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5 Simple Ways To Reduce Restaurant Labour Costs

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Labour is one of the three biggest costs of running a restaurant.

In this article, I’ll be sharing 5 simple ways to reduce your labour expenses so you can free up extra profit to turn your struggling business into an efficient cash-cow that works for you!

What is labour cost and how do you calculate it?

Most people get labour cost wrong. Labour costs is so much more than the hourly wage that you pay your staff!

It includes bonuses, incentives, insurance, health benefits – all these things that add up to be your labour costs. This is why it’s important to gain clarity and know the exact amount you spend each month.

Once you understand these numbers, you can figure out where to shave off excess spending to become more profitable.

Not sure how to calculate your labour cost? I walk you through two detailed ways of calculating labour expense in this video here, so check it out if you don’t already know your numbers!

But without further ado, let’s dive into how to reduce your restaurant’s labour costs.

1. Use Pod Staffing

The first strategy is Pod Staffing.

How does Pod Staffing work?

Just imagine you’re running a restaurant that typically serves 50 lunch customers. During that service, you require three different staff members to serve all 50 diners. These three staff members would make up one pod.

Now imagine it’s a Saturday and you have 100 customers coming in. How many staff members would you need to service those hundred people? Two pods, or six staff.

Pod staffing is all about identifying the max capacity of customers that one pod can service. This allows you to scale your labour up and down depending on your business cycle and traffic change throughout the week.

Keep Track of The Number of People Coming In

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To find the max capacity that one pod can serve, you first need to keep track of how many employees that you have onsite during a typical service. Is there too many staff, or too few? Are they getting slammed or is it manageable?

Ask your team how many people they think they need and then monitor the results.

Once you know this number, it becomes much easier for you to stagger shifts and schedule properly.

For example, during busy days, you can schedule two or three pods per service. And then on rainy or slow days you can schedule less, or have a pod that is on-call as needed.

This allows you to budget and schedule your staffing accurately accordingly to your sales.

2. Pay Your Staff More

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The second way to reduce your labour costs is to pay more.

“Wait, what?

Now, before you click away hear me out…

It’s About Quality vs Quantity

Think about it, if you were to pay just 50 cents extra an hour to retain a good staff member, you save hundreds, if not thousands of dollars by avoiding having to train a new employee.

Take care of the staff members you already have and gain their loyalty. By doing that, they will invest much more energy into their job to deliver better service for your customers. It will also prevent food spoilage and theft because they enjoy their work life.

Not only will you save more in the future, this helps build a good culture within your business.

A lot of business owners think the complete opposite is true and that penny pinching their staff is the way to save more money.

Penny pinching does NOT buy you any loyalty whatsoever.

So pay the market rate, pay that little bit of a premium. You will retain your loyal and talented staff, reduce your turnover rate, and save more in the long run.

3. Try Gamification

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What is gamification? It’s all about making your workplace enjoyable AND reaching your quotas.

For example, if you want to incentivize your staff to to hit that sales goal, you have to make it fun for them.

Don’t make it an obligation for them to hit these goals with negative reinforcement. We don’t want that in a workplace because it creates a bad culture, and risks your staff members being unhappy and quitting.

Work should be engaging, fun, and positive!

That’s the way to retain your staff and reduce labour costs the right way.

4. Consider Cross Training

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A lot of business owners don’t like to cross train their employees, they’d rather just have everyone get really good at one specific role.

It may seem like it takes more time and money to cross train employees for different roles, but it can actually help a lot with staffing problems, especially if staff members train each other.

To give you an example, we hired a cashier to join our team, but we also trained them to make ice cream. Eventually, we also trained them on management procedures, so that they are able to step into any role when needed, like if other team members are sick or on vacation.

And at the same time, it empowers the cashier, they feel that they have much more responsibility, and the opportunity to learn and grow. This makes them want to stay with your company much longer.

5. Have A Policy Guidebook

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The fifth and final way to reduce your labour costs is by having a policy guidebook.

A lot of restaurant owners feel frustrated when their staff isn’t performing the way that they’d like.

A lot of times, the reason for these discrepancies is that they don’t have a policy guidebook that sets the correct expectation from the beginning. When you’re on-boarding new staff, you have to identify the way you want them to act

For us at 720 Sweets, our employees sign our policy handbook and know exactly what is expected of them.

If we give every employee one ice cream per shift, but they’re giving away more to their friends and family, we can give them a warning without frustration, because there’s no miscommunication.

Same thing with clocking-in/clocking-out. Let’s say your staff member punches in, goes to the washroom, changes clothes, brushes their teeth, whatever. That’s already 15 minutes that you’re paying them to get ready.

As the owner, you get frustrated when you see these things so you lash out. The team member gets annoyed, and it just becomes a really sour relationship.

Every minute counts! If you have 10 employees, each person wasting 15 minutes, that’s many extra hours you’re spending on labour that is not efficient.

Everyone loses because there was no policy standard agreed upon. So make sure to establish these expectations in a policy guidebook from the beginning!

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There you go: 5 Simple Ways to Reduce Your Labour Costs.

  1. Pod Staffing. Identify the maximum amount of people that your minimal staff can serve, then scale up or down depending on traffic.
  2. Pay Fairly. This creates a better culture and helps you retain your staff.
  3. Gamification. Use positive reinforcement to inspire staff to reach goals and improve team morale.
  4. Cross-Train. Make sure your staff can fulfill all major roles for flexibility and empowerment.
  5. Policy Guidebook. Agree upon the right expectations from the beginning to reduce confusion and conflict.

Every single dollar that you save on labour costs is direct profit into your pocket. Take action and apply these things to your restaurant today!

For more tips and tricks to build a profitable restaurant, see our resources on restaurant marketing or staffing.

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