Managing labor costs is one of the biggest challenges in the restaurant industry. Too high, and your profits take a hit. Too low, and service quality suffers. That’s where this restaurant labor cost calculator comes in. This easy-to-use tool helps you break down wages across job types and keep labor costs in check. The tool will even take overtime into account and makes sure labor as a percentage of revenue is in-line with industry best practices.
Restaurant Labor Cost Calculator
How to use this calculator
1. Basic Setup
- Enter your restaurant name (default: Brett’s Burger Base).
- Use the Add/Remove buttons to include different employee roles. You can add as many employees or job types as you need.
2. Input Categories
Employee Details
- Select job roles from the dropdown menu (12 options available).
- Set hourly wages ($4-$75) using the slider. Believe it or not there are still states like North Dakota where tipped employees like servers can be paid $4.85 per hour.
- Specify number of employees (1-100) per role.
Logging a few hours for catering prep.
Shift Information
- Enter shift length in hours
- Specify daily shift count
- Set working days per week
Overtime Settings
- Choose overtime rate: 1.5x or 2x regular wage
- This applies automatically after 40 hours a week for employees.
3. Monthly Revenue
Enter your monthly restaurant sales (default: $50,000).
Then click the “Calculate Labor Costs” button to get results including weekly and monthly labor costs, labor cost as a percentage of revenue, and the monthly cost of employees by job type in a bar graph.
You’ll also be alerted with a warning message if labor cost exceeds 28% – 33% of restaurant revenue because it can be really hard to be profitable when employee overhead exceeds this number.
Understanding the calculations
Basic Labor Cost:
Weekly Labor Cost = Hourly Wage × Hours per Shift × Shifts per Day × Days per Week × Number of Employees
Monthly Labor Cost = Weekly Labor Cost × 4.33
Overtime Calculations:
Weekly Regular Hours = Min(40, Hours per Shift × Shifts per Day × Days per Week)
Weekly Overtime Hours = Max(0, (Hours per Shift × Shifts per Day × Days per Week) - 40)
Weekly Overtime Cost = Overtime Hours × Overtime Rate × Hourly Wage × Number of Employees
Labor Cost Percentage:
Labor Cost Percentage = (Total Monthly Labor Cost ÷ Monthly Revenue) × 100
About this calculator
I consulted with Malcolm Bedell, the owner of two restaurant concepts in Maine called Ancho Honey and Honey’s Fried Chicken Palace on this calculator. Malcolm understands as well as anyone the importance of maintaining efficient labor costs for a small restaurant and has recently had to make some tough adjustments in his own business to reduce both labor and food costs.
I worked with Malcolm Bedell on this calculator.
For example, here’s the Q3 revenue numbers for each of Malcolm’s restaurants:
- Ancho Total Q3 Gross Sales: $64,416.48
- Honey’s Total Q3 Gross Sales: $198,942.47
- Total Q3 Gross Sales: $263,358.95
With more than a quarter million in sales, you might think Malcolm would be living the highlife right now, but that’s not that case. In fact, the restaurants lost between $10,000 – $14,000 in revenue this quarter when taking into account all the overhead in running a restaurant like rent, loan payments, labor, food costs, and of course taxes.
Finding ways to cut costs
Sometimes you’ve got to get creative when it comes to cutting restaurant costs. Here are a few of the ways Malcolm is approaching cost cutting in his restaurants.
Working in the kitchen at Honey’s Fried Chicken Palace.
Closing Underperforming Locations Temporarily
Malcolm made the difficult decision to close Ancho Honey for the slower winter season in Maine, acknowledging that even with minimal staffing and low overhead, the location was operating at a loss. “Even with a skeleton staffing crew and low overhead, it’s clear that Ancho Honey was operating at a heavy loss.” explained Malcolm.
Streamlining Operations to Reduce Staffing Needs
At Honey’s Fried Chicken Palace, Malcolm reduced kitchen staff by optimizing operations and personally stepping into both the kitchen and back office roles.
“Having myself on the line and in the back office will reduce these costs further,” he added, explaining his role in streamlining operations at Honey’s Fried Chicken Palace. “We can also reduce the amount of kitchen staff for the season, in part due to an anticipated decrease in volume, and in part because we’ve streamlined kitchen operations to such a degree.”
You’ll still find chicken tenders on the menu.
Cutting Lower-Margin Menu Items
By eliminating low-profit items from the menu, Malcolm reduced food costs and indirectly lowered labor demands by simplifying kitchen workflows. “We’ve dramatically reduced food costs at Honey’s, eliminating some of our lower-margin menu items, and making key changes to others that increase profit,” Malcolm emphasized.
Making business decisions like this isn’t always easy, but it’s the exact sort of problem you need to face head on as a restaurant owner.
For restaurant owners navigating similar challenges, tools like this restaurant labor cost tool can help you adjust staffing levels based on the seasonality or other short-term demand shifts. As per the usual, always make sure to consult a licensed professional before adjusting costs in your business.
Related tools:
Menu Recipe Scaling & Food Cost Calculator: Managing menu prices and food costs is another way to reduce the operation costs of running a restaurant.
Food Waste Management Calculator: By reducing food costs, you can further bolster restaurant profits.
About the Author: Brett Lindenberg
