How to reduce labor costs in a restaurant without compromising on service

Running a restaurant business has never been easy. Eighty percent go bust within five years of opening, and the average profit margin for a full-service restaurant in the USA is just 3-5%. This is a sector where every cent still really counts.

Wages make up the majority of any eatery’s outgoings. With the hospitality landscape still in turmoil, controlling that expenditure while maintaining an attractive service is more important than ever. Rather than simply cutting staff and hoping for the best, try these strategies to reduce labor costs in your restaurant without diminishing your service offering.

Plan ahead to avoid unexpected costs

Predictive scheduling isn’t just a benefit to employees. Chaotic ad hoc scheduling costs you more as you bring in additional staff to fill shifts at the last minute. This makes it harder — impossible, even — to accurately predict your wage costs from month to month.

Depending on where you operate, you may already be legally obligated to use predictive scheduling, which involves setting staff schedules at least two weeks in advance. This allows staff to plan their personal lives more reliably, knowing they won’t suddenly be called into work. This reduces frustration and burnout and keeps staff happy and more productive. This, in turn, means lower employee turnover, which also saves you money in advertising and hiring.

Crucially, for restaurant managers, planning your shifts weeks in advance means you pay less in overtime as you’re able to more carefully plan who will work when. Using software to manage your time and attendance helps in this regard. Workforce.com will even warn you when you schedule staff who are coming up on overtime hours and identify alternative employees with normal working hours still to use.

Use data to schedule efficiently

Planning shifts in advance can protect your business from last-minute understaffing, but overstaffing is where labor costs really add up. Many restaurants, even those that are profitable, are still losing money through unnecessary wages because they’re not crunching the numbers when it comes to scheduling.

Many restaurants still rely on the “eyeball” method for setting staff levels. Wednesday afternoons always seem quiet, so fewer staff are scheduled. That works up to a point, but to find the real patterns driving your business, you need to be able to take months of data and sort it on a day-by-day, shift-by-shift, even hour-by-hour basis.

Seeing the long-term income vs. expenditure patterns needed for this granular efficiency is incredibly hard to do manually unless you happen to also be a statistician with lots of free time. This is another area where software like Workforce can help restaurants and hospitality businesses. By automatically collating all the relevant data, it can produce regular reports that spell out in detail where these smaller savings can be made, adding up over the financial year.

Overstaffing a shift doesn’t just cost you money; it can have a dramatic impact on your employees too. For customer-facing roles such as wait staff and bartenders, it directly eats into their income by spreading the available tips thinly across more staff. Efficient scheduling means more income for everyone.

Ditch the delivery apps

Not all of your labor costs will be direct. The pandemic saw an explosion in the use of delivery apps such as Grubhub and Uber Eats that allow customers to order food from restaurants for local delivery. However, with fees that can be as high as 30%, many restaurants — both chain and single location — are finding the additional business from these apps does not result in more profit.

In March 2020, even before lockdowns turbocharged the delivery app sector, TechCrunch research found the cost to the customer for ordering restaurant food via an app included a markup of between 17% and 40.5%. None of that extra profit finds its way back to the restaurants, which instead are expected to swallow the cost of discounts offered by the apps to entice new users.

These kinds of business practices are not going unchallenged. New York has already passed a permanent 15% cap on delivery app fees, and several New York state residents are the source of a class-action suit alleging that Grubhub, Postmates, DoorDash, and Uber Eats are operating a monopoly.

It’s understandable that for many restaurants, off-site customers now represent a significant part of their business. At the very least, you should consider how much you’re paying in fees to reach these app customers and whether that investment is paying off in a sustainable way. Controlling labor costs by hiring more staff may sound counterintuitive, but it may well be more cost-effective to hire your own delivery driver and directly serve fewer off-premises customers at a higher profit margin.

To reduce labor costs for a restaurant, dig deeper for big savings

If your strategy for wage efficiency is simply scheduling less staff on traditionally quiet nights, you’re missing long-term savings and eating into an already slim profit margin. A data-driven approach is the only way to maximize your efficiency, and for that, you need to really crunch the numbers — or use software like Workforce.com to do it for you.