due to minimum wage increases and this will force operators to not only control but optimise skills within the workforce.\u00a0That\u00a0can be a daunting prospect\u00a0without the correct tools at your disposal.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Thankfully, it\u2019s not all doom and gloom. This post will help you control restaurant labour cost by showing you:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">&#8211; Exactly what labour cost entails (<\/span><b>hint:\u00a0<\/b><span style=\"font-weight: 400;\">it\u2019s not just salaries and wages)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">&#8211; How to calculate labour cost percentage (and why you should track it)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">&#8211; 8 ways to control labour cost to remain profitable (some strategies you can implement today for quick wins)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">What is included in\u00a0labour cost?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Labour cost includes all labour related categories:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Employee wages and salaries<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Bonuses<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">PAYE or Payroll taxes<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Employers National Insurance<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Holiday accrual\/payment and absence days (SSP, SMP, SPP, SPL, ShPP\u2026\u2026the list goes on)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Overtime<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">How do you calculate labour cost?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Apologies if I am teaching you to suck eggs here but just so we cover off all bases.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Calculating your total labour costs, then, involves adding the total cost for each of the above cost groups.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example (based on a week):<\/span><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Salaries and wages: \u00a33,000<\/span><\/i><span style=\"font-weight: 400;\">\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Bonuses: \u00a3250<\/span><\/i><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Employers National Insurance: \u00a3285 (when anyone earns\u00a0over \u00a3158 you start to pay 13.8p for every additional \u00a31.00 they earn)<\/span><\/i><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Holiday accrual\/payment and absence days: \u00a3350 (accrual based on 12.07% of all monies earned by employees)<\/span><\/i><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b><i>Total labour cost = \u00a33,885<\/i><\/b><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">To keep your approx. 30% labour intact you will need to take \u00a312,950 net or \u00a315,540 gross.<\/span><\/i><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In isolation, this bottom number doesn\u2019t mean much. But, calculated as a percentage, it becomes far more useful.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">How do you calculate labour percentage?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The labour percentage helps you understand how much money you spend on labour to produce revenue.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You can calculate this accordingly:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Labour as a percentage of total net sales: Total labour cost \/ total net sales*<\/span><\/p>\n<p><span style=\"font-weight: 400;\">*When making these calculations, ensure you use net sales for the same period.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Labour cost as a percentage of total net sales in 4 simple steps<\/span><\/p>\n<p><b>Step 1: Collect your total net revenue data<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Collect your total net revenue data from POS sales reports. For this example, let\u2019s assume your sales for last week were \u00a313,350 net (\u00a316,020 gross \u2013 always talk net).<\/span><\/p>\n<p><b>Step 2: Calculate your total labour costs<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Calculate your total labour costs by adding all applicable cost categories like wages, salaries, bonuses, and Er\u2019s NI, absence and holiday accrual.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For this example, we\u2019ll assume your total labour costs for the week were \u00a34,010.<\/span><\/p>\n<p><b>Step 3: Divide labour cost by revenue<\/b><\/p>\n<p><span style=\"font-weight: 400;\">In our example, this gives us 0.3 (\u00a34,010 \/ \u00a316,020).<\/span><\/p>\n<p><b>Step 4: Multiply the number you get by 100<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Finally, multiply the number in Step 3 by 100 to get your percentage. In our example, that works out to 30%<\/span><\/p>\n<p><b>Pro tip<\/b><span style=\"font-weight: 400;\">: Track the labour cost percentage daily overtime to identify upward and downward trends. A continuous upward movement suggests you need to implement cost controls (discussed later).<\/span><\/p>\n<p><b>Benchmarking \u2013 Industry guidelines<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Labour percentage by venue type<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You\u2019re likely wondering whether a labour cost percentage of 30% is any good. Well, most restaurants will target a percentage of 20 to 30% of sales, though percentages do differ by industry:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Pub (small amount of food): 26%\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Pub (food centric): 29%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Bar: 24%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Late night: 22%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Quick service: 28.5%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Fast casual: 26.2%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Casual: 32.5%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Upscale casual: 30.4%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Restaurant: 35%<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The above statistics are average restaurant labour cost percentages for Q4 of 2017.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Comparing your labour percentage to other venue in your industry can help you assess your performance in relation to the industry as a whole. But remember these are only a guideline. If you are a Pub (Food centric) with an outside area with 150 covers then it is likely that you will have a higher labour percentage.<\/span><\/p>\n<p><b>Control cost using effective restaurant labour allocation<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Now that you understand what labour cost is, how to calculate labour cost percentage, and what percentage is suitable, let\u2019s look at eight ways to properly allocate and control your restaurant labour.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You\u2019ll notice there\u2019s no mention of \u201craising your menu prices\u201d or \u201creducing wages\u201d\u2014and with good reason. While these methods may benefit you in the short term, they can cause more harm in the long run and have a potential negative impact on profits, staff morale, and customer service.<\/span><\/p>\n<ol>\n<li><b> Use the right PoS system<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Not all POS systems are created equal. Find a system that, at a minimum, offers the following basic features or an integration to best in class third party providers:<\/span><\/p>\n<ol>\n<li><span style=\"font-weight: 400;\"> Stock management<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">2. Customer relationship management (CRM)<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">3. Staff management and communication<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">4. Basic marketing features<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">5. Sales reports<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">6. Labour reports<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">7. Employee scheduling (some PoS systems integrate with scheduling software to simplify the scheduling process).<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Then, ensure you actually use the features to gain the benefits. Two notable features you should focus on to control labour costs are labour reports and employee scheduling.<\/span><\/p>\n<ol start=\"2\">\n<li><b> Analyse your labour costs report<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Review your labour reports against certain times of the day and seasons to optimise your schedules and ensure you\u2019re never over or understaffed.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, a labour report could tell you that you\u2019re often overscheduled at 11am, just before lunch service and that your operations would benefit with less staff. This may seem like a small cost saving, but over time it can add up to thousands of pounds.<\/span><\/p>\n<ol start=\"3\">\n<li><b> Invest in the right employee scheduling tool<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">If you\u2019re like some business owners, you:<\/span><\/p>\n<ol>\n<li><span style=\"font-weight: 400;\"> Create and manage schedules in Excel<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">2. Spend time creating and moving between schedules<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">3. Struggle to track and manage schedule changes<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">4. Make mistakes when comparing actual vs. scheduled labour<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">5. Risk customer service quality by over or understaffing (let\u2019s not forget the impact over-scheduling has on labour costs)<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Luckily, the right scheduling tool solves all these problems by helping you:<\/span><\/p>\n<ol>\n<li><span style=\"font-weight: 400;\"> Create schedules in no time \u2013 30 mins or less<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">2. Reduce manager input when sourcing staff for shifts using crowd-sourcing features<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">3. Schedule the right number of employees per shift<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">4. Track and reduce labour costs by analysing labour reports<\/span><\/li>\n<\/ol>\n<p><a href=\"https:\/\/polaris-elements.co.uk\/solutions\/polaris-data\/\"><span style=\"font-weight: 400;\">Polaris Data<\/span><\/a><span style=\"font-weight: 400;\">\u00a0is one such tool. The effectiveness of such a tool can only be realised after implementation through ROI (return on investment). Any software business that declares you can save X% is bending the truth to say the least. They are providing you with the tools to save and optimise labour cost, whilst the true measure of success should be based on a wider metric. This would include staff retention, engaged well trained employees, lower recruitment costs all leading to increased profit margins.<\/span><\/p>\n<ol start=\"4\">\n<li><b> Review your seasonal hiring policy<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">It\u2019s not uncommon for hospitality business to hire seasonal staff during peak periods like summertime. But you may not actually need such a large seasonal workforce.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Review your hiring policy, analyse historical labour reports to spot opportunities to trim seasonal staff, and ask regular employees to take on more shifts. Removing one or two positions can translate into massive savings down the road.<\/span><\/p>\n<ol start=\"5\">\n<li><b> Reduce operating hours<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Review how busy your restaurant is on certain days and during specific times of the week. If there are quieter times, with revenues barely covering costs, you may choose to reduce your operating hours. The benefit of this approach is that you can concentrate wholeheartedly on your peak periods. Communication to your customers on why you have done and confirming when you are actually open will be key to this approach otherwise it can seriously backfire.<\/span><\/p>\n<ol start=\"6\">\n<li><b> Properly train staff<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Train your staff, so they feel empowered to do their job correctly and become more efficient. Greater efficiency ensures you can schedule a leaner workforce without jeopardising service. Training should include:<\/span><\/p>\n<ol>\n<li><span style=\"font-weight: 400;\"> Educating employees on how to use your PoS properly<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">2. Properly communicating customer service standards to everyone<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">3. Letting new hires shadow top performing staff so they can learn from the best<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">4. Don\u2019t forget to conduct refresher training with all staff as bad habits can, and do, creep in. Also, ensure you have regular staff meetings and hold performance reviews to identify areas for improvement. <\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">5. Giving all employees access to your employee handbook. This document provides employees with everything they need to know about your restaurant, including HR policies, your company\u2019s mission statement, and crucial systems and processes. Besides acting as the main point of reference for employees, it helps prevent mistakes that can cost you money.<\/span><\/li>\n<li><b> Boost staff retention<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Turnover rates are notoriously high in the hospitality industry. These high turnover rates cost you money in the form of not only recruitment and training costs but also higher labour costs. Every time an employee leaves, you have to invest time, money and resources into finding and training a new employee. You could avoid this cost by focusing on retention:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s a cost you could avoid by focusing on retention. But how exactly do you retain existing employees? Here are three ways:<\/span><\/p>\n<p><b>Rewards:\u00a0<\/b><span style=\"font-weight: 400;\">Provide monthly rewards like \u201cemployee of the month\u201d or daily rewards for those who make the most sales.<\/span><\/p>\n<p><b>Recognition:\u00a0<\/b><span style=\"font-weight: 400;\">It\u2019s not always about a financial reward. Sometimes employees just want to feel valued. A simple \u201cthank you,\u201d and even public recognition can boost their confidence and morale.<\/span><\/p>\n<p><b>Promotion opportunities:\u00a0<\/b><span style=\"font-weight: 400;\">Reward top-performing employees with a promotion to create a culture of growth that encourages other employees to work harder because they see a future with your venue. To help identify these top performers, review sale reports from your POS and monitor those who regularly do more than their job description.<\/span><\/p>\n<ol start=\"8\">\n<li><b> Analyse and improve processes<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Audit your current processes including time clocking, stock management, and employee scheduling to identify optimisation opportunities that will improve efficiency.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, instead of using manual clocking out methods, use a solution that automates and digitises the entire process while collecting valuable business intelligence. An option to consider would be the Employee App from Polaris Data which utilises the latest Geo-Fence technology from our friends at Google to pinpoint the employee location allowing them to check-in and out whilst on site.<\/span><\/p>\n<p><b>The bottom line<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Labour is a significant restaurant cost that can be difficult to manage. Not only do you have to run a site and keep tabs on other costs, but you have to contend with minimum wage increases.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The good news is you can overcome this challenge and regain control by understanding your labour costs, knowing how to calculate them, tracking your labour percentage and, most importantly, implementing the correct strategies such as investing in the right workforce management tools.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you would like to find out how Polaris Elements can help you to manage your labour costs, please contact us on 0203 198 8000 or email <\/span><a href=\"mailto:info@polaris-elements.co.uk\"><span style=\"font-weight: 400;\">info@polaris-elements.co.uk<\/span><\/a><span style=\"font-weight: 400;\"> our team would love to hear from you.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Of the five major costs in the hospitality sector \u2013 equipment, utilities, food, and a POS system &#8211; labour cost is one of the most important. Labour costs are not only one of your largest costs it&#8217;s also part of your prime cost \u2013 a key performance indicator that helps determine your profitability. Good news, [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":1261,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"footnotes":""},"categories":[16],"tags":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Understand ACTUAL labour costs before it is too late - Polaris Elements<\/title>\n<meta name=\"description\" content=\"In an era of ever increasing costs, labour costs being the largest in hospitality, it is important to understand and maximise every penny spent.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/polaris-elements.co.uk\/understand-actual-labour-costs-before-it-is-too-late\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Understand ACTUAL labour costs before it is too late - 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