How to Reduce Restaurant Labor Costs Without Sacrificing Efficiency and Service

This article was originally published by FSR Magazine

Running a restaurant isn’t cheap. At the same time that minimum wage is creeping up, inflation is affecting food prices. Restaurant owners must be smart and creative to reduce labor costs while still creating an excellent customer experience.

Ways to Reduce Labor Costs

A survey of American consumers found that despite rising food costs, 58 percent went out to eat more frequently in 2022 compared to the year prior. That’s good news for restaurants struggling to make rent amid widespread labor shortages and skyrocketing inflation. However, it doesn’t mean restaurant owners can depend entirely on having more customers. Cutting down on labor costs is a crucial aspect of thriving during periods of economic turmoil.

Schedule the Right Number of Employees

Perhaps the most important factor when trying to reduce labor costs is paying attention to scheduling. Managers must ensure they aren’t bringing in too many people for one shift, because that leads to overspending on labor. It also means tips will be spread more thinly between bartenders and servers.

Instead of guessing how many people to schedule per shift, managers should first determine how much money the restaurant earns on its busiest days. Scheduling software makes this easy. They can then compare this number to how much they earn on their slowest days to look for patterns.

By looking at the numbers over time, restaurant owners can get a clearer picture of which days and times are busiest and schedule people accordingly. It’s crucial to keep tracking the data over at least a year — holidays and changing weather conditions prompt different consumer behavior. Maybe Wednesday evenings are typically slow, but they reliably pick up during spring break.

Generally, it’s better to bring in fewer people for a shift and call for reinforcements rather than overstaff and find out someone isn’t needed. At that point, it’s too late to send people home, but they may feel bored or frustrated if they have nothing to do.

Careful scheduling also avoids the issue of paying more for overtime. Rather than scrambling on a busy night to bring in an employee who already worked 40 hours that week, managers can set a schedule far in advance to ensure smooth operations.

Having a labor cost target also helps when creating schedules. Many restaurants have a labor cost between 30 to 40 percent of their total revenue. Tracking this number every day helps owners decide if they need to cut costs or even boost spending in this area.

Invest in Training

As important as it is to hire great talent, it’s even more critical to retain it. Employee training boosts productivity, reduces turnover and clarifies expectations.

One way to reduce labor costs is to cross-train employees for different roles. For example, hosts can also work as bussers if dishes are piling up, or servers with great drink-mixing skills can sub as bartenders on busy nights. It makes it easier to schedule when short staffed and creates a sense of teamwork among employees.

It’s also vital to clearly delineate everyone’s roles and responsibilities. Which tables should servers be attending? Who should step in as a leader when the head chef calls in sick?

Other training areas to focus on include teaching employees to upsell products to maximize their productivity. Additionally, all employees should clean up after themselves as they work rather than saving this task for the end of the shift.

Let Customers Help

An easy way to reduce labor costs is to let guests do some of the heavy lifting. Far from feeling like an inconvenience, many people appreciate having a QR code on the table that lets them pay early or order their own food.

This technology puts the point-of-sale system right in the customer’s hand. It saves servers time during busy periods, reduces unnecessary walking, increases table turnover and creates a seamless experience for customers. It also allows restaurants to have fewer employees.

Create a Positive Workplace Culture

A positive work environment makes staff happier to show up and do their best. It decreases turnover, translating to lower labor costs that would otherwise be spent onboarding new workers. In other words, fostering a healthy workplace culture saves money in the long run.

Clear communication is the biggest factor in creating a good work environment. Asking employees for feedback goes a long way, and they may have advice for how to improve efficiency even more. Weekly staff meetings or emails will ensure everyone is on the same page.

Gamification can also improve employee morale while reducing labor costs. Managers can set up sales competitions in which the winner gets money or some kind of award. This technique uses positive reinforcement to drive results.

Even the happiest workplaces have policy guidebooks to make the rules clear. For example, how many free meals do employees get per shift? How long should breaks last? These policies are an important aspect of communication and boundary setting. They also reduce inefficiencies in the form of extra-long breaks or double-dipping from the ice cream bar.

Additional Tips

These techniques may have smaller individual impacts than streamlining scheduling or training employees, but they add up over time.

• Pay attention to clock-in and clock-out procedures: It’s important to ensure employees aren’t squeezing in a few extra hours by clocking in early or leaving late.
• Reduce restaurant operating hours: Owners should look at the data to identify slow periods, then adjust open hours as needed.
• Employ inventory management software: Inventory software helps restaurant owners keep track of what’s in the pantry and what they need to order, stat.
• Use overlapping ingredients: If every dish on the menu has completely unique ingredients, it’s harder to stay fully stocked and organized. Having a few menu items that share ingredients improves efficiency.
• Reduce the menu: A smaller menu makes it easier to train servers and reduces inventory issues.
• Ditch the delivery apps: Delivery services charge substantial fees, require extra employee training and add an element of chaos during busy periods.
• Stagger schedules: Most restaurants don’t need four employees showing up at 3:00 to relieve the lunch crew, because mid-afternoons are typically slow. Instead, managers can have one person come in at 3:00, another come in an hour later and two arrive before the dinner rush. It’s an easy way to reduce labor costs and help staff stay engaged and busy.
• Rearrange the kitchen layout: Workstations that are too crowded or too far apart can decrease efficiency. It might be worth taking a few days to reorganize or even renovate the kitchen.
• Implement automation: Robots make short work of prepping food and throwing together simple menu items. White Castle debuted a back-of-the-house robot called Flippy in 2020, making it the first fast-food restaurant to install a robotic cook.

Although running a restaurant can be expensive, there are numerous ways owners can cut down on labor costs. Overall, the most important factors are managing staff size, providing ongoing training and looking for ways to improve efficiency.