Labor Cost Secrets: Controlling Your Biggest Expense for Bar Owners

What if your labor costs are eating away at your profits without you even realizing it?

Many bar owners struggle with managing labor costs effectively, leading to diminished profits and operational challenges.

In today's episode:

• Learn proven strategies for labor cost control
• Understand the importance of proper scheduling
• Discover how to maintain quality service while optimizing staffing levels.

Master the essentials of labor cost management to boost your bottom line - press play now.

Learn More:
Email Chris
Schedule a Strategy Session
Bar Business Nation Facebook Group
The Bar Business Podcast Website
Chris' Book 'How to Make Top-Shelf Profits in the Bar Business'

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A podcast for bar, pub, tavern, nightclub, and restaurant owners, managers, and hospitality professionals, covering essential topics like bar inventory, marketing strategies, restaurant financials, and hospitality profits to help increase b...

Transcript

Chris Schneider (00:01.336)
Today, discover how to analyze and optimize your labor costs effectively. Learn strategic scheduling techniques that protect your margins and master the balance between quality and cost control.

Chris Schneider (00:17.218)
So far this year we've talked about team management a couple of times and we talked about the. Way to train your team and then and then some soft skills for managing your team, but today we're diving into the actual costs and exploring the critical aspects of labor cost management. Effective scheduling strategies and how to maintain service standards while controlling expenses. So rather than look at team management and in how we treat our team, we're looking at the.

cost side of it today. Many bar owners struggle to find the right balance between adequate staffing and profitable operations, often leading to either over-staffing or compromised service quality. By implementing a proper labor management cost control system and understanding your key metrics, you can optimize your labor cost while maintaining high service standards. So the first thing I want to talk today is understanding the metrics. What KPIs are we looking at?

And one of the things that I think is absolutely critical anytime you're doing an analysis of your labor cost is to separate your front and back of house. Understand what different people, different components of your business cost you. And then you need to calculate that labor cost percentage correctly. Now, labor cost percentage, we've talked about food costs and beverage costs, those tend to be much more complex than labor cost in that we're...

taking just food cost and dividing it by just food expenses for a food cost percentage. Well, labor costs we're taking, what did you spend on labor overall? And what did you have in revenue? It's just your labor cost divided by your total revenue. Now where people go wrong on this metric frequently, is they just include salaries and wages. They don't include things like employer payroll taxes, or maybe they do. But where people really often get this wrong is they don't include all the

ancillary benefits they give their team. If you're paying for and we talked about this last year at one point, if you have like a telehealth program for your employees, that's not an expense that needs to be included in your labor costs. That is a cost associated with labor. So when you're understanding your labor costs, and you're looking at that, you need to make sure you're looking at all expenses regarding employees, not just some of them want to analyze your actual labor costs, not just

Chris Schneider (02:39.886)
part of your labor cost. And one of my favorite metrics to use to really understand volume and what we're doing is to look at sales per labor hour. how many people did I have working? You know, if we're not talking food, we're just talking behind the bar, I have one bartender working, that bartender produced $200, one hour of labor, $200 of sales. Boom, that's easy. Because that's the metric we can use to try to make your staff as efficient as possible, especially when we're talking about busy periods.

It's easier to put more volume in a busy period than more volume in a slow period. And that all comes down to essentially monitoring sales per labor hour and figuring out ways to have higher sales per labor hour and maximize your staff's time. You also need to always look at salary versus hourly. It can be difficult, but don't include necessarily your managers when you're looking at hourly efficiency. Don't include your

hourly employees when you're looking at management efficiency, break those apart. And then you need to set realistic labor cost targets. So when I say realistic, that's all dependent upon your model and your market. If you are in California where you have this very high minimum wage for tipped employees, it's going to look a lot different than if you're in Indiana where tipped minimum wage is still $2.13, which is the federal minimum and true of a handful of states.

Make sure your labor cost target is not based on what some dude talking to a microphone tells you. I mean, listen to me, but a lot of us are prone to say, well, yeah, labor costs should be about 27.5%. I like 27.5%. That's what I go for always for my overall labor costs, but maybe it really needs to be 32 because I have a higher cost structure. Or maybe I don't have managers. I'm doing all the management myself. So if it was 27.5%, that's...

including me getting paid, or it should really be 25 % if I want to get paid. But make sure you're setting realistic targets based on your model, your market, and the labor costs of where you're located. Then the second thing we want to do when it comes to optimizing the cost of our labor is look at strategic scheduling. So that's where sales per labor comes in. Understand peak staffing and non-peak staffing and understand what your bartenders can actually produce.

Chris Schneider (05:06.786)
Just because one bartender can say do $500 in sales in an hour as their max capacity doesn't mean all your bartenders can. Maybe your bartenders are different skill levels. not only should you look at peak and off-peak scheduling, but you should also look at who's capable of handling that volume by themselves. How can I combine volume capacity with sales projections?

to make sure I'm scheduling the right number of people with the right employee at the right time. Because if I have an employee that can only do $200 per hour in volume and an employee that can do 500, that $500 per hour employee probably needs to be Friday, Saturday night on my busier shifts. With that $200 per hour employee, it's probably better set up for a day shift or a Tuesday night.

Another key thing here when we're talking about strategic scheduling that needs to be mentioned is you need to cross train. You need to be able to swap people out from one position to another in order to make sure that you're keeping your labor cost in control. And the big place where cross training will help you is when someone gets sick and you need to control overtime costs. A lot of people don't think about this, and if you're in a state like I am, okay, $2.13 an hour overtime.

not a big deal. you're in California, that's going to cost you a whole lot of money. So you want to ideally never have an hourly employee that works over 40 hours a week, and that's going to control your overtime and really help control your costs. When you have multiple employees in overtime, it's very, very difficult to control your labor costs because you're increasing it by 50 % for those hours. Now, always use historical data, right? You should use a combination when you're looking at the scheduling of historical data.

If you have forecasting, your forecasting should come into play here too. So that you have the minimum number of employees to achieve the volume plus a little bit more that you're thinking you will have on any given night. Now, the third thing I will say today is make sure when you do this, you set up proper tracking systems that you've trained your managers on how to adjust labor. Right? We all say cut front of house staff. Well,

Chris Schneider (07:27.086)
If I have a waitress make a $2.13 an hour, whether or not I cut her, it makes a difference for her pocket. And I need to be mindful of that. I don't want an employee that I'm keeping around to make $5 in tips because that's just not fair. And that's not, does not make you a place they want to work. But

you need to train your managers on labor costs because that $2.13 an hour employee, it doesn't cost me much to keep them around an hour or two. Now, like I said, they need to make the tips, but it's not costing me much versus if I cut one of my cooks when I'm slow, I'm saving a lot, lot more money if you're in a state with a minimum wage for tipped employees.

You're in a state where your minimum wage for tipped employees is $15. Yeah, cut that person as quick as you can because you have different things. So you need to train your managers, essentially make them a decision tree on who to cut when and why in order to optimize your costs so that you can make the most profit possible.

The other thing, and this is the problem where most restaurants and bars just screw this up. Don't cut to the point that you have lower quality service. You have to maintain your service. You have to maintain your service quality. You have to maintain your standards. So always make sure you're staffed in a way not just to control costs, but to control costs and optimize guest service. Those two things always must go hand in hand.

So to wrap it all up for today, effective labor cost management is crucial to maintaining a profitable wiring operation. Most bars that are not making money have a labor cost issue. Most bars that are making money don't have a labor cost issue. It is absolutely crucial. By implementing proper tracking and training systems, strategic scheduling and continuous monitoring of that, you can optimize labor costs while maintaining the service quality your guests expect.

Chris Schneider (09:34.968)
But always remember that successful labor management is an ongoing process. It's not do it once, set it and forget it. It is an ongoing process that requires you to regularly turn your attention to it and adjust how you're doing your staffing to minimize cost without minimizing service and put the most money on the bottom line.