Running a restaurant is tough. You’ve got food costs to manage, rent to pay, and on top of that, you’re trying to keep a team happy and motivated. But here’s the million-dollar question:
Are you spending too much on labor?
If you’ve ever looked at your payroll numbers and thought, That seems like a lot… but I don’t really know what’s normal?—you’re not alone.
Let’s break it down in plain English, so you know exactly what your labor costs should be, why they might be too high, and what you can do about it.
What’s a Good Target for Restaurant Labor Costs?
A good target for restaurant labor costs is usually around 30 to 35% of net sales.
That means if your restaurant brings in $100,000 in sales this month, you should be spending about $30,000 to $35,000 on labor. That includes wages, payroll taxes, benefits—everything related to paying your team.
Now, that number isn’t set in stone. If you’re running a fast-casual spot where customers order at the counter, you might be able to keep labor costs closer to 25-30%. If you own a full-service restaurant with table service, bartenders, and a bigger back-of-house operation, your labor percentage might creep up closer to 40%.
The key is making sure your labor costs are in line with your restaurant’s revenue and operating model. If your labor is sitting at 40%, and you’re running a counter-service burger joint, there’s probably an issue. But if you’re at 38% and running a fine dining restaurant with white tablecloths and a sommelier, that might be completely fine.
Where’s All That Money Going?
When we talk about labor costs, we’re not just talking about the hourly wages you pay your cooks and servers. There’s a lot baked into that number. It includes salaries for managers, payroll taxes, insurance, benefits, paid time off, overtime—basically, every dollar that goes into keeping your team on staff.
This is where restaurant owners sometimes get tripped up. You might be looking at your hourly wages and thinking, I’m paying fair wages—why is my labor cost so high? But then you dig into it and realize overtime is through the roof, or turnover is costing you more than you thought because you’re constantly training new people.
Why Are Your Labor Costs So High?
Let’s say your labor costs are running above 35% and eating into your profits.
What’s going on?
The most common issue is overstaffing. A lot of restaurant owners (understandably) like to err on the side of having too many hands on deck rather than too few. No one wants to be caught short-staffed on a busy Friday night. But if you’re regularly scheduling more people than you actually need—especially during slow shifts—that adds up fast.
Overtime is another big one. If your staff is constantly going into overtime, that means you’re paying time-and-a-half when you might be better off just hiring a part-time worker to cover those extra hours. A lot of restaurants don’t notice this until they really start tracking hours closely.
Turnover can also quietly drive up your labor costs. Every time you lose an employee, you’re not just losing them—you’re paying to recruit, hire, and train someone new. That process isn’t cheap, especially if it keeps happening.
And sometimes, it’s just a matter of pricing. If your labor costs are high but your menu prices don’t reflect that reality, you might not be charging enough to cover what you’re paying in wages. That doesn’t mean you need to overhaul your menu overnight, but it’s something worth looking at if your payroll is consistently eating into your margins.
How Do You Get Labor Costs Under Control?
First, look at your scheduling. Are you consistently overstaffed during slow periods? If your Tuesday lunch shift is fully staffed but you never actually have that many customers, you might be able to trim that down without affecting service.
Next, check your overtime. If you’ve got people regularly going over 40 hours a week, ask yourself if it would make more sense to bring on an additional part-time employee instead of paying time-and-a-half.
Cross-training your team can also help. If your staff is trained to handle multiple roles, you don’t have to rely on having extra people on every shift. That might mean training servers to work the host stand during slow hours or making sure your line cooks can cover multiple stations. The more flexible your team is, the easier it is to keep shifts lean without stretching anyone too thin.
And then there’s pricing. No one likes to raise prices, but if you’re seeing your labor costs creep up and you haven’t adjusted your menu in a while, it might be time. Even a small increase—like adding 50 cents to a burger or $1 to an entrée—can make a big difference over time.
Another thing to watch is your daily labor percentage. If you’re only looking at labor costs at the end of the month, you might not notice a problem until it’s too late. But if you check it daily, you can catch issues early and adjust before things get out of hand.
Cutting Labor Costs Without Hurting Service
One thing we always tell restaurant owners: The goal isn’t to slash labor costs so aggressively that your service suffers. You don’t want to understaff your kitchen to the point where food takes twice as long to come out, or cut your front-of-house staff so much that customers are waiting forever for refills.
The real goal is efficiency.
You want the right number of people working at the right times, making sure you’re not paying for unnecessary labor while still delivering great service. That’s the balance.
The Bottom Line: Keep Labor in Check Without Hurting Your Business
At the end of the day, labor is one of your biggest expenses—but it’s also what makes your restaurant run. The goal isn’t to cut costs at all costs, but to make sure you’re not overspending where you don’t need to.
If your labor costs are creeping above 35%, take a step back and ask:
- Am I scheduling too many people?
- Are we paying too much overtime?
- Is high turnover costing us more than we realize?
- Do our menu prices support our labor costs?
Make some adjustments, and you’ll start seeing the difference in your bottom line. And if you need help figuring out your numbers, reach out—we’re happy to help.
Simply head over to our Contact page to get started.
Until next time.
