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Secrets to Controlling Variable Costs - Part 1

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Jenny Day
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Every business has both fixed costs (controllable) and variable costs (uncontrollable). Your fixed costs are your set costs such as rent, manager salaries, utilities, taxes, insurance, etc., that do not fluctuate month to month. These costs are independent of sales and are (for the most part) considered uncontrollable.

Variable costs, as the name indicates, can change from day to day and shift to shift. The major variable costs that impact your restaurant group’s bottom line are hourly labor, food cost, and overhead. Lowering your variable costs is one of the most common, effective ways to increase your profit margin and make more money per sale.

In this three-part series, we will break down how to effectively control labor, food, and overhead. Let’s start with tips for controlling labor costs.

Hire flexible employees

Restaurant turnover is ridiculously high and training costs are expensive. Employees who can easily pick up or drop shifts are invaluable. Flexible employees are easier to retain since schedule issues are one of the top reasons employees leave.

Look for sales trends

Balancing good service and low labor is difficult but it can be done. It is important to review your sales history to know what to expect on any given shift. Also, be aware of local events that have historically caused an unexpected spike or drop in sales. Be sure you are adequately covered for peak hours but be careful not to over schedule as this will quickly cut into your profits.

Check your POS reports hourly

Restaurant managers are insanely busy, but this is important. Did every employee clock in and out on time? Is anyone at risk of going into overtime? Are sales tracking to forecasted labor? It’s imperative that you watch these possible labor cost overruns carefully before they become ongoing, costly expenses.

Know your optimum sales and number of customers served per labor hour for each day part. Sales per labor hour (SPLH) or customers served per labor hour are key indicators of productivity. Low sales or customer counts indicate possible scheduling or shift management problems. Similarly, high customer or sales numbers per labor hour expended reveals understaffing issues that that can result in poor customer service. Consequently, it’s important to find the optimum levels for your unique restaurant and meal periods to ensure maximum productivity.

Cross train employees

Increase productivity by cross training employees so that you can use them in other areas of the restaurant when you are short-handed or need extra help during a rush. For example, train a few waiters to jump behind the bar during happy hour when the bar is full, and the restaurant is empty. Train your busser to run food when all your tables are full and there are none to clean. If you’re new to takeout and delivery, make sure that servers can pitch in when your off-premises business is busier than your dine-in business.

Find star employees

While you might tend to think that paying everyone minimum wage would help you hit a lower labor percentage, this is not always the case. If you take a few exceptional employees and pay them a few dollars more per hour, they will feel more motivated and loyal to their jobs, creating a win-win situation. But let employees know that with more money comes more responsibility and make sure they are willing to accept the extra work.

Pair these star employees with weaker or less experienced employees (start with slower shifts until you learn the right mix). For example, if you schedule four average performing line cooks on a shift at $11 per hour, you are spending $44 per hour for line cooks. But what if the shift runs just as smoothly when your star line cook, who makes $17 per hour, is working with only two other $11 per hour cooks? You are only paying $39 per hour, saving $5 per hour, which can add up quickly over time.

If you track how your labor compares to your daily labor percentage goals you can see where to adjust employee scheduling based on business trends, and schedule different functional areas of the restaurant separately with individual labor goals and metrics.

Boost productivity

Another trick is to boost productivity by carefully analyzing each task that is being performed and by knowing how long it takes. Sometimes you can save money by coupling employees in creative ways. For example, suppose one employee can dice 15 lbs. of onions in one hour at $15 per hour. However, because these are human beings and not machines, the same person can only dice 10 lbs. of onions in the second hour. You pay $30 in labor to dice 25 lbs. of onions. But if you change to two employees dicing onions for one hour instead of one employee dicing for two hours, you end up with 30 lbs. of onions for the same $30.

Labor costs can be difficult to control. But a little hard work and creativity can help keep it at bay. Try different options until you come up with the right mix for your business.

Schedule a free demo of Restaurant365 today.