Forecasting for Restaurants: Implications for Inventory and Labor

Operating a successful restaurant requires restaurant owners and managers to focus not only on managing day-to-day operations, but also evaluating ways to reduce costs and grow future sales. Currently, some of the most powerful restaurant management systems on the market feature predictive tools around food and labor costs.

Forecasting won’t lead to perfectly accurate results every day but forecasting for restaurants is vital to recognizing trends and responding proactively. Forecasting based on historical data can provide insight into your two largest costs, food and labor, and help you make essential decisions about where to put your resources, when.

What is forecasting for restaurants?

Forecasting for restaurants is estimating key metrics like future sales, customer traffic, or menu item ordering mix based on historical sales data, economic trends, or market analysis. Sales forecasts, based on integrated POS data pulled from your restaurant operations software, are particularly powerful tools in the restaurant industry.

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Projected sales and customer traffic data can be used in different areas of restaurant operations, primarily in controlling prime costs. Inventory forecasting is calculating the precise amount of future inventory and production needs for your restaurant, and it also takes into account historical consumption patterns and the shelf life of finished goods. Labor forecasting, ultimately, is delivering a positive customer experience with the optimal lowest labor budget, and it takes into account labor matrixes and the right mix of labor skills.

The best forecasting depends on how you manage information, how much data you have access to, and the unique factors that influence the day-to-day of your business plan. Diving into the specifics of forecasting for restaurants can help you see the usefulness of these tools.

How to forecast your restaurant labor cost

How much of my total costs should be labor?

Forecasting your restaurant labor costs can help you optimize one of your restaurant’s biggest expenses, labor costs.

Commonly, restaurateurs allocate around 60% of their total sales to their prime cost — food and labor. Industry standard recommends that around 30% of your total sales goes toward labor costs. This number can fluctuate depending on the type of restaurant, with quick-service or full-service restaurants requiring different labor percentages.

Key drivers for restaurant labor costs

Restaurant labor costs primarily depend on your particular restaurant industry needs and unique mix of required labor skills. You don’t want too many staff for a quiet dining room, giving you a high labor cost, or too few staff on a full capacity evening, which could lead to poor customer service. In order to optimize costs as well as customer satisfaction, your restaurant labor scheduling should have the right people, in the right place, at the right time.

Calculating restaurant labor costs

Forecasting your restaurant labor costs can be broken down into a basic four-step process.

1. Break the sales forecast down into periods

First, break down your sales forecast into the smallest period of time impacted by a shift in sales. This primarily depends on ticket times: a QSR may have shorter time periods of 15 minutes, while a full-service restaurant with longer ticket times may need to go by day part. 

Think about the difference between a Friday happy hour versus a Sunday brunch. By reviewing historical sales in each time period, you can see how sales fluctuate throughout the day, allowing you to have labor applied when it is needed the most. This will require gathering historical average sales amount data per time period, which can be extremely labor intensive and tedious to do without restaurant operational reporting software.

2. Translate the period sales forecasts into labor

Next, you will need to translate the period sales forecasts into how much labor is required for that amount of business. Labor calculations are not always a black and white formula. It may take a minimum of three employees to run a small restaurant, regardless of sales. But labor becomes more efficient as it increases, so while an increase of $70 in sales per hour may mean you need to add a fourth employee, you may not need to add a fifth employee until you have an additional $100 in sales per hour.

When you’ve defined how much staff you require at different sales data periods, you should also reference visiting your sales per labor hour (SPLH) and labor percentage goals. With these considerations, you can create a labor matrix or labor guide to help you understand optimal labor in relation to future sales levels.

3. Schedule accordingly

Once you know your labor matrix, consider employee data when working to meet your labor cost goals. Employee preferences are a factor to keep in mind, as increased employee satisfaction can lead to reduced turnover, further lowering your labor costs. By using collected employee availability to match projected sales, you can use up-to-date information to create schedules informed by forecast restaurant sales data. 

Scheduling software can help simplify this process.

4. Manage the labor cost in real time

Finally, you will want to use sales forecasting, along with your labor guide, to review your work and determine how much labor you need in real time during each period of the day. Your actual sales will not perfectly line up with your sales forecasting every day, which means your sales won’t always match your labor matrix. But by using managerial restaurant industry experience and up-to-date restaurant reporting to smooth out forecasts, you can adjust to stay close to optimal labor, regardless of scheduled labor, through using tools like breaks, cuts, and call-ins.

How to forecast your restaurant inventory

Forecasting for restaurants can also help optimize your other main cost, food. 

Inventory Projections

Your inventory projections should start with sales data forecasting, tracking your daily sales trend between this year and last year. First, by averaging sales by day of the week for the prior eight weeks, you can compare those numbers to the average sales by day of the week for the same eight weeks the previous year. From there, you can determine the trend increase (or decrease) in sales this year. Finally, you can apply that trend percentage by day of the week in the period for which you are forecasting.

Looking at Past Years and Seasonal Trends

These forecasts should also consider past years and seasonal business growth trends. As a restaurant owner or operator, you can analyze the core components of your forecast by using your own experience and knowledge. Take a look at the growth trend, but also consider weekly fluctuations and annual historical sales seasonality. In addition, consider other unique real-time variables, such as weather, events, and traffic.

Profit expectations

You can forecast your inventory needs by tracking and analyzing inventory purchasing with sales data in mind. By analyzing your stock usage compared to stock counts, you can see trends to forecast future menu item orders. Understanding your projected sales volume can help you create profit expectations and strategically plan for your future business growth. By understanding sales projections, as well as other key metrics from your restaurant accounting software, you are better informed to make large decisions, from big equipment purchases to loans and investments.

Using Historical Sales Data to Drive Your Decisions

Applying forecasting to operations uses historical data to drive your decisions and helps inventory control in three main ways.

First, because if it’s not on your shelf, you can’t waste it, sales forecasting can help limit food waste. By adjusting your inventory to reflect how busy you will be and what menu items guests will order, you can streamline your prep process and accurately forecast your stocking needs to attain a low percentage of error.

Next, forecasting can facilitate automated ordering. You can increase efficiency and accuracy with your food and beverage orders, calculating ideal usage from your menu item mix. 

Finally, forecasting allows you to take advantage of suggestive ordering. This smart tool leverages historical consumption patterns and sales forecasts to automate configurable par levels and suggest optimal on-hand inventory levels. By predicting actual usage, you can reduce staff time spent on ordering.

Why conduct a restaurant sales forecast?

When you forecast restaurant sales, you can streamline operations and optimize costs, both in your inventory and labor.

An accurate restaurant sales forecast can help you meet the inventory demand of projected customer traffic. Forecasting can help you spot errors in your inventory, such as receiving mistakes, incorrect portioning, or employee theft. By maintaining an optimal level of inventory, you ensure you don’t run out of customer favorites or high margin items.

Forecasting for restaurants can also optimize your guest experience while ensuring streamlined labor costs. With schedules informed by forecasting, you can ensure proper staffing levels and a mix of labor with the right skills, delivering an optimal guest experience at the lowest cost.

Although restaurant sales forecasting is not 100% foolproof, the more often you complete restaurant sales forecasting, the better you will become. Complete accuracy isn’t feasible, because you can’t predict the future, the weather, or what your neighboring restaurant may do. But forecasting can help keep your business growth on track, by documenting how you performed within the same time frame previously. Forecasting can help you spot trends and anomalies, allowing you to recognize patterns and react proactively. 

By reviewing and comparing sales forecasts, your sales forecasting will become more accurate as time goes on.

Conclusion

Forecasting for restaurants helps you get the most out of the data available to you, both in day-to-day decisions and long-term planning. For restaurant owners and operators always thinking two steps ahead, forecasting restaurant sales can be a key tool for meeting future challenges.

Restaurant365 incorporates restaurant accounting software and restaurant operations software into an all-in-one, cloud-based platform. For 10 tactics you can start implementing today to reduce your prime costs, download the prime cost e-book, Guide to Reducing Restaurant Prime Costs.

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