Balancing Labor Costs In The Summer Busy Sales Period to Maximize The Bottom Line

The summer period is often the busiest period in the restaurant business. Normally restaurant managers anticipate high sales volume and therefore increase the staffing and the allotted hours on the schedule. This is a habit that is easy to get into but it can turn into a costly mistake.

The overall goal is to maximize your bottom line throughout the year. In the summer periods when the sales spike for 3 or 4 months, it is really important to retain as much of those profits as possible. If you increase your labor costs in the same rate increase as the sales, then you would negate the ability to get higher profits thru the summer months. If in March and April you are running a 10% on average EBITA (Earning before Interest Taxes & Amortization), then in May to September that should increase to close to 15% on average or even more depending on the sales increase.. It is critical to see an increase in EBITA as the fixed costs % will decrease due to higher sales volume. If the variable prime costs, such as labor and food costs, maintain the same ratio %, then your Net Income % will increase. The increase in $ amount due to the higher sales and the increase in the % will result in a truly maximization of the summer busy period. If the $ amount increases and the % rate of Net Income does not change, it is often caused by an inefficient labor cost, and/or more food waste. Assuming the food efficiency remains the same, then you should zero in on the labor scheduling and staffing.

As Illustrated in this example, the Fixed Costs are a constant, the Variable Costs increase accordingly, but the Total Costs decrease proportionately, and therefore the profits increase proportionately. Both the $ amount and % profit has to increase.

The labor scheduling should be balanced between the business need of having enough staff to handle the bigger volume and still maintaining an efficiently staffed restaurant to maintain a good labor cost. When doing the schedule, determine the core staff that you need for both the kitchen and the front of the house. Once this is determined, look at what increase in number of staff and types of staff you need to add to handle the busy volume. Do you need to add more line cooks, or prep cooks, or both? Do you now add another dishwasher/cleaner? In front of the house do you add a hostess on every shift or a bartender on every shift, or do you event add a second bartender on certain shifts to speed up the drink services and thus increase the volume? These are questions that you should have smart and strategic answers to. Visualize the positioning of all staff on every shift. Look at the sales volume and the movement of product and people. Look at the type of people that you need with certain strengths and skills. Better skilled people will add more labor efficiency and will be more productive. Start your recruiting for your busy periods relatively early so that you have a greater choice of employees with different skill sets. Once you have determined the scheduled needs for the restaurant to handle the adequate volume, make sure that you cost out the increased labor cost and the total labor cost. Keep the labor cost increment as low as possible as long as you are meeting the needs of the business. This will maintain the restaurant as efficient as possible. Also be aware that weather may impact the sales volume significantly during the summer months. Rain will affect patio business and you will not need staff on the patio. You need to adjust accordingly every day, and some times even every hour thru the day. Make sure that supervisors and staff have the culture to cut labor if it is not busy, and to be called in on short notice if the sun comes out.

Keeping a very close eye on your labor cost thru the summer months can make or break your full fiscal year. The summer months, or the busy periods are the periods when you have to make as much profit as possible, so that you can sustain periods of lower volumes. If you don't maximize your profits thru the busy periods, you will not have enough cash flow to handle a downturn in business and will have losses over the full year instead of a healthy profit. If you are not cash flow ready to handle the slower business periods you will not last to get to the next busy period. Therefore labor costs monitoring is as critical in the busy times as it is in the slower times.

Hope you enjoyed this Resto Success blog. Happy Summer!

By: Boris Mirtchev, B.Sc., MBA

April 16, 2018