Hey All,

This question is for all you who have stores which (for the most part) run themselves.

 

Im trying to help a friend put together a P&L for a business plan and this question came up:

What is your labor cost as a percentage of sales?

Obviously I know that this differs from place to place depending on concept, so i am just looking for a general idea of what an ideal labor cost should be for total labor (managers and bottom rung employees together).

 

Thanks!!

Some will say NO MORE than 25%  (incl mgmt pay)

We are owner/operators so during the week we can honestly run at about 15 - 17 %  sometimes less.

On the weekends we will ramp up the staff to provide brief amounts of "sitting on butt time" for ourselves so it may creep up to 20 or 23%. 

We plan labor as a fixed cost.  We will send people home but rarely.  There is always work to be done, and I have found that having too few people has hurt as much as having too many.  If our cap is 20% on labor, we push everyone to sell, sell, sell, so we can hit our numbers for the day/week etc.  This has also been great for morale.

Rami,

Labor and food costs go hand in hand when you consider that the lower the food cost the higher the labor.  That's because low food cost is usually the result of all foods coming in as raw product which requires greater work.  Typically higher food cost associated with heat-n-eat products generally produces a lower labor total because it requires less work to sell the product.

There is no magic number, but a guideline number is 30%.

Ciao,

 

Hey Rami,

I agree - it varies from place to place!  And, Steve is right that menu affects labor as well. 

May I suggest that you move managers and other salaried employees out of COGS and to overhead.  Those costs are fixed and don't change.  Which means the associated percentage for salaries will vary widely every week.  Instead, I would suggest trying to get an hourly labor % target, as that's they way they'll manage labor when they're open.

At out place, we make everything from scratch except the pasta noodles and sandwich bread.  As a result, our BOH labor is 2/3 of our total hourly labor.  Also, we're not full-service, so all of our staff is full-wage, rather than tipped.  Our weekly target is 22.5%, and we usually beat it by a point or two on the month.  (Note that this % is hourly labor only.)

When we were working on our business plan, we made some sample schedules for busy weeks and slow weeks, and costed them.  We took the average as our ballpark labor %.  (Our business plan had 25%).

Hope this helps!

Laina Shockley
Ethos Vegan Kitchen

Rami the number you are looking for is Prime Cost - Prime cost is labor, employee benefits and food costs combined.  You can run a high labor cost and low food cost if you prepare everything from scratch. You can run a high food cost and a low labor if you are cooking from the box.

Prime cost should be around 65%. Anything much higher than that you will find it very difficult to make a profit.
To look at labor cost or food cost without looking at how one affects the other is only looking at half the picture.

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You need to do as Laina did, and create some mock schedules. While a lot of bankers only look at the Executive Summary of the business plan, some of the smarter ones will at least check to see if you know enough about the business you want to open to have created an actual schedule.

If not for the bank, you should still be creating a mock schedule for your own plans. How early your staff has to be in, how many people you'll need to produce food quickly during a rush, and how shifts will overlap to cover peak periods are all very important considerations in your plan. The answers to these questions will be very dependent upon your menu.

You really can't create an effective plan without having your menu and your staffing figured out first.

Brandon O'Dell
O'Dell Consulting
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