Factors Impacting Quality and Number of Staff Needed to Operate a Restaurant

Restaurant Operations Management: Principles and Practices © 2006 Pearson Education, Inc. Ninemeier/Hayes Upper Saddle River, NJ 07458

Factors Impacting Quality and Number of Staff Needed to Operate a Restaurant

• Menu – Number of items; extent to which many and/or complex items must be produced.

• Food Preparation Methods – Extent to which convenience foods are used.

• Desired Service Levels – Consider, for example, counter service and table side preparation or service.

• Quality of Training – Training impacts the employees’ knowledge and skills.

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Four-Step Labor Cost Control System

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Step 1:

Step 2:

Step 3:

Step 4:

Select Productivity Measures

Forecast Guests and/or Revenues and Staffing Needs

Schedule Staff

Evaluate Labor Control Results


Labor Cost Percentage

What is “cost of labor?” It includes:• Salaries/wages (payroll)• Social Security taxes• Unemployment/workers’ compensation taxes• Employee health, dental, vision insurance

premiums paid by the employer• Vacation/sick leave/personal days• Employee meals• Employee training expenses

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Cost of Labor = Labor Cost %

Revenue


Calculation of Lunch and Dinner Labor Cost Percentages

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Meal Period Cost of Labor Revenue Labor Cost %

Lunch $2,500.00 $5,000.00 50.0%

Dinner $4,000.00 $12,000.00 33.3%

Total $6,500.00 $17,000.00 38.2%


When Using a Labor Cost Percentage:

• Consistently use the same types of labor cost information when computing and comparing the labor cost percentage

• Realize that labor cost percentages are affected by changes in wage rates

• Recognize that labor cost percentages are affected by changes in menu selling prices and in total revenues generated

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Revenue Per Labor Hour

Note that:• Operations with different wage rates can still

have the same revenue per labor hour• The productivity measurement is easy to compute• The ratio can be used to schedule employees if

revenue estimates and historic revenue per labor hour data is available

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Total Revenue

Labor Hours Used


Labor Dollars Per Guest

• This measure is easy to calculate

• It effectively measures productivity when the number of guests stays relatively constant

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Total Labor Dollars

Total Guests Served


Guests Served Per Labor Hour

• Cost of labor• Changes in menu selling prices• Total revenue dollars generated

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Number of Guests Served

Number of Labor Hours Used

Note: This measurement is not affected by


Guests Served Per Labor Hour:Example by Functional Area

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Functional Area Labor Hours Computation Productivity Ratio

Servers 100 1,000 ÷ 100 10 guests per hour

Bartenders 40 1,000 ÷ 40 25 guests per hour

Cooks 80 1,000 ÷ 80 12.5 guests per hour

Dishwashers 30 1,000 ÷ 30 33.3 guests per hour

Total Hours 250


Productivity Measurement Comparison

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Measure of Productivity (Ratio)

Advantage Disadvantage

Labor Cost Percentage Most widely used Varies with the price paid for labor,changes in menu selling prices andtotal revenues

Revenue per Labor Hour Easy to compute Varies with changes in menu sellingprices and total revenues

Labor Dollars per Guest Served Easy to compute Varies with changes in labor costs

Guests Served per Labor Hour Does not vary with changes in menu selling prices, total revenues or labor costs

Most useful only if computed by functional area


Historical Data for Forecasting Future Revenue

• Prior day’s sales• Average sales for the prior four same days (for

example, Sundays or Tuesdays)• Prior week’s average daily sales• Prior month’s average daily sales• Actual sales on the same day (prior year)• Average actual sales on the same day (prior two or

more years)• Average actual daily sales in the same month (one or

more prior years)

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LaToya’s Restaurant: Weekly Revenue Forecast

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Day Food Revenues Beverage Revenues Total Revenues

Monday $ 3,000 $1,000 $ 4,000

Tuesday $ 2,500 $ 800 $ 3,300

Wednesday $ 3,500 $1,100 $ 4,600

Thursday $ 5,500 $ 700 $ 6,200

Friday $ 8,500 $4,000 $12,500

Saturday $ 9,000 $4,800 $13,800

Sunday $ 4,850 $ 750 $ 5,600

Total $36,850 $ 13,150 $50,000

Note: Assume a 30% labor cost for food revenue and a 25% labor cost for beverage revenue:

$36,850 x .30 = $11,055 labor to generate revenues

$13,150 x .25 = $3,287.50 to generate beverage revenues


Factors to Consider Before an Employee Schedule Is Developed

• Labor costs do not maintain a fixed relationship to revenue. Labor cost percentages decrease as revenues increase and increase as revenues decrease because salaried labor is spread over a larger (or smaller) revenue base.

• Up to a point, no additional employees are needed as revenue levels increase (consider the possible need for only one receptionist in a dining room with a capacity of 50 guests).

• The need for fixed and variable labor employees should be forecast separately.

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An Effective Employee Schedule Impacts:

• The quality of products and services provided to guests

• The employees’ level of job satisfaction • The restaurant’s profitability• The perception that the manager’s own

boss has of his/her ability to manage effectively

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Basic Information for an Employee Schedule

• The dates covered by the schedule• The day of the week covered by the schedule• Employee first and last names• Scheduled days to work• Scheduled days off• Scheduled start time (designate A.M/ P.M.) • Scheduled stop time (designate A.M/ P.M.)

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Still More Information for an Employee Schedule

• Total schedule period hours to be worked (exclude scheduled meal periods from totals)

• Requested vacation or personal days off • On/Off days for salaried personnel• The date the schedule was prepared• The individual who has prepared/approved the

schedule

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Employee Scheduling Principles

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1. Begin with forecasted revenue.2. Develop a productivity target and schedule to meet it.3. Schedule for the needs of guests first and of employees second.4. Avoid scheduling overtime whenever possible.5. Utilize part-time employees for peak-volume periods.6. Minimize split-shifts.7. Consider and grant employee schedule requests whenever possible.8. Be fair when scheduling preferred time periods.9. Comply with all applicable laws and company policies.10. Communicate scheduling decisions in a timely manner.


Possible Reasons to Modify Employee Schedule

• Significant increases/decreases in forecasted business volumes

• Unanticipated voluntary and involuntary employee separations

• Employee call-ins or no-shows• Unanticipated changes in operating hours

or work assignments

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Calculation of Negative Labor Cost Variance

• Dollar Variance:$20,000 actual cost (-) $15,000 targeted costs = $5,000 negative variance

• Percent Variance:40% actual labor cost % (-) 30% targeted labor cost % = 10 percent negative variance

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LaToya forecasts $50,000 in revenue with a target of a 30% labor cost: $15,000 ($50,000 x .30 = $15,000). She has generated $50,000 in revenue but spent $20,000 on labor ($20,000 ÷ $50,000 = 40 % labor cost).


Calculation of Positive Labor Cost Variance

• Dollar Variance:$15,000 targeted cost - $13,000 actual cost = $2,000 positive variance

• Percent Variance:Planned cost: $15,000 labor cost = 30% targeted labor cost % $50,000 revenue

Actual cost: $13,000 labor cost = 26% actual labor cost $50,000 revenue

(30% - 26% = 4% positive variance)

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Another manager anticipates $50,000 in revenue and a $15,000 labor cost. The revenue goal is attained, but actual labor costs are only $13,000.


Estimated Total Payroll Cost Per Shift (Meal Period)

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Outcome Summary Chart

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Review each of the four outcomes below. Pay attention to the future strategies which apply to the outcome which best represents your operation.

Outcome 1 Goals Met?Financial Goals Met YesService Goals Met YesFuture Strategy: Congratulations! Continue to monitor your results. Celebrate your success with staff members to let them know how well they are doing.

Outcome 2 Goals Met?Financial Goals Met YesService Goals Met NoFuture Strategy: Don’t allow service levels to suffer even though you are meeting your financial goals. Review your staffing patterns to identify “under-staffed” time periods that caused poor service levels. Review your service-related training procedures for weaknesses.

Outcome 3 Goals Met?Financial Goals Met NoService Goals Met YesFuture Strategy: Overstaffing may ensure that you meet your service goals, but the continued economic viability of the operation is also critical. Study your schedule for areas of overstaffing. Ask your employees for ideas about how to better serve guests. Start now!

Outcome 4 Goals Met?Financial Goals Met NoService Goals Met NoFuture Strategy: You are not alone. Many managers find themselves in this position when they take over a new or existing operation and/or when financial and/ or service goals are increased. Don’t panic. Build employee schedules that meet your targeted financial goals, and then observe staff carefully to identify service bottlenecks. Intensify your training efforts to help employees meet their service-related goals. Monitor your improvements!


Is an Employee Salaried?• The employee’s primary duties (at least

60% of the time) must involve managing the business or a department within it.

• The employee must regularly direct the work of two or more other employees.

• The employee must have the authority to hire, fire or recommend courses of action.

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Technology and the Enhancement of Management Productivity

• Record Keeping• Scheduling• Training• Report Generation

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Technology and Back-of-House Activities• Evaluating vendor supply specifications online• Scheduling deliveries and placing orders • Performing nutrition-related analysis of menu

items• Creating production schedules based on

forecasted revenue and/or guests• Developing storage requisition (issue) lists• Computing and comparing actual ideal food

costs• Maintaining inventory records and extending

inventory accounts and values

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Technology and Front-of-House Activities

• Helping to monitor individual server and cashier banks• Simplifying and displaying table assignments• Allowing servers to separate guest checks at any time in

the guest order process• Sending orders to the kitchen by use of wired or

wireless technology• Starting orders by touching a picture of the table or by

entering table number• Allowing for daily (or more frequent) changes of menu

special prices• Simplifying debit or credit card processing at the POS

station

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Technology and Bartenders’ Activities• Identify cash, credit and house account patrons• Track contribution margins of items sold• Manage (track) beverage products and supplies and

generate purchase orders• Evaluate revenue and labor hours expended• Monitor product usage for actual and targeted pour

percentages• Record product transfers to and from the kitchen• Schedule beverage employees based on forecasted

revenue levels• Create and print wine lists and other beverage specials

menus• Maintain drink recipe files

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Factors Impacting Quality and Number of Staff Needed to Operate a Restaurant