Labour cost in a restaurant

The formula, and what almost nobody puts inside it

Labour cost divided by sales excluding VAT, times a hundred. The formula is trivial; what fails is the numerator, because it nearly always gets worked out from gross wages and little else.

The real cost of a person is considerably more than their payslip. If your percentage comes out suspiciously good, there are almost certainly items missing.

• Gross wages for the whole team, including you if you pay yourself.
• Employer social security contributions.
• Holiday pay and extra payments, apportioned.
• Overtime, weekend cover and casual staff.
• Severance, training and workwear.
• Set-up and close-down time, which is paid and bills nothing.

What percentage is reasonable

In Spanish hospitality the usual reference runs between 30 % and 40 % of sales, and it varies a lot with the format: a counter bar with two people sits lower, and a restaurant with its own dining room and kitchen, higher.

These are trade references, not a rule. What is a rule is that added to your raw ingredient cost — your average food cost — it should not go much past 65 % or 70 %. What is left has to cover rent, utilities, depreciation and your profit.

Sales excluding VAT                     €80,000   100 %

− Raw ingredients (average food cost)    €24,000    30 %
− Labour (everything included)           €28,000    35 %
                                        ───────────────────
  Margin after the two big ones          €28,000    35 %

− Rent                                    €8,000    10 %
− Utilities, insurance, accountant        €6,400     8 %
− Depreciation and maintenance            €4,000     5 %
                                        ───────────────────
  Result before tax                       €9,600    12 %

If labour climbs to 42 %, the result falls to 5 %.
Seven points of labour eat more than half the profit.

Why it climbs without anybody deciding to

Nobody wakes up one morning and decides to raise labour cost. It rises on its own, through an accumulation of small decisions that individually make sense: weekend cover that stays on midweek, an hour of overtime that repeats, a closing shift that starts half an hour earlier "just in case".

And you notice late, because the expense arrives with next month's payroll, when there is nothing left to do about what already happened.

What to do when it is high, without laying anybody off

Almost always the problem is not how many people you have, it is when you have them. A well-sized team badly spread costs the same as an oversized one.

Before touching the rota, look at the hours: comparing labour cost by time slot against turnover in that same slot usually reveals two hours a day with three people serving four tables.

• Cross labour and sales by time slot, not by day.
• Look at set-up and close-down time: pure cost with no income.
• Take off your waiters the jobs that generate no sales — going table by table to take payment, writing the order down twice — before you take off waiters.
• Check the peaks: Saturday cover that quietly became permanent costs you the whole month.

How to measure it without building a new system

You do not need HR software to start. With shift hours and turnover by time slot you already have the essentials, and you have both if you record working time and cash up properly.

What matters is measuring it every month on the same basis. An isolated percentage says nothing; the six-month series says almost everything.

Frequently asked questions